Analysts: Farjad Siddiqui [email protected]Sajid Huq [email protected]For the full year 2011, we forecast 12% growth in PBL’s loans and advances, year-on-year (YoY), compared to a 32% 2010 loan growth, YoY. Increased government borrowing from banks and Bangladesh Bank’s contractionary monetary policy are the reasons behind the reduced loan growth rate. We estimate PBL deposits to grow at 28% YoY in 2011: higher than its 4 -year historical average growth rate. Deposit growth is a result of a slowing stock market, attractive rates on deposit products, and declining sales of national savings certificates. PBL is authorized to lend to the government, being a Primary Dealer (PD). To finance government’s borrowing needs, PBL’s investment in treasuries increased by 94% in 3Q11: represents 24% of deposits being allocated to treasury investments. PBL’s aggregate yield from treasuries (including capital gains) is 11.5- 12.0%. Since PBL’s weighted average deposit rate is 8.5-9.0%, it earns a spread of 3% from treasuries. PBL’s historical loan-to-deposit interest rate spread (IRS) is around 5.1% and even in 2011 IRS is anticipated to be over 5%. As is evident, the near-doubling treasury investments of PBL will imply significant spread erosion. Moreover, reduced 2011 export growth is expected to undermine PBL’s 2011 commission income. We anticipate a 2011 growth in commission income 21% YoY: significantly lower than the 2010 growth of 56% YoY. For 2011, we forecast PBL fully diluted earnings per share (EPS) to be BDT 5.15 and Net Asset Value (NAV) per share to be BDT 27.92. Worth noting that since 2010 EPS growth was high, 2011 EPS growth had to account for a higher base from which to grow — government borrowing and monetary tightening notwithstanding. Over the next 3 years, we anticipate higher EPS growth rates of 30%, 21%, and 20%, respectively. Gradual monetary policy easing, funds from International Financial Institutions (IFIs), reduced government borrowing, RMG volume growth and remittance recovery are expected to drive EPS growth in 2012-2014. . Rating: We estimate EPS of BDT 6.65 and BVPS of BDT 33.80 for the year ending in December 2012, and set a target price of BDT 58.0 per share with an OUTPERFORM rating. This implies a 29.0% total return on current share price of BDT 45.20 (as on January 2, 2012). Prime Bank Ltd DSE: PRIMEBANK Bloomberg: PB:BD Rating: Outperform Dec-2012 Fair Value Estimate: BDT 58 per share January 3, 2012 Company Summary Ticker PRIMEBANK Sector Bank Date of Incorporation 12-Feb-95 Date of Listing 27-Mar-00 Financial Year End December Number of Shares (mn) 779.8 Current Market Capitalization (BDT bn) 34.7 DSE Market Capitalization (BDT bn) 2,607.3 % of DSE Market Capitalization 1.3% 52 Week High (BDT) 99.4 52 Week Low (BDT) 34.1 YTD Return (%) -36.4% 52 Week Volume Traded (BDT mn) 71.3 Trailing EPS (BDT) 4.6 Trailing P/E ratio (x) 8.8 Revenue BDT MM 2010 2011E 2012E Net Interest Income 4,648.3 5,059.8 5,744.1 Investment Income 2,717.5 3,498.2 4,610.4 Commissions etc 2,718.2 3,289.0 3,946.8 Other income 708.5 1,033.1 919.8 Total revenue 10,792.5 12,880.1 15,221.2 Margin and efficiency (%) 2010 2011E 2012E Operating efficiency 34.9% 36.0% 36.0% Loan/Deposit 95.2% 83.3% 87.4% ROE 24.9% 20.5% 21.6% ROA 2.6% 2.3% 2.4% Net Interest Margin (%) 3.87% 3.75% 3.28% Other Key Indicators (%) 2010 2011E 2012E Loan-Dep Rate Spread % 5.25% 5.30% 5.30% NIM % 3.87% 3.75% 3.28% Cost-to-Income 34.93% 36.00% 36.00% NPL 1.23% 1.15% .0 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 30 35 40 45 50 55 60 65 70 75 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Oct-11 Nov-11 Dec-11 Turnover, BDT MM Price, BDT Turnover Price Sources: Company Annual Report, BRAC EPL Research Price performance of PBL in last 12 months Sources: Dhaka Stock Exchange
A careful look at the Income Statement, Balance Sheet and Statement of Cash Flows to performance a historical and current earnings and valuation analysis of a leading commercial bank in Bangladesh, Prime Bank Limited (PBL)
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For the full year 2011, we forecast 12% growth in PBL’s loans and advances, year-on-year (YoY), compared to a 32% 2010 loan growth, YoY. Increased government borrowing from banks and Bangladesh Bank’s contractionary monetary policy are the reasons behind the reduced loan growth rate. We estimate PBL deposits to grow at 28% YoY in 2011: higher than its 4-year historical average growth rate. Deposit growth is a result of a slowing stock market, attractive rates on deposit products, and declining sales of national savings certificates. PBL is authorized to lend to the government, being a Primary Dealer (PD). To finance government’s borrowing needs, PBL’s investment in treasuries increased by 94% in 3Q11: represents 24% of deposits being allocated to treasury investments. PBL’s aggregate yield from treasuries (including capital gains) is 11.5-12.0%. Since PBL’s weighted average deposit rate is 8.5-9.0%, it earns a spread of 3% from treasuries. PBL’s historical loan-to-deposit interest rate spread (IRS) is around 5.1% and even in 2011 IRS is anticipated to be over 5%. As is evident, the near-doubling treasury investments of PBL will imply significant spread erosion. Moreover, reduced 2011 export growth is expected to undermine PBL’s 2011 commission income. We anticipate a 2011 growth in commission income 21% YoY: significantly lower than the 2010 growth of 56% YoY. For 2011, we forecast PBL fully diluted earnings per share (EPS) to be BDT 5.15 and Net Asset Value (NAV) per share to be BDT 27.92. Worth noting that since 2010 EPS growth was high, 2011 EPS growth had to account for a higher base from which to grow — government borrowing and monetary tightening notwithstanding. Over the next 3 years, we anticipate higher EPS growth rates of 30%, 21%, and 20%, respectively. Gradual monetary policy easing, funds from International Financial Institutions (IFIs), reduced government borrowing, RMG volume growth and remittance recovery are expected to drive EPS growth in 2012-2014.
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Rating: We estimate EPS of BDT 6.65 and BVPS of BDT 33.80 for
the year ending in December 2012, and set a target price of BDT
58.0 per share with an OUTPERFORM rating. This implies a 29.0%
total return on current share price of BDT 45.20 (as on January 2,
2012).
Prime Bank Ltd DSE: PRIMEBANK Bloomberg: PB:BD
Rating: Outperform Dec-2012 Fair Value Estimate: BDT 58 per share
EPS GR -10.71% 134.35% 24.45% 10.26% 29.12% 21.11%
IMPORTANT DISCLOSURES
Analyst Certification: Each research analyst and research associate who authored this document and whose name appears herein certifies that the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers discussed therein that are within the coverage universe. Disclaimer: Estimates and projections herein are our own and are based on assumptions that we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any security. As it acts for public companies from time to time, BRAC-EPL may have a relationship with the above mentioned company(s). This report is intended for distribution in only those jurisdictions in which BRAC-EPL is registered and any distribution outside those jurisdictions is strictly prohibited. Compensation of Analysts: The compensation of research analysts is intended to reflect the value of the services they provide to the clients of BRAC-EPL. As with most other employees, the compensation of research analysts is impacted by the overall profitability of the firm, which may include revenues from corporate finance activities of the firm's Corporate Finance department. However, Research analysts' compensation is not directly related to specific corporate finance transaction. General Risk Factors: BRAC-EPL will conduct a comprehensive risk assessment for each company under coverage at the time of initiating research coverage and also revisit this assessment when subsequent update reports are published or material company events occur. Following are some general risks that can impact future operational and financial performance: (1) Industry fundamentals with respect to customer demand or product / service pricing could change expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes; (3) Unforeseen developments with respect to the management, financial condition or accounting policies alter the prospective valuation; or (4) Interest rates, currency or major segments of the economy could alter investor confidence and investment prospects.
BRAC EPL Stock Brokerage Capital Markets Group
Sajid Huq Amit Senior Research Analyst [email protected] 01755 541 254
Parvez Morshed Chowdhury Research Analyst [email protected] 01730 357 154