Karachi, In a recent financial analysis, JS Global has reiterated its 'Buy' recommendation on Habib Metropolitan Bank (HMB), anticipating a robust return on investment fueled by the bank’s strategic focus on optimizing deposit costs and enhancing asset yields. The financial institution is also praised for its attractive valuation, offering approximately 30% capital upside with a target price of Rs70 and a 20% dividend yield.
According to JS Global, HMB's commitment to cost management is evident through its notable five-year compound annual growth rate of over 20% in zero cost deposits. The bank’s strategy to rapidly increase the mix of Islamic branches—now approaching 40% of its total network—exemplifies this focus. Unlike conventional banking, Islamic branches do not attract a Minimum Deposit Rate on savings deposits, contributing to HMB's status as one of the most efficient mid-sized banks in terms of cost-to-income ratio.
The bank is well-positioned to adjust its asset yields upward even amidst anticipated monetary easing. Approximately 35% of HMB's lower-yielding fixed Pakistan Investment Bonds (PIBs) are due to mature in the calendar year 2024, which will allow the bank to partially offset the impact of easing on net interest income.
JS Global's forecast, which includes an aggressive prediction for monetary easing, still portrays HMB as a lucrative investment with a recurring return on equity of 17% at a price-to-book ratio of 0.5, compared to the sector's 0.65. This is further enhanced by a 20% dividend yield based on a conservative payout ratio of 45%.
Historical patterns suggest that HMB may increase its payout ratio above 55% when capital buffers are sufficient, signaling potential for dividend payout growth beyond the analysts' current forecasts.
The analysis flags potential risks associated with HMB's reliance on trade finance fees and loan exposure to the textile sector. However, JS Global maintains a bullish outlook on the bank's stock, reaffirming its 'Buy' stance given the favorable balance between risks and returns.