United Bank Limited 9MCY14 Result Review and Outlook UBL ‐ BUY Target Price: PKR 230 Current Price: PKR 190 UBL Performance 1M 3M 12M Absolute % 1%
‐1%
35%
Relative to KSE % 1%
‐1%
32%
Bloomberg UBL.PA
Reuters UBL.KA
MCAP (USD mn) 2,253
12M ADT (USD mn.) 2.4
Shares Outstanding (mn) 1,224
UBL
KSE100 Index
80%
60%
40%
20%
0%
Oct‐13
Nov‐13
Dec‐13
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
‐20%
Source: BMA Research Iqbal Dinani [email protected] +92 111 262 111 Ext: 2059 United Bank Limited (UBL) held a conference call yesterday to discuss its 9MCY14 financial results and outlook. The bank reported earnings of PKR15.8bn (EPS: PKR12.95) compared to PKR12.9bn (EPS: PKR10.57) registered in the corresponding period last year, depicting a robust growth of 22.5%YoY. In 3QCY14 alone, UBL reported flattish earnings of PKR5.3bn (EPS: PKR4.35) on a sequential basis while posting a significant growth of 14%YoY. Along with the result, the bank also declared a third interim dividend of PKR2.5/sh (maintaining payout ratio to 58%), taking cumulative dividend to PKR7.5/sh. With strong ROE of 23% and 25% for CY14F and CY15F, respectively, we reiterate our preference for UBL within the banking universe with a TP of PKR230/sh offering a total return of 27% against last closing. Diversified Revenue Mix: The healthy growth in earnings during 9MCY14 was driven by i) 17%YoY increase in net interest income to PKR32.1bn led by higher PIB holdings (at PKR268bn, up 2.6x YoY) and higher asset yield, ii) lower credit cost to the tune of PKR849mn, down 42%YoY, and iii) 10%YoY jump in non‐funded income (particularly strong fee based income). Fee and commission income during the period remained robust posting a strong 16%YoY growth to PKR8.4bn owing to growing UBL Omni business, rising trade and foreign remittances and stringent focus on cross selling. Dividend income remained healthy posting significant jump of 31%YoY to PKR1.4bn which coupled with efficient fx trading resulted in a growth of 48%YoY to PKR2.3bn in 9MCY14. Asset Quality ‐ slightly weakened but expected to improve going forward: During the period under review, the bank’s infection ratio slightly weakened to 11.6% from 11.3% recorded in Jun’14, though remains encouraging as compared to 12.1% registered in Dec’13. The increase in non‐performing loans is attributed to a 47% CYTD increase in substandard category of NPLs. Along with weakening infection, coverage also slightly slipped to 85.3% in 9MCY14. The management remains comfortable at this level and expects it to further improvement in asset quality through prudent policies and higher coverage. Going forward, we expect the bank’s coverage ratio to further improve to 88% by CY15F. UBL vs KSE100 Relative Chart 100%
Thursday October 30, 2014 Asset Mix ‐ evenly distributed: During 9MCY14, the asset side of the balance sheet was evenly distributed with gross IDR and ADR hovering at 53.7% and 53.5%, respectively. On investment front, UBL further expanded its PIB portfolio to PKR268bn (as of Sep’14) from PKR245 (as of Jun’14) and PKR103bn (as of Dec’13). At the same time, the bank curtailed MTBs portfolio to PKR107bn from PKR236bn (as of Dec’13), down 55%CYTD. Loan growth ‐ likely to remain subdued: Loan book register a tepid growth of 7%CYTD to PKR417bn primarily fueled by domestic lending which registered a growth of 13%CYTD. Within the domestic side, corporate and commodity loans registered a notable growth of 14%CYTD and 27%CYTD, respectively. On the flip side, the bank’s international loan book registered a decline of 6% mainly due to reduced lending in Yemen while credit off‐take to UAE (contributing 69% of international loans) remained robust owing to economic recovery in the region. Management expects that the bank expects 11%‐12% growth in domestic loan portfolio; however, continued political turmoil amidst unabated structural bottlenecks may restrict the uptick in credit demand in the short to medium term. Investment Perspective: UBL remains one of our preferred plays in the banking space due to i) consistent NIM expansion ii) diversified revenue mix in non‐funded income and iii) balance sheet strength. Consequently, we reiterate our conviction on the scrip with a TP of PKR230/sh which implies an upside of 21% from last close together with DY of 6%. The stock is currently trading at Dec’15 P/B and P/E of 1.9x and 7.9x, respectively. BMA Capital Management Ltd. 801 Unitower, I.I.Chundrigar Road, Karachi, 74000, Pakistan For further queries, please contact: [email protected] or call UAN: 111‐262‐111 This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the information contained herein is from sources believed reliable, we do not represent that it is accurate or complete and should not be relied upon as such. Opinions expressed may be revised at any time. This memorandum is for information only and is not an offer to buy or sell, or solicitation of any offer to buy or sell the securities mentioned.11
1