AsiaNet-Pakistan Premier Editorial Content and Press Release Distribution Service
Karachi: While MCB’s CY11 result surprised us on the downside (NPAT of PkR19.3bn vs. expected NPAT of PkR20.9bn); AKD Securities notes the presence of several one-offs including 1) high effective tax rate of 38%, 2) a degree of discretionary provisions and 3) loss from associates.
According to AKD Securities, likely normalization of the same should lead to 14%YoY NPAT growth in CY12F while AKD Securities project 11% NPAT CAGR by CY16E Considering MCB’s ROE appears to be on a sequential downtrend and CAR remains in excess of 20%, AKD Securities further expects the bank to ramp up cash payout ratio to -60% on average. As a result, AKD Securities revises AKD Securities’ target price tor MCB to PkR1 84/share. In this regard, while AKD Securities expects MCB to trade at a premium to peers, a relatively sluggish earnings growth trajectory across the medium-term implies this premium will likely contract going forward. MCB trades at a CY12F P/B of 1.44x, PER of 7.0x and DIV of 9.0% where AKD Securities’ revised TP of PkRI84/share offers upside of 10.2% and implies an Accumulate stance.
Below-line CY11 results: MCB posted NPAT of PkR19.3bn (fully-diluted EPS: PkR20.95) in CY11, up 14%YoY. A final DPS of PkR3/share was announced, bringing CY11 payout to PkR12/share (undiluted). Key highlights for CY11 are 1) strong 21%YoY NII growth, 2) 28%YoY increase in non-interest income and 4) a very high 33%YoY increase in non-interest expenses. In this regard, NPBT growth of 18%YoY diluted to 14%YoY NPAT growth with effective tax rate registering at 38.3% for CY11 vs. 35.7% in CY10. Sequentially, 4QCY11 NPAT decreased by 23%QoQ to PkR377bn (fully-diluted EPS: PkR4.10) on higher impairment and provisions on other assets. On a positive note however, 4QCY11 NII was up 8%QoQ with interest earnings rising despite a lower interest rate environment.
Double-digit growth to sustain: AKD Securities expects MCBs earnings to grow by 14%YoY in CYI2F and by 12%YoY in CY13F In this regard, AKD Securities believes that CY11 one-offs including 1) high effective tax rate of 38%, 2) a degree of discretionary provisions that may come in for reversals and 3) loss from associates should not repeat. Regarding the latter, considering that the KSE- 100 Index is up 17%CYTD and that AICLs investment income has historically been 133% of its NPAT, AKD Securities expects higher share of profit from associates for MCB. On a standalone basis, MCBs own unrealized capital gains on listed shares stood at PkR734mn on Dec 31’11. At the same time, the bank’s asset quality remains strong with NPL accretion slowing to single-digits and coverage at an adequate 84% (91% of NPLs already in full-provisioned Loss category).
Investment Perspective: With its business model facing margin pressure coupled with a secular downtrend in ROE over the medium-term, MCB may look to leverage its strong capital base (CY11 CAR: 21.8%) to expand assets (organically or through acquisitions) and/or ramp up payouts. With MCB up 36% CYTD, AKD Securities upward revises AKD Securities’ end-Dec’12 target price to PKR184/share (50% weight to justified P/B, 25% weight to justified p/E, 25% weight to DDM) which offers upside of 10.2% from current levels. Accumulate!
| MCB: Valuations | |||||
| Year End Dec 31 | CY09A | CY10A | CY11A | CY12F | CY13F |
| EPS (PKR) | 17.03 | 18.34 | 20.95 | 23.86 | 26.68 |
| EPS Growth | 2% | 8% | 14% | 14% | 12% |
| Total BVS (PKR) | 78.6 | 89.1 | 99.1 | 115.7 | 127.6 |
| P/B (Total SHEQ) (x) | 2.12 | 1.87 | 1.68 | 1.44 | 1.31 |
| PER (x) | 980 | 9.10 | 7.97 | 7.00 | 6.26 |
| Loan to Deposit | 69% | 59% | 46% | 47% | 46% |
| Yield on earning assets | 12.90% | 12.08% | 13.32% | 12.04% | 12.36% |
| Cost of Funds | 4.04% | 4.06% | 4.69% | 4.45% | 4.57% |
| NIMs | 8.86% | 801% | 8.62% | 7.59% | 7.79% |
| Growth in Loan Book | -4% | 5% | -11% | 13% | 9% |
| Growth in Deposits | 11% | 17% | 14% | 10% | 10% |
| Cost/Income | 27% | 31% | 34% | 34% | 35% |
| ROE (average) | 23.7% | 21.9% | 22.3% | 22.2% | 21.9% |
| ROA (average) | 3.3% | 3.1% | 3.1% | 3.2% | 3.2% |
| Dividend yield | 545% | 626% | 7.19% | 8.98% | 9.58% |
| Payout Ratio | 53% | 57% | 57% | 63% | 60% |
| Source: Company Reports and AKO Research | |||||
| MCB: Profit and Loss Account | |||||
| (PKR million) | CY09A | CY10A | CY11A | CY12F | CY13F |
| Interest Earned | 51,622 | 54,829 | 68,216 | 69,998 | 79,905 |
| Interest Expensed | 15,840 | 18,027 | 23,633 | 25,220 | 28,600 |
| Net Interest Income | 35,782 | 36,802 | 44,583 | 44,778 | 51,305 |
| Total Provisions | 7,322 | 3,597 | 3,654 | 2,432 | 2,993 |
| Post Provisioning NII | 28,460 | 33,205 | 40,930 | 42,346 | 48,312 |
| Fee Income | 3,337 | 4,133 | 4,921 | 5,536 | 6,228 |
| Total Non-Interest Income | 5,755 | 6,442 | 8,241 | 9,013 | 9,678 |
| Total Income | 34,215 | 39,647 | 49,171 | 51,359 | 57,990 |
| Total Non-Interest Expenses | 11,066 | 13,406 | 17,778 | 18,538 | 21,131 |
| NPBT | 23,350 | 26,510 | 31,322 | 33,113 | 37,180 |
| NPAT | 15,666 | 16,873 | 19,275 | 21,951 | 24,543 |
| Source: Company Reports and AKD Research | |||||
| MCB: Balance Sheet | |||||
| (PKR million) | CY09A | CY10A | CY11A | CY12F | CY13F |
| Advances | 253,248 | 254,565 | 225,795 | 255,324 | 278,540 |
| Total Assets | 511,742 | 570,482 | 656,325 | 725,498 | 796,972 |
| Deposits | 367,581 | 431,295 | 491,147 | 542,637 | 599,487 |
| Total Liabilities | 439,429 | 488,483 | 564,671 | 619,102 | 679,619 |
| Net Assets | 72,313 | 81,999 | 91,654 | 106,397 | 117,353 |
| Tier I Equity | 63,121 | 71,225 | 81,034 | 95,763 | 107,783 |
| Total SHEQ | 72,313 | 81,996 | 91,162 | 106,397 | 117,353 |
| Total SHEQ and Liabilities | 511,742 | 570,479 | 655,832 | 725,498 | 796,972 |
| Source: Company Reports and AKD Research | |||||