Brac Bank

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Fin
YearPAT
(BDT'mn)EPS
(BDT)EPS
(Growth)Cost to
Income Ratio
200519212.16
-51%
200633421.10
73%49%
200761839
85%45%
2008E95660.09
55%43%
2009E1,735109.58
81%42%

Source: Annual Reports and MBD Research

Investment Summary: BRAC Bank
Share Price BDT792
Ordinary Shares (mill)15.8
Free Float50%
12 wk High/Low (BDT.)746.25/1690
Average Daily Volume (Shares) 97,838
Market Capital BDT (mill) 12,656.16
Reserve & Surplus (mill)902.03
BRAC Bank Limited, with institutional shareholdings by BRAC, International Finance Corporation (IFC) and Shorecap International, has been the fastest growing Bank in 2004 and 2005. BRAC Bank has been rated as one of the four most successful and sustainable SME Banks in the world. It also has been recognized for “ICMAB Best Corporate Award 2007’. It had been rated as “A” in Long Term and ST-2 in short term.

A fully operational Commercial Bank, BRAC Bank focuses on pursuing unexplored market niches in the Small and Medium Enterprise Business, which hitherto has remained largely untapped within the country. In the last five years of operation, the Bank has disbursed over BDT 1500 crores in loans to nearly 50,000 small and medium entrepreneurs. The management of the Bank believes that this sector of the economy can contribute the most to the rapid generation of employment in Bangladesh. Since inception in December 2007, the Bank's footprint has grown to 36 branches, 392 SME unit offices and 67 ATM sites across the country.

BRAC went public following an initial public offer (IPO) and got listed on Dhaka Stock Exchange (DSE) in 2006. The Company, after approval from SEC, issued 50mn shares at Tk. 170 per share including Tk.70 premium. By the end of 2007, a major portion of the Company’s shares were held by the institutions and general public, which accounted for 47.11%.

We expect the Net Profit after Tax of BRAC to show a growth of 55% in the year 2008 and 85% in the year 2009. The growth in Loans and Advances is expected to continue in 2008 - 2009 which are forecasted to be up by 60% and 55% to reach at Tk.51,914 million in 2008 and 80,466 million in 2009 respectively, which is mainly due to the expected boost growth in SME sector.

Based on our Forecasting approach, we have reached an expected EPS for BRAC of Tk. 60.69 and 109.04 for the year 2008 and 2009. The current market price is Tk.792 per share as of October 26, 2008 offers a potential upside of 30%. We, therefore, conclude BRAC with a “BUY” recommendation.

Valuation:
Loans & Advances And Deposit :
We found SME sector as the core of total net earnings of BRAC as almost 52% profit of it comes from the disbursement of SME loans and advances. In 2007 outstanding loan of SME was Tk. 1,908 crores. BRAC is now offering 07 categories of customized products tailored to needs of SMEs which are general trading medical institutions, educational institutions, and supplier finance and women entrepreneurs. Considering their huge expansion plan and competitive advantage, it can be expected that they will be able to secure 60% and 55% growth in the year 2008 and 2009 respectively in this sector. Again considering the effort and opportunities of the bank it has been expected that the collection of deposit will attain a growth of 57% and 55% in the year 2008 and 2009 respectively.

NPL Ratio:
Loans and Advances is segmented in four categories; SME (52% of total portfolio), Retail (27% of total portfolio), Corporate and Cards (21% of total portfolio). NPL ratio in SME is about 6% to 7% which is the major contributor to increase the average gross NPL ratio to 4.7% in 2008 from 4.50% in 2007 (in 2006 NPL was only 3.04% due to small size of disbursement). Ratio Analysis 2005200620072008E2009E

Price / Book Value 19%7.40%5.30%2.851.98
EPS 12.1621.1039.04...
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