Morning Call about – United Bank Limited Banks – Arif Habib Limited

Karachi, February 14, 2014 (PPI-OT): Bank to post PKR 3.8/share earnings in 4QCY13, +13%YoY

UBL is scheduled to announce CY13 earnings on 19th Feb, 2014.

According to Arif Habib Limited, for the quarter Arif Habib Limited expects the bank to post earnings of PKR 3.8/share (+13%YoY), bringing the full year earnings to PKR 14.3/share (-3%YoY).

PKR 2.0/share final cash dividend

The bank has so far paid an interim dividend of PKR 6.0/share (1H 40%, 3Q 20%). Maintaining a healthy payout of 57%, Arif Habib Limited expects another PKR 2.0/share dividend with the results, bringing the total DPS of PKR 8.0/share, offering a decent dividend yield of 6% at current levels.

UBL: Financial Highlights’

PKRmn                 4QCY13E    4QCY12A     YoY     CY13E     CY12A     YoY

Mark-up Income          9,185      9,475     -3%    36,546    38,560     -5%

Non Mark-up Income      4,577      3,965     15%    17,829    17,131      4%

Total Income           13,761     13,440      2%    54,375    55,691     -2%

Op. Expense             6,598      6,385      3%    26,380    24,525      8%

PPOP                    7,163      7,055      2%    27,994    31,166    -10%

Provisions                210        931    -77%     1,678     4,137    -59%

Tax                     2,339      2,034     15%     8,767     9,022     -3%

Post-Tax Profits        4,613      4,090     13%    17,549    18,007     -3%

EPS (PKR)                 3.8        3.3    14.3      14.7

DPS (PKR)                2.00       2.00    8.00      8.00

-          –       –         -

Cost / Total income       48%        48%               49%       44%

Mark-up / Total Income    67%        70%               67%       69%

Non-Mark-up /Total Income 33%        30%               33%       31%

PPOP / Share              5.9        5.8              22.9      25.5

Source: Financial accounts, AHL Research

Core income to decline following NIM compression

For the quarter Arif Habib Limited estimates the bank’s NIM to contract by 15bps YoY, resulting in a 3%YoY contraction in mark-up income. Arif Habib Limited says this primarily based on 51bps decline in industry Weighted Average Lending and Deposit spread to 6.15% in 4QCY13 versus 6.66% last year same quarter. In addition, bank’s declining current account deposits (34% by Sep-13 versus 36% by Dec-12), is likely to keep bank’s cost of deposit high during the 4QCY13.

Non-income and operating expense to increase

With the slight bearish NIMs profile, bank’s non mark-up income is estimated to go up. Increased remittances receipts, general banking transaction and FX activity gains, should augur well for total revenue growth (+2%YoY). While, provisioning is expected to decline and operating expenditures are estimated to stay flattish (cost-to-income ratio + 48% in Dec-13).

Improving fundamentals justify higher PB multiples

With an estimated bank’s CY13E BV of PKR 81/share, the bank is trading at multiples of 1.6x P/BV and PER of 9.3x. Arif Habib Limited’s target price for the said scrip is PKR 157/share offering in +18% upside from current closing price of PKR 134/share; hence we maintain a ‘Buy’ call on UBL.