By: Rafia Ali, IGI Finex Securities Limited
We initiate coverage on MCB Bank Limited with a ‘Hold’ Target price (TP) of PKR 293/share, the scrip is currently trading at a CY15 P/B of 2.29x and offering a dividend yield of 4.6%. We believe bank will be least affected during the with the current monetary easing cycle, primarily due to high proportion of savings accounts in deposit mix (CASA: 88%) and sizeable holding of PIBs (+ 3.1xYoY rise). Additionally, according to the management the prime focus would be towards loan book expansion. We expect banks ADR to be around 48% in CY15. Furthermore, asset quality has improved, resulting in 6.3%YoY infection ratio; owing to banks cautious approach towards risk adverse credits. The banks NFI is expected to grow by 7%YoY due to introduction of new products by 1HCY15. Average earnings assets are expected to increase by 10%YoY owing to hefty investments in high yield instruments. We expected bank to post 12%YoY growth in earnings to PKR 27.5bn (EPS: PKR 24.8) in CY15F.
Conference Call Highlights: The key takeaways of the conference call were (i) bank is focusing to expand its Islamic banking operations through separate subsidiary, (ii) UAE branch to start its operations by end of 1QCY15 (iii) Plans to increase its lending profile in the SME segment within the risk appetite (iv) CAR stood at 20.46% down by 184bps from 22.25% in CY13 due to Basel III implementation (v) and the bank plans to realize gains on investments only if the interest rate goes up.
CY14 reported 13%YoY increase to PKR 24.8bn (EPS: PKR 22.15): MCB earnings clocked in at PKR 24.8bn (EPS: PKR 22.15) in CY14 as compared to PKR 21.9bn (EPS: PKR 21.62) in CY13, a rise of 13%YoY. This is attributable to (i) Improvement in NIMs by 20bps bringing it to 5.5% (ii) 22%YoY increase in interest earned on investments and (iii) Net tax Refund of PKR 1.1bn resulting in 20%YoY increase in non‐markup income. In 4QCY14 earnings declined by 5%QoQ due to (i) 21%QoQ jump in administrative expense and (ii) 12%QoQ higher provisioning. The bank announced a final cash dividend of PKR 4/share for the year ended December 31, 2014, taking full year payout to PKR 14/share.