By: KASB Securities Limited
United Bank Limited (UBL) posted an overall solid performance in 2014, where one of the key features included additional PRs44bn invested in high yielding PIBs during 4Q14, increasing the maturity profile of the bank’s investment mix and also leading to substantial unrealized surplus of PRs10.6bn (before tax) on the PIB exposure. Higher PIB holdings have largely offset the impact of our new assumption of lower policy rate (7.5%-8.5% vs 8.0%-8.5%) and CPI. Our Dec-15 PO for the bank is thus raised by 2% to PRs215 from PRs210 earlier. Maintain Buy.
UBL is our favorite investment theme in Pakistan Banks: We reiterate UBL as our favorite investment story in KASB Banks Universe by virtue of its (1) 1/3rd of consolidated balance sheet driven by international operations, (2) total PIBs at PRs312bn representing 45% of domestic deposits (one of the highest concentration in the sector) yielding fixed high rate of return for approximately three years, (3) non-fund income recording consistently robust growth and making up >30% of total income, and (4) consistently improving deposit mix. On valuations, UBL is now trading at undemanding 2015E P/B and P/E of 1.4x and 7.6x respectively. Therefore, being the least-at-risk bank from tough domestic monetary environment and the most attractive on valuations, UBL offers 37% total return to our PO including an 8% dividend yield. With >11% projected earnings CAGR over 2015-17E, UBL is a fine mix of growth and value in the KASB Universe.