UBL Downgrade to HOLD on stellar price performance – Elixir Research
By: Ujala Adnan,
(+92-21) 111 354 947 Ext: 3169
Elixir Securities Pakistan (Pvt.) Ltd
Positives priced in; Downgrade to HOLD
We downgrade our rating on UBL to ‘HOLD’ as the stock has rallied by 25% since Mar-14 as compared to KSE-100 index which rallied by 10%. We believe that the stock is fairly valued at current levels and offers a meager upside of 3% to our Dec-14 PT of PKR173/sh and a dividend yield of 7.2%. HOLD!
Revenue growth would likely remain strong
UBL is likely to post a rebound of 26% YoY in its NII on the back higher interest rates together with a low base effect. UBL Omni on the other hand is also set to post stellar growth and contribute to non-funded income (NFI) growth.
Improving asset quality would be an added advantage
UBL’s non-performing loans (NPLs) stock came down by ~8% during CY13 to PKR52.6bn. Asset quality have also improved with notable progress in key asset quality ratios; NPL coverage has improved by 9pp during CY13 to 87% while gross infection ratio has trimmed by 2pp to 12%. CY13 NPL reversals amounted to PKR4.4bn, up 56% as compared to the same period last year.
Opex to remain in check
UBL’s branch addition is expected to remain sluggish going forward which would likely limit staff cost growth. This is expected to keep opex in check and resulting in UBL’s cost-to-income ratio to come down by 5pp YoY to 43% in CY14 as against 48% in CY13.