– Allied Bank Limited (ABL) reported CY20 result today posting Profit after Tax (PAT) of PkR18.0bn (EPS: PkR15.8, up 28%Y/Y. The result was above market consensus and KASB’s estimate of PkR13.7/sh and PkR13.9/sh by 15% and 14%, respectively.
– The deviation from our expectation is because of reversal in provisioning worth PkR1.6bn in 4QCY20.
– Net Interest Income increased 17% Y/Y as a result of decline in interest expense by 23%Y/Y amid reduction in policy rate by 625bps.
– Non-interest income increased to 15%Y/Y largely driven by i) gain on sale of securities that jumped by 117%Y/Y and ii) fee income increasing by 7%Y/Y.
– Provisioning expense came in at PkR843mn against PkR546mn in corresponding period last year.
– Operating expenses increased 11%Y/Y to PkR30.6bn and the C/I ratio improved to 50% in CY20 as compared to 53% in CY19.
– During 4QCY20, the company posted a profit of PkR5.6bn (EPS: PkR4.9) up by 19%Y/Y and 41%Q/Q. This is on account of reversal in provisioning during the period under review.
– Moreover, non-markup income during 4QCY20 increased by 11%Y/Y because of due to higher dividend income and fee income.
– On the other hand, operating expense increased 13%Y/Y and 6%Q/Q to PkR8.1bn. The cost income ratio deteriorated to 56% in 4Q2020 as against 46% in the corresponding period last year.
– We have an Outperform rating on ABL with a target price of PkR111/sh. The stock offers a dividend yield of 9.5% and is currently trading at a one year forward P/Bv of 0.81x.