REG. CAPITAL DECOMPOSITION

mn

Bank Asia Industry Average

200720082009

Tier I Tier II

Bank As ia L im i tedA n a l y s t s : F a r j a d S i d d i q u i a n d Q a z i M u s a d d e q A h a m e dCMP: Tk. 781.75 Mindspring Fair Value: Tk. 805.65 Forward P/E (At CMP): 10.33

R e c o m m e n d e d : B u y a n d H o l d R e t u r n P r o s p e c t : > M a r e k t Y i e l d

Valuation ReportFebruary 02, 2011

FUNDAMENTAL INDICATORS

2008 20092010E

(Ratios At CMP)

Net Interest Income (mn) 1,234 1,749 3,150Operating Income (mn) 2,893 4,130 6,725EPS 32.02 44.20 75.65NAV 155.40 164.99P/E 11.97 9.65 10.33P/B 2.47 2.59

TECHNICAL INDICATORSSMA (15) EMA (9) RSI MFI ROC (15)

776.80 785.47 49.05 68.05 2.34

PERFORMANCE DECOMPOSITION MATRIX

EAT EBT NIR IR TOIEA BV

EBT

NNER53.09%48.85%58.05%

NIR

NENIR75.80%55.64%75.86%

ENI142.78%113.91%130.68%

IR

NEI19.81%13.81%21.24%

ETE37.32%28.27%36.59%

NII26.14%24.82%28.00%

TOI

NETI32.19%23.74%32.14%

ETI60.64%48.60%55.36%

NITI42.47%42.66%42.37%

ITI162.48%171.93%151.29%

EA

NREA2.22%1.49%1.91%

REA4.19%3.05%3.29%

NIEA2.93%2.68%2.51%

IEA11.21%10.79%8.98%

TIEA6.90%6.27%5.93%

BV

NRE31.63%23.00%32.03%

RE59.58%47.08%55.17%

NTE41.73%41.33%42.22%

TE159.65%166.57%150.78%

TIE98.25%96.88%99.66%

EAI1423.67%1544.33%1679.58%

TA

NRA2.11%1.50%

RA3.97%3.06%

NIA2.78%2.69%

IA10.63%10.83%

TIA6.54%6.30%

EAR94.80%

100.46%

EM6.66%6.50%

Jan-10

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Jul-10

Aug-10

Sep-10

Oct-10

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Jan-11

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450000Bank Asia LimitedVolume

Price

Bank Asia Private Conventional Banks

EARNINGS DECOMPOSITION

DIVIDEND PATTERNSYear Cash Bonus Right

2009 - 40% -2008 - 23% -2007 - 25% -2006 - 25% -2005 10% 20% -2004 - 25% -

QUARTERLY EPS2010 Q1 Q2 Q3 Q4(F)

Accumulated 16.11 34.85 57.29 75.65Specific 16.11 18.73 22.45 18.35

2009 Q1 Q2 Q3 Q4Accumulated 6.39 14.70 22.17 44.20Specific 6.39 8.31 7.47 22.03

COMPANY SNAPS

Total Cap.=6952.38 mn

Net Earnings to Earnings=NNER, Net Earnings to Net Interest=NENIR, Earnings to Net Interest=ENINet Earnings to Interest= NEI, Earnings to Interest= ETE, Net Interest to Interest= NII, Net Earnings

to Total Income= NETI, Earnings to Total Income= ETI, Interest to Total Income= ITI

Net Return on Earnings Asset= NREA, Return on Earning Asset= REA, Net Interest to Earning Assets= NIEA, Interest to Earning Assets= IEA, Total income to Earning

Assets= TIEA, Net Return on Equity= NRE, Return on Equity= RE

Net Interest on Equity= NIE, Interest On Equity= IE, Total Income on Equity= TIE, Earning Assets to Equity= EAE, Net Return on Assets= NRA,

Return on Assets= RA, Net Interest on Assets= NIA, Interest on Assets= IA, Total Income on Assets= TIA, Earnings Assets Ratio= EAR

Equity Multiplier= EM

* All amounts are in million taka ** Except M. Cap all information are based on 3Q-2010

Tk. I

n m

illio

ns

Operating Income = 131.23 bn

Net Interest Margin 44.07%

Others 8.98%

Comm, Brokerage

19.91%

Investments 27.75%

Operating Income = 4.67 bn

Net Interest Margin 46.86%

Others 6.12%

Comm, Brokerage

31.50%

Investments 15.52%

Flow To Equity Model

Economic Value Model

Dividend Discount Model

VALUATION

Income Statement (All amounts are in million Taka)

PARTICULARS ACTUAL FORECASTED2007 2008 2009 2010 2011 2012 2013 2014

Interest Income 3,662 4,973 6,247 9,414 13,784 18,435 21,887 28,526Less: Interest Paid 2,705 3,739 4,498 6,264 8,474 11,107 13,386 19,234Net Interest Income 957 1,234 1,749 3,150 5,310 7,328 8,501 9,292Income From Investment 467 607 1,013 1,629 1,970 2,554 2,796 3,355Comm., Exchange & Brokerage 700 851 1,178 1,654 2,065 2,535 3,067 3,860Other Operating Income 129 201 190 292 361 420 481 535Operating Income 2,254 2,893 4,130 6,725 9,705 12,837 14,845 17,042Less: Operating Expenses 679 988 1,512 2,216 2,839 3,490 4,138 5,192EBIT 1,575 1,905 2,617 4,509 6,866 9,347 10,707 11,851Less: Provisions 208 499 331 558 651 810 818 1,021Less: Tax 641 719 959 1,679 2,641 3,628 4,203 4,602Net Profit 726 687 1,327 2,271 3,574 4,909 5,686 6,227

(Figures in Millions except per share data)

2010 2011 2012 2013 2014

NI (Adjusted) 2,828 4,260 5,784 6,675 7,493Invest. In Reg. Capital

1,374 869 2,384 4,222 1,158Invest. In Cap. Ex. 461 632 790 999 1,327Flow to Equity (FTE) 3,494 2,759 2,611 1,454 5,008PV of FTE 3,038 2,086 1,717 831 2,490

Terminal Value 38,416PV of Terminal Value 19,100Value of Equity 26,772Number of Shares

Per Share Price 891.57

Conceptual construction remains more or less same as conventional FTE, except two further adjustments that essentially derived from the Business and Regulatory Model followed by Banking Institutions. These two adjustments are Deducting Investment in Regulatory capital and Add back expected residual portion of provision set aside.

Net Interest margin estimated on the basis of macroeconomic outlook, expected loan & deposit level & composition, operational expansion plan and potential diversification in business segments.

Cost of Equity 15%, on the basis of perceived risk profile and quality of earnings.

Effective tax rate 42.5%. Nominal Terminal growth rate 7%, after adjusting for expected inflation,

population and real GDP growth.

Sensitivity Analysis The sensitivity analysis shows that, per share value is most sensitive to

terminal growth rate and discount rate. The table at the left hand side shows the results where the shaded area

at the center shows the most possible range of alternatives:

High Growth – 1 High Growth – 2 Transition

Year 2010E 2011E 2012E 2013E 2014E 2012E 2013E 2017E

Earnings GR 35% 35% 35% 20% 20% 15.6% 11.3% 7%

Ex. Dividends 0 0 0 0 0 38.13 84.92 136.29

Per Share Price 688.87

A four stage growth model has been applied based on a 7-year forecast of dividends as cash flows

The discount rate is assumed to be 15%. This is the cost of equity capital.

Terminal ROE is assumed to be 19% considering bank’s risk profile, profitability, risk free rate, inflation and overall economic conditions. This rate is used to calculate the expected payout ratio.

The future growth rates have been estimated based on the forecasted net incomes for the next 7 years. The terminal growth rate is assumed to be 7% as mentioned earlier.

Terminal Growth Rate

1004 5.0% 6.0% 7.0% 8.0% 9.0%

13.0% 1000.3 1099.4

1231.6 1416.7 1694.3 14.0% 871.6 942.8 1034.4 1156.6 1327.5 15.0% 771.3 824.0 889.8 974.5 1087.4 16.0% 691.3 731.2 779.9 840.8 919.2 17.0% 626.4 657.1 694.0 739.1 795.5

(Figures in Millions except per share data)

2010 2011 2012 2013 2014

Net Income 2,271 3,574 4,909 5,686 6,227(-) Cost of Equity 880 1,086 1,216 1,574 2,207Economic Value 1,392 2,488 3,693 4,113 4,020PV of Eco. Value 1,210 1,881 2,428 2,351 1,999

BV of Equity Invested 5,864PV of Terminal Value 7,891Value of Equity 23,624Number of Shares 30.02

Per Share Price 786.76

Decidedly depends on assumption relating excess return on equity over cost of equity in longer run time frame.

Bangladesh Banking Industry is roughly perfectly competitive. But besides that as entrance is highly regulated, we expect sustenance of positive economic profit in longer run.

Assumed spread of ROE over cost of equity is 7%. Remaining assumptions relating cost of capital, terminal growth rate,

effective tax rate are assumed to be same.

• Mahmudul Bari • Noman Ahmed Khan • N.M. Al Hossain • Md. Farjad Siddiqui • Qazi Musaddeq Ahmad

Analyst Team

Relative Valuation Models

Intrinsic and Ms Values

By assigning proper weight to each of the above mentioned valuation models, Tk.805.65 has been derived as the target fundamental price. By adjusting this intrinsic value with the price pattern of the company and the future perspective of capital market, we have derived the Ms Value as follows:

Stand on our comprehensive analysis; we recommend to pursue “Buy and Hold” strategy for Bank Asia equity. We deem it as a sound investment item for next 2-3 years horizon. A tidy stock dividend is expected for next couple of years and there after combination of cash and stock dividend is likely. Besides that, we levy superior capital gain (+ve α) over the same time horizon.

Disclaimer

This material is produced by Mindspring Research (“Mindspring”), an independent research firm registered with Registrar of Joint Stock Companies and Firms, Bangladesh. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities, or to enter into any other agreement. Projections of potential risk or return are illustrative, and should not be taken as limitations of the maximum possible loss or gain. Past performance is not indicative of future results. The information and any views expressed in this document are given as at the date of writing and subject to change. While the information has been obtained from sources believed to be reliable, Mindspring do not represent that it is accurate or complete and it should not be relied on as such. Mindspring and its employees accept no liability for any direct or consequential loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgment. It is being furnished to you solely for your information. By accepting this report you agree to be

Banks Forward P/E E(g) CV

AB Bank 8.61 62% 12.05%Al-Arafah bank 9.71 123% 23.86%

Brac Bank 10.50 19% 13.60%

Bank Asia 8.66 96% 19.46%

City Bank 14.78 184% 13.71%

DBBL 47.28 65% 20.00%

Dhaka bank 6.81 142% 23.95%

EBL 9.37 50% 33.64%

EXIM 11.16 95% 21.28%

Islami Bank 9.43 61% 13.04%

Jamuna Bank 11.59 54% 10.48%

Mercantile Bank 12.11 60% 21.62%

Mutual Trust Bank 10.08 54% 24.04%

NBL 8.70 259% 44.60%

NCC Bank 11.37 34% 21.28%

One Bank 5.98 141% 27.71%

Premier Bank 10.27 32% 23.36%

Prime Bank 8.82 35% 18.71%

SIBL 25.89 24% 20.48%

Shahjalal 6.90 124% 29.18%

Southeast 12.02 46% 18.73%

Standard 7.84 132% 22.35%

Trust 7.94 161% 21.65%

UCBL 14.93 170% 94.18%

P/E Multiple:

Conceptual P/E drivers are growth, riskiness and payout. Upon gathering relevant information, a regression model was built to

determine driver coefficients. But statistical significance (p=.40) was not adequate, besides very low correlation (r2=.05). Thus this model was rejected.

Alternatively, median of similar firms’ P/E (10.08) was used to determine the expected price.

Considering the representative P/E multiple we derived the expected price of Tk.723.71.

P/BV Multiple:

Largely depends on ROE. Similar classes of comparables were chose based on parallel ROE. Representative PB multiple was 4.16 Using the representative PB multiple of 4.16, Tk. 686.95 was derived

as the expected price.

Banks Book Value P/BV ROE

AB Bank 318.87 3.95 33.34%Al-Arafah bank 15.24 4.85 24.10%Brac Bank 311.22 2.30 15.55%Bank Asia 164.99 3.77 26.79%City Bank 298.6 2.92 13.96%DBBL 217.59 7.84 26.14%Dhaka bank 18.67 2.95 19.32%EBL 28.86 2.60 17.26%EXIM 14.72 3.85 25.22%Islami Bank 271.22 2.24 16.93%Jamuna Bank 17.85 2.93 23.19%Mercantile Bank 140.84 3.02 14.33%Mutual Trust Bank 173.83 2.77 22.27%NBL 20.25 4.36 23.22%NCC Bank 15.94 3.32 28.49%One Bank 149.16 4.69 23.68%Premier Bank 15.91 3.12 23.47%Prime Bank 25.53 2.51 24.04%SIBL 11.9 3.24 12.14%Shahjalal 14.38 3.43 21.73%Southeast 245.19 1.77 16.51%Standard 133.06 3.20 18.27%Trust 169.32 3.09 16.27%UCBL 19.61 5.88 10.67%

Intrinsic Value Tk. 805.65Ms Adjusted Factor For Price Trend and Market SensitivityMs Value Tk.

ANALYST’S THESIS