Habib Bank Limited (HBL) 1Q2020 conference call takeaways

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Habib Bank Limited (HBL) held a conference call for Analysts and Investors today. The management reviewed 1Q2020 results and gave guidance regarding the bank’s outlook. Key highlights of the conference call were:

-Operating expenses increased drastically in 1Q2020 due to costs related to closure of New York branch—approx. 24-25mn USD (PKR 4bn). The bank initially planned to incur this cost over the span of next two to three quarters. However, since all the closure-related costs have been incurred in 1Q2020, normalization of Admin expenses can be seen 2Q20 onwards.

-Fee income will remain under considerable pressure due to closure of some of the branches. Currently, 80% of the branches are operational. Moreover, low number of investment banking transactions will further drag fee income.

-Share of Profit from associates declined 71%Y/Y to PkR255mn. The main reason being underperformance of investments made in the stock funds via associates. The strategic investment that HBL has made performed well during 1Q2020.

-State Bank of Pakistan (SBP) has allowed banks, which have approved the dividend for March quarter 2020, on or before April 22nd, 2020 to implement dividend payout decision, however these banks will not declare dividend for the September quarter 2020 instead. For every PkR1.25/sh dividend payout suspended, the Capital Adequacy Ratio (CAR) of HBL would increase by 10-12bps.

-HBL incurred a loss of PKR 2.7bn on its open position due to sharp depreciation of PKR against USD. The bank will trim this position as early as possible. As per last guidance call, the bank has trimmed 30% of its open position.

-The bank hasn’t received too many requests for waiver on markup payment. Regarding early repricing of advances, the bank will provide relief to Agri, SME and consumer sectors in specific circumstances to support economic activity. Growth in traditional advances will remain subdued, however, loan related to schemes initiated by the central bank to provide economic activity stimulus are expected to grow at a faster pace.

-HBL is currently trading at one-year forward P/Bv of 0.63x. We have an “Outperform” rating on the stock with TP of PkR147/sh providing an upside of 45%.

KASB Research

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