MORNING BRIEF

Banks

January 02, 2008

Arif Habib Bank Limited OFS: Subscribe Analyst

Syed Suleman Akhtar, CFA
Arif Habib Securities Limited (AHSL) is selling 119.7mn ordinary shares, including greenshoe option of Suleman.akhtar@fs.com.pk
60mn shares in case of oversubscription, of Arif Habib Bank Limited (AHBL) through a public offer. At +92 (21) 561 2290-94 ext. 339
offer price of Rs21, AHBL shares are available at a P/BV of 1.5x vis-à-vis sector and peer group P/BV of
2.9x and 2.0x, respectively. Given the limited size of the offering, attractive P/BV valuation vs. industry
and peer group average, strong group backing and brand equity and good performance at the KSE Data Index % Ch
provisional counter (January 01, 2008 closing Price: Rs32.90), we expect the scrip to initially trade at a KSE-100 13,666.43 -2.91%
sizable premium to the offer price once the company is formally listed on the ready board. Hence, KSE-30 16,165.49 -3.30%
successful applicants could reap handsome capital gain on immediate disposal of AHBL shares. We KSE All 9,666.65 -2.91%
ƌĞĐŽŵŵĞŶĚ ͚^ƵďƐĐƌŝďĞ͛ from a short-term trading perspective. However, for medium to long-term
investors, the bank, being still in infancy, is a question mark. Though AHBL would comfortably meet Stock Change Trend
SBP͛Ɛ minimum paid-up capital requirements, the deposits will have to grow by multifolds to allow the Plus 108
bank to adequately leverage its equity and earn a decent ROE on a sustainable basis. In our opinion, Minus 236
the long-term fortunes of the bank would essentially hinge on its ability to quickly raise right mix of Equal 24
deposits going forward.
Market Cap (Rs bn) 4,205
The issue Market Cap ($ mn) 69,382
AHSL is offering to sell 119.7mn shares, representing 27% of paid-up capital, of AHBL, through a public Turnover (mn shares) 322
offer. The shares have been offered at Rs21, representing 11 rupees premium to the face value. The OFS Turnover (Rs bn) 27
includes an offer of 59.7 million shares together with a green shoe option of 60 million shares in case of
oversubscription. The offer amount inclusive of greenshoe option, comes to Rs2,514mn. Application are
to made for a minimum of 500 shares and then in multiples of 500 shares.The purpose of the OFS is to
diversify the investor-base and meet SBP requirements of public listing within 2 years of start of
commercial operations.
About the bank
AHBL is a majority-owned subsidiary of AHSL, a fast growing conglomerate primarily involved in financial
services business with growing interest in cement, fertilizer and other industries. The bank started its
operations in August 2006 and now has a network of 11 branches. Under an aggressive branch expansion
plan, the banks intends to increase its branch network to 100 branches by 2012. As per the last quarterly
ĂĐĐŽƵŶƚƐ͕,>͛ƐĞƋƵŝƚLJ͕ĚĞƉŽƐŝƚƐĂŶĚĂƐƐĞƚƐƐƚŽŽĚĂƚ6,181mn, 7,363mn and Rs13,788mn, respectively.
Going forward, the bank can take advantage of group synergies to develop its products and services and
cross-sell to customers of associated companies
Attractive from a trading perspective
3.0
At offer price of Rs21, AHBL shares are available
at a P/BV of 1.5x vis-à-vis sector and peer group 2.5
P/BV of 2.9x and 2.0x, respectively. Given the
2.0
limited size of the offering, especially in terms of
amount, attractive P/BV valuation vs. industry
1.5
and peer group average, strong group backing
FSL RESEARCH - MORNING BRIEF

and brand equity and good performance at the 1.0

provisional counter (January 01, 2008 closing
Price: Rs32.90), we expect the scrip to initially 0.5 Foundation Securities (Private) Limited
trade at a sizable premium to the offer price Ground Floor, Bahria Complex II
0.0 M T Khan Road Karachi
once the company is formally listed on the ready
board. Hence, successful applicants could reap Saudi Atlas KASB My CCBL JS AHBL Research
Tel: +9221 5612290
handsome capital gain on immediate disposal of Pak bank Bank Fax: +9221 5612262
AHBL shares. P/B Peer group average P/B research@fs.com.pk

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Disclaimer: This report has been prepared by FSL. The information and opinions contained herein have been compiled or arrived at based upon information obtained from
Tel: +9221 5612365
sources believed to be reliable and in good faith. Such information has not been independently verified and no guaranty, representation or warranty, express or implied is Fax: +9221 5612262
made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. atif@fs.com.pk
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Deposit mobilzation would be key determinant of long-term profitability
As AHBL has started off with a huge capital-base, it ǁŽŶ͛ƚĨĂĐĞĂŶLJƉƌŽďůĞŵŝŶŵĞĞƚŝŶŐ^W͛ƐŵŝŶŝŵƵŵ
paid-up capital requirements. However, the deposits will have to grow by multifolds to allow AHBL to
adequately leverage its equity and earn a decent ROE on a sustainable basis. In our opinion, the long-
term fortunes of the bank would essentially hinge on its ability to quickly raise right mix of deposits going
forward.

Foundation Securities (Pvt) Limited 2