Sector Snapshot: PUBALI Bank

 LEADING
Banking is the largest sector in COMMERCIAL BANK
the DSE, accounting for
25.36% of total market capitalization.
31thBanking
Januarystocks
2010are
also the most actively traded. A large sector provides
ample scope for both liquidity and portfolio
diversification.
Equity Research Report
Bangladesh  Total 48 banks are now operating in the Banking sector.
Among these 30 banks are private commercial banks.
Since 2001, total banking sector deposit is grown by an
Sector Snapshot average rate of 16.56%. The deposit of PCBs grew by
SECTOR: Company Overview
Bank
24.60% during this period. Total bank credit which is over
DSE Code: EBL
60% 0f industry asset is increased by 15.99%, PCBs rose
Market
Pubali Cap:
Bank (mn)
is one of the largest commercial
by 22.66%.
FaceinValue:
bank BDT They
the private sector. 100.00
provide
Average
foreign Volume:
exchange 23,353.00
services, loans and  In CY2009, the adverse consequence of global financial
Average Turnover:
advances, BDT 70.02
deposit schemes, remittances and meltdown does not affect Bangladesh’s economy as well
% YTDother
many Increase:
services. -3.59 % as the banking sector. The reasons behind this are:
52-wk Low: BDT 2,488.75 • Bangladesh is not directly related to the global financial market.
52-wk High: BDT 3,794.75 • Bangladesh mainly exports low end products and as a result export products are
Beta: 1.06 not affected.
Dividend Yield: 3.61 % • Foreign remittance helps us boost the economy and increase total deposits.
Shares: 15.09 (mn) But growth of the banking sector has been hampered due to lack of investment growth in CY2009. Banking
Trailing PE: 20.3 x sector has a large amount of liquidity but lacks investment outlets.
Peer PE: 24.6 x
Market PE: 25.7 x  To boost investment growth, the government reduced
the lending rate (currently 13%) and therefore, in order to
maintain a healthy spread, banks have to reduce their
deposit rates. This spread may reduce in the future due to
Bangladesh Bank’s changing regulations and strong
competition.

 In CY2010, all Bank have to implement Basel II framework,

loan growth may slow down because of Basel II
requirements. According to the Basel II, Under BASEL II
requirements, Market Risk and Operational Risk will be
covered to calculate risk weighted asset and as a result, it
may increased substantially. To support this asset, the
Bank has to enlarge its provision (10% of Total Risk
Weighted Assets). To support the provision all Bank have
to raise its capital base with in CY2011.
hat are the positives?
What are the positives?
 Pubali Bank has the lowest cost of fund among the PCB
due to large collection of low cost deposit through vast
network. In CY2009, it was 3.66%

 Pubali Bank has the largest branch network the PCB. This
helps them to collect deposit. In CY2009, Deposit growth
was 15.00%. Our analysis shows that it will grow by
20.00% and 16.00% in CY2010 and CY2011 respectively.

 Loan portfolio of Pubali bank consists of mainly RMG and

steel sector which is around 46.00% of total loan
portfolio. In CY2009, loan growth was 09.00%. Our
analysis shows that it will grow by 18.00% and 16.00% in
CY2010 and CY2011 respectively.
 Pubali Bank increasing their investment in the capital market to take the opportunity of emerging capital market. In CY2009, it was increased by 200.00%.
Our analysis shows that it will grow at 60.00% and 50.00% in CY2010 and CY2011.

 In CY2009, EPS was BDT50.90 and it expected to grow around BDT59.20 and BDT67.90 in CY2010 and CY2011 respectively.

What
Whatare
arethe
therisks?
negatives?

 Lagging behind in terms of IT facility

Valuation

 Pubali Bank is trading at a discounted price in its sector as well as in the market.
 Currently, Pubali Bank is trading at a discounted price compared to other banks - trading at 12.71x in comparison to ARGUS Banking Index trading at 14.06x
 Based on our estimates, EBL's forward P/E is 10.94x CY2010E EPS & 9.53x CY2011E EPS.
 Pubali Bank is trading much below the ARGUS Intrinsic Price Model; the expected price range for Pubali Bank is BDT 650 per share.

KEY INVESTMENT POSITIVES

Key Investment Positives:

Pubali Bank has the lowest cost of fund among the PCB due to large collection of low cost deposit through vast network. In CY2009, it was 3.66% compare
to industry average of 5.89%

 Around 50.00% of the total deposit is low cost deposit. This helps them to reduce cost of fund and maintain healthy net interest margin.

Pubali Bank has the largest branch network among the PCB. This helps them to collect deposit. In CY2009, Deposit growth was 15.00%. Our analysis shows
that it will grow by 20.00% and 16.00% in CY2010 and CY2011 respectively.

 Presently, Pubali Bank has 386 branches. In CY2009 the bank already opens 15 new branches. In CY2010, Bank is planning to open around 8
new branches to expand its network. This network will help them to increase deposit portfolio.

 At present, Pubali Bank is handling more than 5.66% per cent of country’s total foreign remittance among the PCB. This remittance will help
them to increase deposit portfolio. Pubali Bank maintains a strong network with the Exchange Houses and corresponding bank worldwide for
ensuring better remittance services to its customers which will further amplify deposit growth.

Loan portfolio of Pubali bank consists of mainly RMG and steel sector which is around 46.00% of total loan portfolio. In CY2009, loan growth was 9.00%.
Our analysis shows that it will grow by 18.00% and 16.00% in CY2010 and CY2011 respectively.

 Pubali bank has able to disburse loan at a very competitive rate due to low cost of fund as a result pubali bank enjoying loan growth.

• Recently, Pubali Bank has open 2 Islamic Banking Branch in Dhaka and sylhet. This will help the Bank to increase its Loan growth.

• Bank is emphasizing on loans made to Small and Medium Enterprises (SME) with various SME products such as because recently BB declare
SME sector is a thrust sector and there is a lots of untapped market, to grape these market, In CY2010 bank is planning to open more SME
Centre’s.

Pubali Bank is increasing their investment in the capital market to take the opportunity of emerging market. In CY2009, it was increased by 200.00%. Our
analysis shows that it will grow at 60.00% and 50.00% in CY2010 and CY2011.

 Pubali is going to sponsor "Pubali Bank 1st Mutual Fund" of BDT 1 billion. This will help them to boost investment.

 Pubali Bank are about to get the Merchant Banking and AMC license from SEC. This will help them to boost investment.

Pubali Bank’s operating revenue increased by 9.00% in CY2009 driven by Interest income and investment income. We estimate operating
revenue growth increased by 14.00% and 14.80% in CY2010 and CY2011 respectively.
 64.00% of total revenue comes from Interest income and 11.00% comes from investment income.

KEY INVESTMENT RISKS

Lagging behind in terms of IT facility

 Not all the Branches have the access of real time online facility. (50 out of 371 have online)
 CATALYSTS

Implementation of BASEL II
• The bank is well capitalized in terms to meet the BASEL II capital requirement by August 2011.
• Under BASEL II requirements, Market Risk and Operational Risk will be covered to calculate risk weighted asset and as a result, will have to be
increased. To support this asset, the Bank has to enlarge its provision (10% of Total Risk Weighted Assets).

SUMMARY OF FINANCIALS

Particulars 2007 2008 2009E 2010E 2011E

2007.12.31 2008.12.31 2009.12.31 2010.12.31 2011.12.31
Cash & Equivalent 139.85 225.97 314.39 2,047.94 2,146.92
Investment in Marketable Securities 20.25 32.58 20.25 0.00 0.00
Short Term Loan 1,418.89 1,397.06 609.31 0.00 0.00
Trade Receivable 322.86 890.99 477.56 551.39 634.10
Inventories 1,544.19 2,629.56 2,405.53 2,752.68 3,195.17
Other Current Asset 0.00 0.00 0.00 1,077.56 1,239.20
Advances, Deposits & Prepayments 236.46 329.97 303.72 0.00 0.00
Total Current Assets 3,682.51 5,506.14 4,130.76 6,429.57 7,215.38
Investments 2,792.19 3,184.37 4,103.90 4,103.90 4,103.90
Others 2,792.19 3,184.37 4,103.90 4,103.90 4,103.90

Fixed Assets(At cost less Deprication) 4,012.24 6,364.82 6,662.95 9,109.89 11,099.41
Other Long Term Assets 0.00 2.85 6.96 6.96 6.96
Total Non-Current Assets 6,804.43 9,552.04 10,773.81 13,220.75 15,210.26
Total Assets 10,486.94 15,058.19 14,904.57 19,650.32 22,425.65
Short Term Debt 1,818.78 3,173.54 1,712.21 0.00 0.00
Current Portion of Long Term Debt 225.18 446.14 430.70 0.00 0.00
Other Current Liabilities 426.44 443.24 614.66 2,794.69 3,213.90
Payable and Accrued Expenses 85.17 469.65 221.16 145.96 169.42
Total Current Liabilities 2,555.57 4,532.58 2,978.74 2,940.65 3,383.32
Long Term Debt 492.57 778.38 786.33 3,569.28 3,569.28
Deferred Tax Liability 105.55 224.73 211.22 235.25 306.35
Minority Interest 0.00 15.56 2.30 71.97 149.33
Total Non-Current Liabilities 598.12 1,018.67 999.85 3,876.50 4,024.96
Total Liabilities 3,153.68 5,551.26 3,978.59 6,817.15 7,408.27
Issued, Subscribed & Paid Up Capital 596.16 894.24 1,509.00 13,134.95 15,319.15
Share Premium 2,035.47 2,035.47 2,035.47 0.00 0.00
Retained Earnings 3,493.82 5,045.65 6,329.38 0.00 0.00
Reserves & Surplus 1,207.61 1,531.58 1,353.90 0.00 0.00
Total Shareholders Equity 7,333.06 9,506.93 11,227.76 13,134.95 15,319.15
Total Shareholders Equity & Liabilities 10,486.74 15,058.19 15,206.34 19,952.10 22,727.42
 2007 2008 2009E 2010E 2011E
2007.12.3 2008.12.3 2009.12.3 2010.12.3 2011.12.3
1 1 1 1 1
Cash Receipts from Customers 7,455.06 10,440.95 11,677.97 0.00 0.00
Other Receipts 95.83 249.21 251.18 0.00 0.00
Total Receipts 7,550.89 10,690.16 11,929.15 0.00 0.00
Cash Paid to Suppliers & Employees 3,688.81 5,984.05 5,595.46 0.00 0.00
Interest Paid 236.85 443.15 454.69 0.00 0.00
Other Payment 2,175.36 2,670.09 3,120.74 0.00 0.00
Total Payment 6,101.02 9,097.29 9,170.89 0.00 0.00
Net Cash from Operating Activities 1,449.87 1,592.87 2,758.26 0.00 0.00
Purchase of Fixed & Intangible Assets 782.15 1,118.70 897.47 0.00 0.00
Capital Work-in-Progress 233.67 647.23 644.06 0.00 0.00
Investment 1,008.10 0.00 0.00 0.00 0.00
Other Receipts 128.40 98.66 74.46 0.00 0.00
Net Cash from Investing Activities (1,895.52) (1,667.28) (1,467.07) 0.00 0.00
Long Term Loan Received 150.00 614.29 442.16 0.00 0.00
Long Term Loan Repaid 334.46 332.20 449.65 0.00 0.00
Short Term Loan Increase/(Decrease) 347.62 624.08 (458.39) 0.00 0.00
Dividend Paid 372.60 298.08 357.70 0.00 0.00
Other Financing Receipts/(Payment), Net 478.23 0.00 0.00 0.00 0.00
Net Cash from Financing Activities 268.79 608.08 (823.58) 0.00 0.00
Increase/(Decrease) in Cash and Cash
(176.87) 533.67 467.61 0.00 0.00
Equivalents
Cash and Cash Equivalents at the Opening 139.85 157.32 225.97 0.00 0.00
Cash and Cash Equivalents at the Closing (37.01) 691.00 693.58 0.00 0.00

Companies Overall Fundamental Trading

Ambee Pharma 1 11 1
The Ibn Sina 2 10 2
Reckitt Benckiser 3 3 3
Glaxo SmithKline 4 5 4
Renata Limited 5 1 6
ACI (consolidated) 6 7 5
Beximco Pharma 7 4 8
Keya Cosmetics 8 9 8
Libra Infusion Limited 9 12 6
ACI Formulation 10 6 11
Marico BD Limited 12 8 12
Kohinoor Chemicals 13 13 10

Ticker P/E P/BV ROE DivYield

SQURPHARMA 20.5x 3.8x 18.3% 3.6%
Ticker P/E P/BV ROE DivYeild
BXPHARMA 43.6x 2.2x 5.1% 1.9%
GLAXOSMITH 47.4x 7.4x 15.7% 1.1%
ACI 7.6x 3.7x 48.1% 2.8%
RENATA 32.6x 7.9x 24.1% 0.7%
 RECKITTBEN 28.8x 10.9x 37.9% 2.3%
IBNSINA 32.3x 7.4x 22.9% 1.6%
SQURPHARMA 20.5x 3.8x 18.3% 3.6%
ACIFORMULA 26.0x 6.2x 23.7% 1.7%
Mean 29.8x 6.2x 24.5% 2.0%
Median 30.5x 6.8x 23.3% 1.8%
Highest 47.4x 10.9x 48.1% 3.6%
Lowest 7.6x 2.2x 5.1% 0.7%
Last Year Estimated
P/E P/B P/E Avg.
Particulars EPS P/E P/B NAV EPS P/E
Price Price Price Price
127.6 2.22 787.5 170.5
Industry Lowest 7.63x 973.65 283.48 7.63x 1301.00 852.71
0 x 0 0
Industry 127.6 30.51 6.78 787.5 170.5 30.51
3893.15 864.62 5202.06 3319.94
Median 0 x x 0 0 x
127.6 29.84 6.18 787.5 170.5 29.84
Industry Mean 3807.40 787.94 5087.48 3227.61
0 x x 0 0 x

Renat Beximc
SPL Industry Mean Reckitt Benckiser ACI
a o

Revenue Growth 16.3% 22.8% 20.4% 17.5% 24.2% 33.6%

Gross margin 41.2% 35.0% 48.2% 41.1% 48.9% 32.7%
EBIT Margin 25.4% 13.7% 22.1% 17.1% 23.1% 10.8%
Net Income
17.8% 8.4% 14.5% 9.4% 13.6% 8.8%
Margin
ROE 18.6% 21.9% 24.7% 31.4% 6.4% 29.7%
ROA 12.8% 9.0% 13.2% 14.4% 4.8% 9.7%

CONTACT INFORMATION AND DISCLAIMER

For Additional Information Please Blame:

Ehsanul Kabir
Chief Research Officer

Registered Office:
Akram Tower, 7th floor, Suite 03,
Shaheed Syed Nazrul Islam Sarani (15/5 Bijoy nagar)
Dhaka-1000, Bangladesh
 
Phone: 88 02 9360024, 01552553405, Fax: 88 02 9338757
E-mail: info@racebd.com

This report has been prepared on behalf of ARGUS Research solely for the information of its clients. The information and statistical data contained herein have
been obtained from sources which we believe to be reliable but in no way are warranted by us to accuracy or completeness. All opinions and estimates in this
report constitute our judgment as of this date and are subject to change without notice. This report is for informational purposes only and is not intended as an
offer or solicitation with respect to the purchase or sale of any security. Neither ARGUS Research nor any of its officers or employees accepts any liability for
any direct or consequential loss arising from any use of this report. This report may not be reproduced, distributed or published by any person for any purpose
without the prior consent of ARGUS Research. Any investments referred to herein may involve significant risk and may not be suitable for all investors. The
value of, or income from, any investments referred to herein may fluctuate and/or be affected by changes in exchange rates. Investors should make their own
investment decisions without relying on this report.