We reinitiate our coverage on BAFL with a BUY stance stemming from slow down in NPL accretion and improving net interest margins

    1QCY12 earnings for BAFL improved by 29% QoQ due to 1) 4.5% enhancement in interest income 2) 21% decline in provisions charged and 3) 17% rise in non-interest income

    We expect net interest margins to average around 4.8% during CY12, 50 bps higher then the average of last four years

    The deposit base of the bank grew by 13.3% to PKR401bn during CY11 making BAFL the fifth largest bank. We believe that the bank will continue maintaining a conservative approach towards advances hence entire deposit growth will be routed to treasuries only

    BAFL’s NPL growth has decelerated to 7.8% in CY11. As a result, infection ratio currently stands at 9.6% while coverage stands at 62%

    Justified PB multiple of 1.03 and CY13 book value of PKR20/share leads to our target price of PKR20.6/share, yielding an upside of 21.3%; with a CY12 dividend yield 13%, the stock offers a total return of 33%. BUY!