IN FOCUS Faysal Bank Limited (FABL): Cheap valuations unjustified on improving fundamentals We initiate coverage on Faysal Bank Limited (FABL) with a TP of PKR23/sh, offering an upside of 24% on last closing. Our conviction on the stock stems from i) a healthy 3 year CAGR of 11% in Net Interest Income between CY14-CY17, ii) CY14-CY17 CAGR of ~17% in fee and commission income as the bank launches its own non-banking services “MOBIT”, iii) muted growth in administrative expense as the bank has already booked one-off higher admin expense in 2QCY14 on account of VSS and iv) an undemanding valuations set. Consequently, we expect the bank to post strong earnings CAGR of 24% between CY14-CY17, compared with 15% earnings CAGR between CY10-CY13. With a strong earnings growth profile, we expect FABL to depict an average ROE of 18% during the period CY15F-CY20F. Based on steady earnings growth and adequate CAR, we expect the bank will be in a comfortable position to initiate dividend payout in the near term. In this regard, we have assumed the bank to maintain a long-term payout ratio of 45% (mid tier banks’ payout ratio ~50%). At current levels, the scrip trades at a CY15 PBV and PER of 0.8x and 5.2x, respectively - BUY! Report by: Jehanzaib Zafar Iqbal Dinani BMA Capital Management Ltd. (9221) 111 262 111 This report produced by BMA Capital Management Ltd. contains information from sources believed reliable; we do not guarantee that the matter is accurate or complete. Our Research Analysts compile this memorandum based on opinions and judgments, which may vary and be revised at any time without notice. This report is for information only and is not an offer to buy or sell, or solicitation of any offer to buy or sell the securities mentioned. It is published for the use of our clients may not be reproduced, distributed or published by any person for any purpose whatsoever. Action will be taken for unauthorized reproduction, distribution or publication. The views expressed in this document are those of the BMA Research Department and do not necessarily reflect those of BMA or its directors.
Posted on: Thu, 15 Jan 2015 07:36:14 +0000
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