By: IGI Finex Securities Limited
We initiate our coverage on United Bank Limited with a ‘BUY’ based on Justified P/B Dec’15 target price of PKR 206/share, the scrip offers 24% upside from its last closing of PKR 167/share. Currently, the stock is trading at a CY15 P/B of 1.5x (1.6x of Big-5) and offering prospective dividend yield of 7.0% in CY15F.
CY15 Outlook: We believe where there are valid concerns on banking spreads and deposit deployment in CY15F in the banking sector, however, UBL with its continuing focus towards low cost deposits and hefty investments in PIBs (62% of the total investments) will be able to withstand tough times ahead. Additionally, according to the management the primary emphasis would be towards double-digit growth of loan book focusing on SME segments within the risk appetite, consequently with ADR expected to hover around 55% in CY15F. Further, according to the management the bank will continue to remain conservative towards consumer financing which would likely remain within the range of 4-6%. The banks NFI is expected to grow by 11%YoY in CY15F owing to introduction of new products in UBL Omni. We expect bank to post 11%YoY growth in earnings to PKR 26.8bn (EPS: PKR 21.90) in CY15F.
CY14 reported 22%YoY growth to PKR 24.0bn (EPS: PKR 19.63): UBL reported earnings of PKR 24.0bn (EPS: PKR 19.63) in CY14 compared to PKR 19.7bn (EPS: PKR16.12) in last period; an increase of 22%YoY. This upturn in profitability is underscored by (i) 19%YoY rise in NII, (ii) improvement in NIMs by 34bps, (iii) 14%YoY growth in corporate loan book and, (iv) 16%YoY decline in provisioning. Along with CY14, results bank announced a final cash dividend of PKR 4/share for the year, taking full year payout to PKR 11.5/share. PKR 4/share for the year, taking full year payout to PKR 11.5/share.