In Focus: Habib Bank Limited (21052008)

Target price: Rs280 “Buy and Hold”
On the basis of PE and PBV valuations we have estimated the target price of Rs280 for HBL taking in consideration per share earnings of Rs19.5 for FY08. The scrip is currently trading at discount multiples of 13.6x and counts an upside potential of 12 percent in medium term because of better interest earnings and coming GDR prospects which will incur more liquidity and apprehend the capital adequacy ratio of the Bank. Recently Bank announced its 1Q08 results which were better as predicted showing the PAT of Rs3.88 billion and EPS of Rs5.62 up by 20 percent in bottom line earnings.
Low cost of deposits are the competitive advantage of the banks and with the large branch network and high customer loyalty, the bank enjoys a significant position among its peers, with more then 1400 branches country wide the bank currently holds the deposit base of Rs516.49 billion which is expected to increase by 8.4 percent at the year end FY08.
On the other side, bank’s advances are well diversified and less risk weighted currently stands at the level of Rs367.06 billion in 1Q08, which is expected to increase by 10 percent in FY08 YoY, which will intend the Bank to maintain the ADR of 70 percent in FY08.
Bank is currently working with the spread of 5.7 percent because of high interest income from advances and relatively low cost from deposits, the spread is expected to shrink to 5.5 percent because of conservative the monetary outlook and expectations of further tightening of monetary policy.
Large capital base of Rs7.59billion not only provides cushion against risk adequacy but also gives bank a room to strengthen their credit ratings and enhance the share of high risk weighted assets that tends to give higher returns in future.
Investments of the Bank are on the increasing trend among which the interest bearing contribute 93 percent. In 1Q08 the banks total investments stood at Rs177.408 billion which are expected to increase by 45 percent at the year end FY08. With the high and well diversified investment portfolio, the bank is enjoying an average yield of 7.1 percent on its interest bearing investments.
HBL is aggressively focusing on its consumer financing schemes as it has launched its new credit card in Nov last year which has already penetrated quite well in highly competitive credit card market and expected to reap good business in future with the help of its large branch network and brand awareness.