MCB - Result Previews
1HCY17 profitability to decline by 9% YoY
The board is to meet on 25th Aug’17 to announce the results for 1HCY17. We expect the bank to post earnings of PKR 10,005mn for 1HCY17, down 9% YoY. This translates into an expected EPS of PKR 8.99 for the period (1HCY16: PKR 9.84). The decline comes primarily on the back of an expected 14% decline YoY in NII for 1HCY17 on account of compressing NIMs. In addition, the bank is expected to depict a 20% uptick in OPEX during said period, clocking-in at PKR 14,230mn (1HCY16: PKR 11,286mn), driven by a forecasted double digit surge in admin costs. Some respite is expected for the bank from a projected 64% YoY upturn in NFI during 1HCY17 on account of a 4.3x increase in capital gains. An interim dividend of PKR 4.00/share is also expected, accumulating the total dividend for 1HCY17 to PKR 8.00/share.
25 October 2017 9MCY17: Reversals provide relief
The bank announced earnings today for 9MCY17 at PKR 19bn (EPS: PKR 16.77/share), depicting a YoY increase of 7%. NFI recorded an impressive YoY growth of 18% in 9MCY17 while increased reversals further fueled earnings. The bank has also announced demerger of its existing operation of 90 branches with an increased focus on Islamic banking as these branches will be merged with MCB Islamic Bank. The bank announced a dividend of PKR 4.00/share, accumulating the total dividend for 9MCY17 to PKR 12.00/share.
NII, following industry trend of a contraction, depicted a downturn of 7% YoY in 9MCY17 on account of industry wide spread compression and falling investment yields with PIB maturities coming in. Interest expense rose a whopping 32% YoY in the same period while interest earned however showed a YoY improvement of 7.1%. Albeit, a QoQ improvement in NII was seen (11% increase QoQ), led by a 26% increase in interest earned which was countered by a worrying 54% increase in interest expense.
An 18% YoY uptick in NFI during 9MCY17 was primarily led by higher fee income (23.6% YoY increase), higher dividend income (23.5% YoY increase) and higher FX income (62% YoY increase).
Reversals increased 136% YoY to settle in at PKR 1,894mn (9MCY16: PKR 802mn) which supported the earnings further, with recoveries from NIB coming in, we view.
OPEX recorded a 25% YoY increase led by a 24% increase in admin costs, continuing the trend from the previous quarter, which the management attributes to higher personnel and marketing costs, perhaps on account of the amalgamation with NIB.
Effective taxation was set at 27% in 9MCY17 compared to 41% for 9MCY16 with the significant reduction coming on account of a significant tax benefit booked last quarter.
We recommend “HOLD” with a TP of PKR 230.4/share.