Equity Coverage on Dutch-Bangla Bank Limited (DBBL)
Dutch-Bangla Bank Limited (DBBL), a scheduled commercial bank started its operation in Bangladesh as a first joint venture bank between Bangladesh and the Netherlands. DBBL is involved in all types of commercial banking operations, including industry credit, consumer financing, SME financing, home loan, commercial lending and also off-shore banking service. Currently, DBBL has over 220 branches and installed 4,930 ATMs across the country, making it the largest network in the country. At the middle of 2010, DBBL launched its internet payments gateway system (Nexus Gateway) where merchants can charge their customers via Visa, Master, DBBL Nexus and Maestro cards online. DBBL now has over 400 e-commerce merchants and the bank recently released the Nexus Pay app for its customers. Number of DBBL Nexus Pay users stood 4.4 million at the end of 2021. DBBL is known as a pioneer in Mobile Financial Services (MFS) in Bangladesh, with more than 18% of total market share under the name of “Rocket”. DBBL is the ninth largest listed commercial bank with assets of BDT 514,400 million as of FY2021 with a CAGR of 13.3% over the past four years. Of the total credit disbursement, DBBL disbursed 34.3% loans to textile and RMG, 4.5% to construction, 6.6% to service, 7.2% to engineering industries as of December 2021.
DBBL holds the highest CASA ratio with 73.5% among 33 listed banks, and the cost of deposit came down to 1.67% in FY2021, which is lowest in the banking sector. ROE of DBBL stood 15% at the end of 2021 and reckoned on average 15.7% in the last five years, which is one of the highest among all listed banks. Capital adequacy ratio stood at 14.5%, 11.7% in 2021,2020 respectively, based on historic record, meaning good capital-base safeguarding any operational risks. At the end of FY2021, the Advance-Deposit Ratio (ADR) came down to 79.60% against regulatory limit of 87.0%. Now DBBL has strong capacity to disburse credit in coming years. NPL of DBBL stood at 3.7% at the end of FY2021 as against 7.6% of the overall industry. On average DBBL was able to keep its NPL at 3.8% level in last five years. The cost to income ratio performance of DBBL is very poor among 33 listed banks and it is the 25th position in terms of cost to income ratio among listed banks.
We have used two valuation methods (Residual Income Approach and Relative Valuation) to find out the intrinsic value of the company. We assume 11% cost of equity, 2% terminal growth rate. In residual income model, we found the value of the company is BDT 92.53. In relative valuation, we use Last Twelve Month (LTM) PE and PB multiples to value the company. We have given 70% weight in residual income model and 30% in relative valuation; and finally we get the valuation of BDT 83.30 per share. Currently the share price of DBBL is BDT 62.60. So DBBL’s Return potential is expected to 33.10%.
Rakib
February 15, 2023Good Analysis
admin
March 2, 2023Thank you