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Team AKD Research
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HBL_Attractive valuations call for accumulation

HBL's 1HCY17 earnings were down 3%YoY on spread compression, credit quality infection an higher expenses (tax and otherwise). Pick up in advances was the key highlight where materialization of CPEC investments led 11.2%YoY growth in loans. Corporate book continues to form the major chunk, however HBL is also keenly building on its consumer portfolio which while accretive to margins can lead to higher domestic NPLs. This together with continued pressure on NIMs at least until CY18F when interest rates are expected to reverse, has led us to revise down our CY17F/CY18F earnings estimates by 5%/7%. Consequently our TP has also been brought down to PkR253.1/sh. Undergoing steep correction, HBL's stock price is currently hovering around levels last seen in Aug'16. While market weakness has had its role to play, rumors pertaining to irregularities in the bank's NYC branch further dented sentiments. While clarity in this regard is yet to come, we base our case on strong fundamentals (4yr forward earnings CAGR of 12%) coupled with discounted valuations (CY18F PB/PER at 1.4x/8.9x), where our TP of PkR253.1/sh advocates an Accumulate stance.   

Underlying
Habib Bank

Habib Bank Limited is engaged in commercial banking and asset management related services in Pakistan and overseas. The Bank's segments include Branch Banking, which consists of loans, deposits and other banking services to agriculture, consumer, small and medium-sized enterprise (SME), and commercial customers; Corporate Banking, which consists of lending for project finance, trade finance and working capital to corporate customers and it also provides investment banking services, including services provided in connection with mergers and acquisitions; Treasury, which consists of trading, fixed income, equity, derivatives and foreign exchange businesses, and it also includes credit, lending and funding activities with professional market counterparties; International Banking, which is engaged in monitoring and reporting purposes and consists of its operations outside of Pakistan, and Head Office/Others. It operates in Pakistan; Europe, Middle East and America, and Asia and Africa.

Provider
AKD Securities Limited
AKD Securities Limited

AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.

AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.

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Team AKD Research

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