BMACapitalManagementLtd.801Unitower,I.I.

ChundrigarRoad,Karachi,74000,PakistanForfurtherqueries,pleasecontact:
bmaresearch@bmacapital.comorcallUAN:111262111

This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the information contained
herein is from sources believed reliable, we do not represent that it is accurate or complete and should not be relied upon as such. Opinions
expressedmayberevisedatanytime.Thismemorandumisforinformationonlyandisnotanoffertobuyorsell,orsolicitationofanyoffertobuy
orsellthesecuritiesmentioned.

1
WehaveinitiatedouractivecoverageonHabibBankLimited(HBL)withDec14TPof
PKR145/share.SincetheonsetofFY14alongwithhigherinflationaryexpectationand
reversalinmonetarypolicystancebroughtinvestorsattentiontowardslaidbackHBL
share thus the scrip has provided a notable return of 51% in FY14TD, thus overly
pricinginthevaluationdrivers
HBL remained a leading bank in Pakistan banking space with ubiquitous branch
network of 1,497 domestic branches and 43 branches in international jurisdiction.
This robust branch network enabled banks deposits to grow at a significant level of
30.4%in2012whencomparedwiththeindustrygrowthof13.4%in2012.Lookingat
its prevailing branch network, we believe, the bank will retain its ascendency in
banking deposits however it will not replicate mammoth growth witnessed in
outgoingyears
As of Sep 2013, the bank enjoys CASA of 76% from 68% registered in Dec 2012.
Notable improvement in CASA is primarily due to reduction in the share of fixed
deposits to 24% in Sep13 from 30% in Dec13 along with rising share of savings and
currentaccount.However,peggingofMDRofsavingsaccounttoreporatewilllikely
tokeepcostoffundinghighthusoffsetingtheimpactofdecreaseinfixeddeposits
Lookingatprevailingstructuralissues,webelievethatHBLwilltiltadditionaldeposits
towards government securities however in the long run, the bank is anticipating to
seeahandsomegrowthinadvancesespeciallyfromtextilesector
Valuationtriggersoverlypricedin!
We have initiated our active coverage on Habib Bank Limited (HBL) with Dec14 TP of
PKR145/share. Since the onset of FY14 along with higher inflationary expectation and
reversal in monetary policy stance brought investors attention towards laidback HBL
sharethusthescriphasprovidedanotablereturnof51%inFY14TD.Webelievethatthe
recentrunupinthestockpriceisfairlyreflectingallpossiblevaluetriggersthatmayallure
investorattentiongoingforward.Consequently,atourtargetprice,thescripistradingat
apremiumof20%hencewerecommendaSellcallonthescrip.Atyesterdaysclose,the
scripistradingat2014EPERandPBVof10.0xand1.8xrespectively.
Leveragingubiquitousbranchnetwork
HBLremainedaleadingbankinPakistanBankingspacewithubiquitousbranchnetworkof
1,540branchesindomesticandinternationaljurisdiction.Robustbranchnetworkenabled
banks deposit to grow at a significant level of 30.4% in 2012 when compared with the
industrygrowthof13.4%.Resultantly,banksmarketshareinindustrydepositreachedto
a record high of 17.1% in 2012. Due to aggressive drive for deposit accretion by other
banks,HBLisnotlikelytosustainthecurrentgrowthrateandweanticipateittogrowby
8.8% in 2013E, curtailing its market share to 16.7% in 2013E. Despite decline in market
share, we believe, the bank will retain its ascendency in banking deposits and branch
network because the management plans to increase branch network by around 2030
branches annually and so we have accounted 5yr (20132018) CAGR of 14% in deposits.
HabibBankLimited
Valuationtriggersoverlypricedin!
Wednesday January15,2013
SELL
TargetPriceDec14:PKR145
CurrentPrice:PKR180
Bloomberg HBL.PA
Reuters HBL.KA
MCAP(USDmn) 2,294
12MADT(USDmn.) 0.4
SharesOutstanding 1,334
Valuations
2012A 2013F 2014F
EPS 16.2 15.8 19.6
DPS 7.5 9.0 10.0
HBLvs.KSE100RelativeChart
2014FDividendYield(%) 6%
CapitalGain(%) 20%
TotalGain(%) 14%
80
100
120
140
160
180
J
a
n

1
3
F
e
b

1
3
M
a
r

1
3
A
p
r

1
3
M
a
y

1
3
J
u
n

1
3
J
u
l

1
3
A
u
g

1
3
S
e
p

1
3
O
c
t

1
3
N
o
v

1
3
D
e
c

1
3
J
a
n

1
4
KSE100Index HBL

HBL Profile: HBL, together with its subsidiaries,

engages in commercial banking, modaraba
management, and asset management related
services in Pakistan. It also has operations in Asia
Pacific,Europe,NorthAmerica,andtheMiddleEast.
As of December 31, 2012, the company operated
1,497 branches, including 33 Islamic banking
branches in Pakistan, as well as 43 branches outside
Pakistan. HBL was founded in 1947 and is
headquarteredinKarachi,Pakistan.
IqbalIsmailDinani
Iqbal.dinani@bmacapital.com
+92111262111Ext:2059
BMACapitalManagementLtd.801Unitower,I.I.ChundrigarRoad,Karachi,74000,PakistanForfurtherqueries,pleasecontact:
bmaresearch@bmacapital.comorcallUAN:111262111

This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the information contained
herein is from sources believed reliable, we do not represent that it is accurate or complete and should not be relied upon as such. Opinions
expressedmayberevisedatanytime.Thismemorandumisforinformationonlyandisnotanoffertobuyorsell,orsolicitationofanyoffertobuy
orsellthesecuritiesmentioned.

2
PeercomparisonofbranchnetworkandmarketshareinDeposits

Source:BMAResearch
Depositcomposition;skewedtowardssavings
The bank is enjoying one of the highest CASA ratio of 76% registered in Sep 2013 as
compared to 68% in 2012. This robust increase in CASA is primarily attributed to rapid
declineintheshareoffixeddepositsto24%inSep2013from31%in2012.Moreover,the
bank has also witnessed a sizable growth in savings accounts as its share significantly
increasedto47%inSep2013from43%in2013.However,thenotionofsavingsaccount
as a low cost deposit is off the table, since SBP has pegged minimum deposit rate on
savings account to repo rate thus in every monetary tightening phase, cost of savings
account is likely to increase proportionally. Refer below charts explaining rising
contributionofcostofsavingsaccountinoverallfundingcost.Hadthisnotbeenpegged,
thebanksearningsduring4Q2013Ewouldhavebeenhigherby6%.

200
400
600
800
1,000
1,200
1,400
1,600
1,800
MCB UBL HBL ABL NBP BAFL
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
BranchesLHS MarketShareRHS

Risingshareofsavingaccount
akjsdf;laj

andsoincreasingcostofsavings
depositsinoverallfundingcost

Source:CompanyReports,BMAResearch
0%
20%
40%
60%
80%
100%
120%
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
E
2
0
1
4
E
Savings OtherDeposits
Repurchaseagreements STborrowings
LTborrowings

0%
20%
40%
60%
80%
100%
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
E
2
0
1
4
E
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Fixed Savings Current CASARHS

CASAcomparisonofpeerbanks
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
HBL NBP MCB UBL ABL BAFL
CAtoDeposits SavingstoDeposits
CASA

2
Source:BMAResearch
BMACapitalManagementLtd.801Unitower,I.I.ChundrigarRoad,Karachi,74000,PakistanForfurtherqueries,pleasecontact:
bmaresearch@bmacapital.comorcallUAN:111262111

This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the information contained
herein is from sources believed reliable, we do not represent that it is accurate or complete and should not be relied upon as such. Opinions
expressedmayberevisedatanytime.Thismemorandumisforinformationonlyandisnotanoffertobuyorsell,orsolicitationofanyoffertobuy
orsellthesecuritiesmentioned.

3
InvestmentPhilosophy;IDRtoovershadowADR
Post2008economicturmoilleddeteriorationinbanksassetqualityindicatorsparticularly
infection ratio as it peaked to 11.1% in 2011, however prudent stance on lending side
curtailedinfectionratioto10.1%in2012.Inordertofurtherstrengthenassetquality,the
banksexposureingovt.securitiesincreasedto63%in2012from41%in2011.According
toourdiscussionwiththemanagement,bankwillremainvigilantinissuingnewloansto
high credit worthy corporate and individuals and relatively heavy on government
securities side. Thus we believe that asset quality indicators will be welcoming going
forward and it may allure investors by propping up a story of possible reversals in
provisionsbookedearlier.
Furthermore,thebanksexposureinequityinvestmentremainmutedtothelowestlevel
of 0.4% of total deposits when compared with other top tier banks thus we believe that
thebankhasalreadymissedearningopportunityofpostelectionbullruninthemarket.
ComparisonofEquityinvestmentandgovt.securitiesoftoptierbanks

Source:BMAResearch
Branchlessbanking;betterlatethannever!
In ordertocapture rising demand of branchless banking,the bank has recently launched
HBL Express and HBL AtWork in order to tap growing market however the bank is quite
late when compared with other top tier banks. However, the management is confident
thatthebankwillefficientlyincreaseitsmarketsharebyleveragingitsnationwidebranch
network.Webelieve,theseinitiativeswilljackupbanksfeeandcommissionincometo3
yr CAGR of 16% with improving contribution to noncore income of 53% in 2015E from
40% in Sep 2013. Moreover, the banks cash management division (collection side) has
recently crossed transaction volume of PKR1.0trn,highest in the industry thereby adding
value to banks product portfolio. Furthermore, the management also believes that the
bankislikelytowinsomeprivatizationmandatesthusunderpinningnonfundedincome.
Valuation
We have used DDM and RIVM method for equity valuation of the bank and average of
thesematricesderiveourfairvalueforthescrip.Basedonthesemethodologies,Dec14TP
isatPKR145/share,whichistradingatapremiumof20%toitstargetprice.Moreover,the
scripalsooffersadividendyieldof6.0%.
0%
10%
20%
30%
40%
50%
60%
70%
80%
HBL NBP MCB UBL ABL BAFL
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Govt.Securities%ofDeposits Equity%ofDepositsRHS