md. monirul islam, aca - brac · pdf filemd. monirul islam, aca (bank analyst) ... bank asia...

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Md. Monirul Islam, ACA (Bank Analyst) [email protected] Md. Ashfaque Alam (Associate) [email protected] BANK ASIA LIMITED BANK ASIA LIMITED DSE; CSE Ticker: BANKASIA; Bloomberg Ticker: BKASIA:BD DSE; CSE Ticker: BANKASIA; Bloomberg Ticker: BKASIA:BD 02 August 2010 02 August 2010 Rating: OUTPERFORM Rating: OUTPERFORM Bank Asia Limited is one of the third generation private commercial banks, incorporated in Bangladesh in 1999. In 2001 the bank acquired the business of Bank of Nova Scotia (incorporated in Canada), Dhaka. The bank also acquired the Bangladesh operation of Muslim Commer- cial bank Limited (MCBL), a bank incorporated in Pakistan, having two branches in Bangladesh in 2002. Currently it has 44 branches, 30 own ATM booths and 33 shared ATM booths all over Bangladesh. The bank also operates Islamic banking and off–shore baking units. Re- cently the bank has started capital market operation through its bro- kerage house. Currently the bank has three brokerage branches. Bank Asia has managed impressive growth in loan portfolio, total as- sets and fee income while maintaining capital adequacy, asset quality, sound management and profitability. Bank Asia has diversified its business over the years and offers different types of commercial bank- ing, retail, treasury and capital market services. The bank has signifi- cant non-funded income (33% of total operating income in 2009). Bank Asia has achieved six years Cumulative Annual Growth Rate (CAGR) of 35.30% in loans & advances and 31.90% deposit growth. The bank achieved average ROE and ROA of 28.23% and 1.86% re- spectively in the last six years, which is quite impressive in the indus- try. We expect the bank to continue these levels in future years. We initiate coverage of Bank Asia Limited with an OUTPERM- FORM rating and a 12-month fair value of BDT 800. Our rating takes into account the impressive growth and profitability the bank has achieved over the years. We also considered the asset quality and the management practices of the bank, addition of new lines of business and investment mix. The Fair Price implies a forward P/E ratio of 12.5x with expected 2010 EPS of BDT 59.70. Table 1: 10 largest banks by M cap, BDT MM Graph 1: Close price and volume traded over a year Growth 2009 2010 E 2011 E Growth in Assets 28.65% 23.24% 26.06% Growth in Loans and advances 25.75% 28.00% 25.00% Growth in Deposits 29.22% 25.00% 28.00% Earnings growth 93.27% 35.06% 27.53% Per Share 2009 2010 E 2011 E EPS 44.2 59.7 76.1 BVPS 165.0 224.5 300.8 Cash flow per share 125.2 35.9 57.7 Cash dividend per share 0 0 0 Company Summary 52-week Price Range (BDT) 291 - 700 Current Price (as on 01 August 2010) 621 12-month Fair Price 800 Cash Dividend 0.00 Total Return 29% Number of Shares MM 30.0 Market Cap BDT MM 18,647.0 Float (% of shares) 74.82% Operating Income BDT MM 2009 2010 E 2011 E Net Interest Income 1,749.5 2,199.8 2,393.3 Investment Income 1,013.0 1,362.5 1,800.2 Commission, fees, brokerage 1,177.5 1,766.3 2,561.1 Other operating income 189.5 265.3 358.2 Total 4,129.5 5,593.9 7,112.8 Profitability 2009 2010 E 2011 E Interest Income/Total Income (%) 72.41% 69.73% 66.79% Non Interest Income/Total Income (%) 27.59% 30.27% 33.21% Reported Net Profit/Total Income (%) 15.38% 15.99% 16.09% Operating ratio 20.28% 19.62% 16.84% Net Interest Margin (%) 4.12% 3.92% 3.68% 0 50000 100000 150000 200000 250000 300000 350000 400000 450000 0 100 200 300 400 500 600 700 800 Volume,MM Price, BDT Volume Close Name Mcap, MM Total Assets Loans and advances Islami Bank 46,109.6 278,302.8 214,615.8 AB Bank 45,627.7 84,053.6 70,879.9 Pubali Bank 43,375.9 107,579.6 74,203.3 National Bank 38,164.9 91,980.6 65,129.3 Prime Bank 36,160.1 124,984.7 89,946.0 EXIM Bank 30,745.2 86,203.9 68,609.9 Dutch-Bangla Bank 30,700.0 81,480.5 48,411.0 Southeast Bank 28,485.8 112,676.9 77,497.6 Bank Asia 18,647.0 68,663.2 50,267.9 Efiiciency & return 2009 2010 E 2011 E Operating efficiency 37% 36% 36% Loan/Deposit 92% 94% 92% ROE 32% 31% 29% ROA 2.2% 2.3% 2.4% Source: BRAC EPL Research and DSE web as on 2 August 2010

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Page 1: Md. Monirul Islam, ACA - BRAC · PDF fileMd. Monirul Islam, ACA (Bank Analyst) ... Bank Asia Limited is one of the third generation private commercial ... Dutch-Bangla Bank 30,700.0

Md. Monirul Islam, ACA (Bank Analyst) [email protected]

Md. Ashfaque Alam (Associate) [email protected]

BANK ASIA LIMITEDBANK ASIA LIMITED DSE; CSE Ticker: BANKASIA; Bloomberg Ticker: BKASIA:BDDSE; CSE Ticker: BANKASIA; Bloomberg Ticker: BKASIA:BD 02 August 201002 August 2010

Rating: OUTPERFORMRating: OUTPERFORM

Bank Asia Limited is one of the third generation private commercial banks, incorporated in Bangladesh in 1999. In 2001 the bank acquired the business of Bank of Nova Scotia (incorporated in Canada), Dhaka. The bank also acquired the Bangladesh operation of Muslim Commer-cial bank Limited (MCBL), a bank incorporated in Pakistan, having two branches in Bangladesh in 2002. Currently it has 44 branches, 30 own ATM booths and 33 shared ATM booths all over Bangladesh. The bank also operates Islamic banking and off–shore baking units. Re-cently the bank has started capital market operation through its bro-kerage house. Currently the bank has three brokerage branches.

Bank Asia has managed impressive growth in loan portfolio, total as-sets and fee income while maintaining capital adequacy, asset quality, sound management and profitability. Bank Asia has diversified its business over the years and offers different types of commercial bank-ing, retail, treasury and capital market services. The bank has signifi-cant non-funded income (33% of total operating income in 2009). Bank Asia has achieved six years Cumulative Annual Growth Rate (CAGR) of 35.30% in loans & advances and 31.90% deposit growth. The bank achieved average ROE and ROA of 28.23% and 1.86% re-spectively in the last six years, which is quite impressive in the indus-try. We expect the bank to continue these levels in future years. We initiate coverage of Bank Asia Limited with an OUTPERM-FORM rating and a 12-month fair value of BDT 800. Our rating takes into account the impressive growth and profitability the bank has achieved over the years. We also considered the asset quality and the management practices of the bank, addition of new lines of business and investment mix. The Fair Price implies a forward P/E ratio of 12.5x with expected 2010 EPS of BDT 59.70.

Table 1: 10 largest banks by M cap, BDT MM

Graph 1: Close price and volume traded over a year

Growth 2009 2010 E 2011 E

Growth in Assets 28.65% 23.24% 26.06%

Growth in Loans and advances 25.75% 28.00% 25.00%

Growth in Deposits 29.22% 25.00% 28.00%

Earnings growth 93.27% 35.06% 27.53%

Per Share 2009 2010 E 2011 E

EPS 44.2 59.7 76.1

BVPS 165.0 224.5 300.8

Cash flow per share 125.2 35.9 57.7

Cash dividend per share 0 0 0

Company Summary

52-week Price Range (BDT) 291 - 700

Current Price (as on 01 August 2010) 621

12-month Fair Price 800

Cash Dividend 0.00

Total Return 29%

Number of Shares MM 30.0

Market Cap BDT MM 18,647.0

Float (% of shares) 74.82%

Operating Income BDT MM 2009 2010 E 2011 E

Net Interest Income 1,749.5 2,199.8 2,393.3

Investment Income 1,013.0 1,362.5 1,800.2

Commission, fees, brokerage 1,177.5 1,766.3 2,561.1

Other operating income 189.5 265.3 358.2

Total 4,129.5 5,593.9 7,112.8

Profitability 2009 2010 E 2011 E

Interest Income/Total Income (%) 72.41% 69.73% 66.79%

Non Interest Income/Total Income (%) 27.59% 30.27% 33.21%

Reported Net Profit/Total Income (%) 15.38% 15.99% 16.09%

Operating ratio 20.28% 19.62% 16.84%

Net Interest Margin (%) 4.12% 3.92% 3.68%

0

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Volume Close

Name Mcap, MM Total Assets Loans and advances

Islami Bank 46,109.6 278,302.8 214,615.8

AB Bank 45,627.7 84,053.6 70,879.9

Pubali Bank 43,375.9 107,579.6 74,203.3

National Bank 38,164.9 91,980.6 65,129.3

Prime Bank 36,160.1 124,984.7 89,946.0

EXIM Bank 30,745.2 86,203.9 68,609.9

Dutch-Bangla Bank 30,700.0 81,480.5 48,411.0

Southeast Bank 28,485.8 112,676.9 77,497.6

Bank Asia 18,647.0 68,663.2 50,267.9

Efiiciency & return 2009 2010 E 2011 E

Operating efficiency 37% 36% 36%

Loan/Deposit 92% 94% 92%

ROE 32% 31% 29%

ROA 2.2% 2.3% 2.4%

Source: BRAC EPL Research and DSE web as on 2 August 2010

Page 2: Md. Monirul Islam, ACA - BRAC · PDF fileMd. Monirul Islam, ACA (Bank Analyst) ... Bank Asia Limited is one of the third generation private commercial ... Dutch-Bangla Bank 30,700.0

BANK ASIA LIMITED (DSE, CSE: BANKASIA; Bloomberg Ticker: BKASIA:BD)

Source: Company Annual Report

Source: Company Annual Report

Source: Company Annual Report

Balance sheet growth

In the last six years, assets, loans and advances, and deposits grew on average by 32.7%, 35.30% and 31.9% respective-ly. The bank’s total assets stood at BDT 78.3 billion at period ended 31 March 2010. In the first three months of 2010, assets increased by BDT 9.6 billion or 14.00%. Loans and advances increased by BDT 8.13 billion and stood at BDT 58.40 billion at period ended on 31 March 2010. Three months’ growth rate was 16.18%. Total deposit grew by BDT 7.7 billion at the period ended 31 March 2010 with a three months growth rate of 14.00%. We are expecting a 28% growth in loans and advances in 2010.

Loan portfolio distribution

Bank Asia has a well diversified loan portfolio. Currently 36% of loan portfolio is exposed to industrial sector. Retail,

SME and consumer altogether constitute about 57% of the loan . Loan portfolio of the bank is well diversified to more

than 14 various industrial sectors.

Outstanding deposits growth: though interest rates decline

The bank achieved a six-year CAGR of 31.9% in deposits.

Deposit growth was 29.22% in 2009. Customer deposits

consist over 90% of total deposits. Scheme deposits of

the bank showed a growth of 23.% in 2009.We expect

25% growth in next three years. Currently about 1/5 of

total deposits is low cost (CASA).

Investment income: contributing to the bottom line

The bank’s investment consist 85% in government secu-

rities and 15% in others including investment in capital

markets. investment income is increasing over the years.

Income from investment for the first quarter of 2010 was

BDT 216.4 million which was 31% higher from the same

quarter of last year. Considering the capital market sce-

nario, we are expecting the bank to increase their portion

of investment income. Recently the bank has started capi-

tal market operation through opening a brokerage house.

.0

50,000.0

Significant concentration grouping (Million, BDT)

2009 2008 2007

57%

36%

7%

Loan portfolio composition(as at 31.12.09)

Consumers Industries Infrastructural

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007 2008 2009

Deposit mix

Term/Fixed deposits

Savings deposits

Bills payable

Current deposits and other accounts

85%

15%

Investment mix

Government Others

Page 3: Md. Monirul Islam, ACA - BRAC · PDF fileMd. Monirul Islam, ACA (Bank Analyst) ... Bank Asia Limited is one of the third generation private commercial ... Dutch-Bangla Bank 30,700.0

BANK ASIA LIMITED (DSE, CSE: BANKASIA; Bloomberg Ticker: BKASIA:BD)

Source: Company Annual Report

Source: Company Annual Report

Operating income per employee has been increasing for the last five years and it was 2.5 million in 2009. Operating expenses

per employee is also increasing because of recruiting of new employees, opening up new branches, booths etc. Operating ex-

penses as a percentage of total revenue remained stable at a very low level of 14%-17%. This shows efficient control over

operating expenses.

Operating efficiency has remained at moderate level of 31%-37% over the last three years. Though loan portfolio has been

increasing but operating expenses as a percentage of loans and advances remaining at a same level of 2.5%-3.5%. It implies

management efficiency on operating expenses.

Non-funded income as a % of total operating income

Non funded income arises mainly from commission, ex-

change, brokerage and other operating income. Recently

the bank has started brokerage operation through setting

up brokerage house. It has also competitive advantages

over other banks due to their trade and foreign remittance

related business. The bank has BDT 31.12 billion off bal-

ance sheet exposure as on 31 March 2010 which was

11.22% higher than last reporting date (31 December

2009). Currently the bank’s 55%-60% operating income is

non funded income. We are expecting same level of non-

funded income in coming years.

Earnings growth

Bank Asia achieved a CAGR of 35.20% in operating income in the past six years. In the first six months of 2010, total income

increased by 33.50% from the same period of previous year. EPS for the first half of the year 2010 was BDT 34.85, which was

137% higher than the same period of previous year. We are expecting 37.30% earnings growth in 2010 .

Asset Quality

Bank Asia had a NPL ratio of 1.56% at the end of 2009. NPL ratio has been decreasing over the years because of management efficiency in managing non-performing loans.

NPL ratio 2003 2004 2005 2006 2007 2008 2009

NPLs to total loans and advances 1.75% 3.30% 2.77% 2.27% 2.44% 2.68% 1.56%

Industry average NPL ratio 12.34% 13.00%

Source: Company Annual Report

30.00%

35.00%

40.00%

45.00%

2003 2004 2005 2006 2007 2008 2009

Non funded income as % of total operating income

Non funded income as % of total operating income

0.5

1

1.5

2

2.5

3

2005 2006 2007 2008 20009

Employee productivity (in Million, BDT)

Operating profit per employee

Non-interest income per employee

Operating cost per employee

40

42

44

46

48

50

52

54

2005 2006 2007 2008 20009

Employee productivity (in Million, BDT)

Deposit per employee Loans and advances per employee

Page 4: Md. Monirul Islam, ACA - BRAC · PDF fileMd. Monirul Islam, ACA (Bank Analyst) ... Bank Asia Limited is one of the third generation private commercial ... Dutch-Bangla Bank 30,700.0

BANK ASIA LIMITED (DSE, CSE: BANKASIA; Bloomberg Ticker: BKASIA:BD)

Capital adequacy position and Basel II

Basel II accord has effectively implemented by the Bank Asia and submitted system generated quarterly report to Bang-ladesh bank on time. The bank has also provided disclosure in accordance with pillar-III of Basel-II. This disclosures are intended for the market participants to assess key information about the bank’s exposure to various risks. The bank’s total risk weighted assets (RWAs) and core capital stood BDT 45,150.3 million and BDT 4,644.4 million re-

spectively as at 31 December 2009. The bank attained adequate capital level of 12.27% (regulatory requirement is 10%)

as at 31 December 2009. Total Capital Adequacy Ratio under Basel– II was 10.01% at year end 2009.

Capital adequacy

Source: Company Annual Report

Comparative analysis of four third generation banks

Banks 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009

Bank Asia 31% 30% 26% 39% 29% 37% 37% 19% 41% 29%

Mutual Trust Bank 21% 36% 23% 21% 35% 22% 38% 11% 36% 25%

Premier Bank 13% 19% 20% 19% 22% 13% 19% 12% 18% 17%

Exim Bank 38% 24% 23% 33% 26% 48% 24% 19% 39% 26%

Asset growth Deposit growth

Banks 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009

Bank Asia 30.56% 24.05% 38.68% 4.08% 93.27% 50.66% 24.54% 27.86% 40.48% 25.75%

Mutual Trust Bank 36.00% 42.27% -55.92% 44.70% 169.02% 22.92% 29.35% 22.01% 25.77% 18.77%

Premier Bank -61.55% 103.77% -78.64% 726.28% 67.24% 17.22% 14.67% 14.31% 28.27% 11.03%

Exim Bank 45.45% 17.10% 43.14% 17.81% 53.47% 34.73% 25.32% 23.14% 33.44% 27.99%

Earnings growth Loan Growth

Bank Asia Limited

Particulars 2005 2006 2007 2008 2009

Loan & Advance 17869.8 22255.6 28456.9 39975.0 50267.9

Total Assets 23380.0 30478.4 38436.1 53371.2 68663.2

Deposits 18500.1 25289.4 30004.1 42435.2 54832.8

Equity 1474.0 1949.7 2577.4 3333.0 4954.1

0.0

10000.0

20000.0

30000.0

40000.0

50000.0

60000.0

70000.0

80000.0

2005 2006 2007 2008 2009

Bank Asia

Loan & Advance

Total Assets

Deposits

Equity

Capital position 2006 2007 2008 2009

Tier 1 1,949.7 2,667.2 3,317.2 4,644.4

Tier 2 273.6 380.2 670.5 893.8

Total Capital 2,223.3 3,047.4 3,987.8 5,538.2

Total risk weighted assets 19,800.0 27,019.1 35,461.6 45,150.3

Required ratio 9.00% 10.00% 10.00% 10.00%

Required capital 1,782.0 2,701.9 3,546.2 4,515.0

Surplus 441.3 345.5 441.6 1,023.1

CAR 11.23% 11.28% 11.25% 12.27%

Figures in million BDT

Page 5: Md. Monirul Islam, ACA - BRAC · PDF fileMd. Monirul Islam, ACA (Bank Analyst) ... Bank Asia Limited is one of the third generation private commercial ... Dutch-Bangla Bank 30,700.0

BANK ASIA LIMITED (DSE, CSE: BANKASIA; Bloomberg Ticker: BKASIA:BD)

Mutual Trust Bank Limited (MTBL)

0

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2005 2006 2007 2008 2009

MTBL

Loan & Advance

Total Assets

Deposits

Equity

Premier Bank Limited

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Total Assets

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Equity

Exim Bank Limited

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Exim Bank

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Total Assets

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Equity

Profit after tax of four third generation banks

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Profit After Tax

Bank Asia

MTBL

Premier Bank

Exim Bank

Figures in million BDT

Figures in million BDT

Figures in million BDT

Figures in million BDT

Particulars 2005 2006 2007 2008 2009

Loan & Advance 14,373.3 18,591.5 22,683.2 28,529.3 33,883.9

Total Assets 19,307.0 26,218.0 32,181.9 38,965.0 52,774.8

Deposits 16,098.5 22,264.0 24,776.9 33,820.4 42,354.1

Equity 1,547.5 1,904.8 2,044.3 2,483.1 3,684.5

Particulars 2005 2006 2007 2008 2009

Loan & Advance 18,032.5 20,677.7 23,637.6 30,319.5 33,664.6

Total Assets 22,767.9 27,170.5 32,573.2 38,723.5 47,343.2

Deposits 20,290.5 24,199.0 27,114.5 32,059.6 37,382.1

Equity 1,133.5 1,626.4 2,465.4 3,116.1 4,638.0

Particulars 2005 2006 2007 2008 2009

Loan & Advance 26,046.3 32,641.3 40,195.2 53,637.7 68,609.9

Total Assets 33,716.7 41,793.5 51,503.0 68,446.5 86,203.9

Deposits 28,319.2 35,032.0 41,546.6 57,587.0 73,835.5

Equity 1,912.4 3,111.7 4,042.5 4,989.2 6,706.1

Banks 2005 2006 2007 2008 2009

Bank Asia 383.5 475.8 659.8 686.7 1327.2

MTBL 336.17 478.27 210.80 305.03 820.60

Premier Bank 180.93 368.68 78.76 650.7 1088.3

Exim Bank 555.34 650.29 930.84 1096.63 1096.6

Page 6: Md. Monirul Islam, ACA - BRAC · PDF fileMd. Monirul Islam, ACA (Bank Analyst) ... Bank Asia Limited is one of the third generation private commercial ... Dutch-Bangla Bank 30,700.0

BANK ASIA LIMITED (DSE, CSE: BANKASIA; Bloomberg Ticker: BKASIA:BD)

Price and volume graph of four third generation banks

Bank Asia Limited (DSE,CSE Ticker: BANKASIA)

Mutual Trust Bank Limited (DSE,CSE Ticker: MTBL)

Premier Bank Limited (DSE,CSE Ticker: PREMIERBAN)

Exim Bank Limited (DSE,CSE Ticker: EXIMBANK)

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Company Summary

52-week Price Range (BDT) 291 - 700

Current Price (as on 01 August 2010) 621

Cash Dividend 0.00

Number of Shares MM 30.0

Market Cap BDT MM 18,647.0

Float (% of shares) 74.82%

Company Summary

52-week Price Range (BDT) 48.1-68.1

Current Price (as on 01 August 2010) 65.10

Cash Dividend 0%

Number of Shares MM 455.5

Market Cap BDT MM 29,653.05

Float (% of shares) 55.02%

Company Summary

52-week Price Range (BDT) 271-500

Current Price (as on 01 August 2010) 446

Cash Dividend 0%

Number of Shares MM 21.2

Market Cap BDT MM 9,455.2

Float (% of shares) 58.41%

Company Summary

52-week Price Range (BDT) 43.8-53.8

Current Price (as on 01 August 2010) 52.70

Cash Dividend 0%

Number of Shares MM 291.5

Market Cap BDT MM 15,362.05

Float (% of shares) 51%

Page 7: Md. Monirul Islam, ACA - BRAC · PDF fileMd. Monirul Islam, ACA (Bank Analyst) ... Bank Asia Limited is one of the third generation private commercial ... Dutch-Bangla Bank 30,700.0

BANK ASIA LIMITED (DSE, CSE: BANKASIA; Bloomberg Ticker: BKASIA:BD)

Table 1: Residual Income

Table 2: Comparative information of 10 largest banks

Residual Income Method

Our residual income method of valuation estimates a value of BDT

1,110.6. We assume 28% ROE for the years of 2013-2016(based on

historical ROE), risk free rate of 9 %(average Gov. Securities rate),

cost of equity of 16% and a terminal growth rate of 8%.

VALUATION

Relative valuation

In valuing Bank Asia, we compared ten largest banks listed on the

DSE and found average trailing P/E and P/B ratios of 13.87x and

3.05x respectively. At current price, Bank Asia trades at 10.04x P/E

(trailing) and 3.05x P/B (trailing). Using a 12.5x P/E multiple over

2010E earnings of BDT 59.70, we determine a fair value of BDT

746. Using a 2.50x P/B multiple over 2010E book value of BDT

224.69, we determine a fair value of BDT 562. We estimate a fair

value of BDT 800.00 for bank Asia that implies forward P/E

and P/B ratios of 12.50x and 2.5x respectively.

Table 3: Relative valuation

Domestic banks Price EPS P/E BVPS P/B

Islami Bank 584.25 45.9 12.73x 271.2 2.15x

Prime Bank 573.50 61.1 9.39x 255.3 2.25x

Pubali Bank 744.50 54.7 13.60x 248.8 2.99x

National Bank 805.00 47.2 17.06x 202.5 3.98x

Southeast Bank 387.00 40.5 9.56x 245.2 1.58x

NCC Bank 438.00 38.2 11.47x 134.1 3.27x

Eastern Bank 677.50 49.8 13.60x 288.6 2.35x

BRAC Bank 747.25 51.3 14.57x 329.9 2.27x

Bank Asia Ltd. 621.00 61.9 10.04x 231.0 2.69x

Dutch-Bangla Bank 1518.75 56.9 26.70x 217.6 6.98x

Average 13.87x 3.05x

Source: DSE web as on 01 August 2010

BANKASIA EPS BVPS

2010 estimates 59.70 224.69

Multiple 12.50x 2.50x

Fair value 746 562

Current Price 621

Average Valuation Price 806

*Fair value (12 months forward) 800

Cash dividend 0.00

Dividend yield 0%

Total return 29%

* Fair value (12 months forward )is determined

by considering the residual income and relative

valuation method.

RF 9%

Implied Beta 1.2

ERP 6%

Cost of Equity 16%

Terminal Growth 8%

Value/Share 1,110.6

Page 8: Md. Monirul Islam, ACA - BRAC · PDF fileMd. Monirul Islam, ACA (Bank Analyst) ... Bank Asia Limited is one of the third generation private commercial ... Dutch-Bangla Bank 30,700.0

BANK ASIA LIMITED (DSE, CSE: BANKASIA; Bloomberg Ticker: BKASIA:BD)

Table 4: Comparative Information of 10 South East Asian Banks

In conducting a valuation for Bank Asia, we have looked at the trading prices of some of the leading banks in the region. These banks are in mid-income countries with mostly mature banking markets, and have a slower growth prospect. Whereas Bangladeshi banks routinely achieve 30% growth in assets and deposits, growth rate in these markets have stabilized at around 10%. On the other hand, these banks are also better managed with superior asset quality and risk management practices. These group of peer banks trade at an average of 16.20x P/E and 2.15x P/B (trailing). Consequently, we feel that the group of Bangladeshi banks in Table 2 are trading at a fair valuation (except Dutch Bangla Bank).

Regional banks Country Currency Price EPS P/E BVPS P/B

ICICI India INR 904 41.93 21.56 466.3 1.94

HDFC India INR 2,073 68.82 30.12 470.3 4.41

State Bank of India India INR 2,429 184.82 13.14 1309.4 1.86

HABIB BANK LTD Pakistan PKR 102 13.36 7.60 83.2 1.22

BANGKOK BANK PUBLIC CO LTD Thailand THB 128 11.50 11.09 196.8 0.65

BANK OF AYUDHYA PCL Thailand THB 20 1.27 15.51 15.2 1.30

PUBLIC BANK BERHAD Malaysia MYR 12 0.76 15.76 3.2 3.80

HATTON NATIONAL BANK PLC Sri Lanka LKR 275 18.77 14.62 138.2 1.99

COMMERCIAL BANK OF CEYLON Sri Lanka LKR 179 11.20 15.96 81.5 2.19

Average 16.2 2.15

Source: http://investing.businessweek.com, as at 14/07/10

Page 9: Md. Monirul Islam, ACA - BRAC · PDF fileMd. Monirul Islam, ACA (Bank Analyst) ... Bank Asia Limited is one of the third generation private commercial ... Dutch-Bangla Bank 30,700.0

BANK ASIA LIMITED (DSE, CSE: BANKASIA; Bloomberg Ticker: BKASIA:BD)

Table 5: Balance Sheet

Source: BRAC EPL estimates and company annual reports

Table 6: Income Statement

Source: BRAC EPL estimates and company annual reports

Income Statement, MM BDT 2007 2008 2009 2010 E 2011 E 2012 E

Interest/Investment Income 3,662.4 4,973.1 6,247.5 7,817.0 9,490.9 11,843.5

Interest/profit paid on deposit and borrowing etc 2,705.0 3,739.0 4,498.0 5,617.2 7,097.7 9,066.7

Net Interest Income 957.3 1,234.1 1,749.5 2,199.8 2,393.3 2,776.8

Income from investments in securities/Shares 467.2 607.1 1,013.0 1,362.5 1,800.2 2,340.3

Commission, Exchange & Brokerage 700.2 850.6 1,177.5 1,766.3 2,561.1 3,457.4

Other Income 129.3 200.7 189.5 265.3 358.2 483.6

Total Operating Income 2,254.0 2,892.5 4,129.5 5,593.9 7,112.8 9,058.1

Operating Expense 679.3 987.7 1,512.5 2,018.0 2,557.9 3,262.5

Profit Before Provision 1,574.7 1,904.9 2,617.0 3,575.9 4,554.9 5,795.6

Provision 207.8 499.1 330.8 458.4 579.1 723.9

Pre-Tax Profit 1,366.9 1,405.7 2,286.2 3,117.5 3,975.8 5,071.8

Tax 707.1 719.0 959.0 1,324.9 1,689.7 2,155.5

Profit After Tax 659.8 686.7 1,327.2 1,792.6 2,286.1 2,916.3

Balance Sheet, MM BDT 2007 2008 2009 2010 E 2011 E 2012 E

Property & Assets:

Cash 2,210.5 3,018.8 3,760.4 1,076.8 1,733.7 2,933.1

Balance with Other Banks & F.I 344.1 1,404.8 1,346.4 1,346.4 1,346.4 1,346.4

Money at call 1,123.6 .0 .0 .0 .0 .0

Investment 4,211.4 6,133.8 9,663.1 13,045.2 16,958.7 22,046.4

Loan & Advance 28,456.9 39,975.0 50,267.9 64,342.9 80,428.7 100,535.8

Fixed Assets 498.4 644.2 1,018.4 1,422.0 1,805.7 2,295.0

Other Assets 1,591.2 2,194.6 2,607.0 3,389.1 4,405.8 5,727.6

Total Assets 38,436.1 53,371.2 68,663.2 84,622.4 106,679.1 134,884.3

Liabilities & Equities:

Liabilities:

Borrowing from other banks and F.I 1,554.0 1,615.8 2,178.4 2,178.4 2,178.4 2,178.4

Deposits 30,004.1 42,435.2 54,832.8 68,541.0 87,732.5 112,297.6

Other Liability 4,300.6 5,987.3 6,697.8 7,156.2 7,735.3 8,459.2

Total Liabilities 35,858.7 50,038.3 63,709.1 77,875.7 97,646.3 122,935.2

Shareholder's Equity:

Paid-up 1,395.0 1,743.8 2,144.8 3,002.7 3,002.7 3,002.7

Share premium .0 .0 .0 .0 .0 .0

Statutory Reserve 818.6 1,099.8 1,557.0 1,557.0 1,557.0 1,557.0

Other reserve 348.8 3.3 3.3 3.3 3.3 3.3

Revaluation Gain/(loss) on Investment -32.1 .0 .0 .0 .0 .0

Revaluation Reserve .0 12.4 306.4 306.4 306.4 306.4

Retained Earning 47.1 473.7 942.6 1,877.2 4,163.3 7,079.6

Total Equity 2,577.4 3,333.0 4,954.1 6,746.7 9,032.8 11,949.1

Total Liabilities & Equities 38,436.1 53,371.2 68,663.2 84,622.4 106,679.1 134,884.3

Page 10: Md. Monirul Islam, ACA - BRAC · PDF fileMd. Monirul Islam, ACA (Bank Analyst) ... Bank Asia Limited is one of the third generation private commercial ... Dutch-Bangla Bank 30,700.0

BANK ASIA LIMITED (DSE, CSE: BANKASIA; Bloomberg Ticker: BKASIA:BD)

Table 7: Cash Flow Statement

Source: BRAC EPL estimates and company annual reports

Table 8: Growth indicators

Table 9: Growth indicators & other information

Source: BRAC EPL estimates and company annual reports

Margins and Efficiency 2006 2007 2008 2009E 2010E 2011E

Loan/Deposit 87.68% 93.66% 98.78% 95.43% 99.58% 102.13%

Return on investments 8.08% 10.64% 10.02% 12.00% 13.00% 13.00%

Net interest Margin (rate of int inc - rate of int exp) 4.07% 3.76% 3.38% 3.73% 3.82% 4.13%

Interest spread (lending rate - borrowing rate) 5.36% 5.03% 5.95% 5.18% 5.09% 5.14%

Indicators 2006 2007 2008 2009E 2010E 2011E

Growth

Assets growth 24.89% 30.22% 35.07% 18.77% 16.39% 17.80%

Loans and advances growth 20.19% 32.46% 41.74% 14.00% 20.00% 20.00%

Deposits growth 31.05% 24.00% 34.39% 18.00% 15.00% 17.00%

Earning growth 36.11% 41.31% 30.29% 61.65% 22.72% 13.02%

Equity growth 28.81% 38.59% 37.07% 35.17% 31.93% 27.35%

Provisions growth -36.19% 98.48% 34.76% 35.67% 24.14% 20.00%

Other information 2006 2007 2008 2009E 2010E 2011E

Operating efficiency (Ops exp/Ops income) 32.07% 29.85% 29.06% 28.66% 29.89% 33.08%

Operating income / employee (MM BDT) 1.7 2.1 2.4 3.1 3.4 3.5

Operating income/ branch (MM BDT) 38.9 47.7 58.2 80.6 94.8 107.3

Cashflow statement 2007 2008 2009 2010 E 2011 E 2012 E

Operating cash

Net income 1,792.6 2,286.1 2,916.3

Non-cash items 660.2 834.9 1,050.1

Operating cashflow 1,281.0 1,930.3 1,690.7 2,452.8 3,121.0 3,966.4

Increase/decrease in operating assets and liab.

Investments (3,382.1) (3,913.6) (5,087.6)

Loans and advances (14,075.0) (16,085.7) (20,107.2)

Deposits and other accounts 13,708.2 19,191.5 24,565.1

Operating cashflow 416.3 981.6 2,746.4 (4,531.0) (1,824.5) (1,951.4)

Investing cashflow

Investment in fixed and intangible assets (605.4) (639.5) (815.6)

Investing cashflow (1,258.5) (2,119.1) (3,672.6) (605.4) (639.5) (815.6)

Financing cashflow

Increase/(reduction) in debt .0 .0 .0

Dividend payment .0 .0 .0

Financing cashflow .0 (47.0) (81.2) .0 .0 .0

Beginning cash balance 1,783.7 2,210.5 3,018.8 3,760.4 1,076.8 1,733.7

Other Adjustments (11.9) 62.4 58.3 .0 .0 .0

Change in cash 438.7 745.8 683.3 (2,683.6) 657.0 1,199.3

Ending cash balance 2,210.5 3,018.8 3,760.4 1,076.8 1,733.7 2,933.1

Page 11: Md. Monirul Islam, ACA - BRAC · PDF fileMd. Monirul Islam, ACA (Bank Analyst) ... Bank Asia Limited is one of the third generation private commercial ... Dutch-Bangla Bank 30,700.0

BANK ASIA LIMITED (DSE, CSE: BANKASIA; Bloomberg Ticker: BKASIA:BD)

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 Investments Capital Markets Group

Aminul Haque, CFA Head of Capital Markets [email protected] 01730317802

Md. Monirul Islam, ACA Research Analyst [email protected] 01730357150

Parvez Morshed Chowdhury Research Analyst [email protected] 01730357154

Ali Imam Investment Analyst [email protected] 01730357153

Asif Khan Investment Analyst [email protected] 01730357158

Md. Ashfaque Alam Research Associate [email protected] 01730357779

Khandakar Safwan Saad Research Associate [email protected] 01730357786

BRAC EPL Research www.bracepl.com WW Tower (8th Floor) 68 Motijheel C/A, Dhaka-1000 Tel: +88 02 9514731-40 Fax: +88 02 7116418 E-Mail: [email protected]