Earnings Report /
Pakistan

United Bank: 1QCY20 in-line, strong cost control overcomes high provisioning

  • UBL has posted consolidated 1CYQ20 NPAT of PKR4,878mn (EPS: PKR3.98), up 21%yoy, in-line with estimates.

  • Provisions are high (IFRS-9 implementation in overseas markets) but have been offset by strong cost control.

  • Fee income is beginning to show signs of stress, but capital gains have partially compensated.

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
23 April 2020

UBL has posted consolidated 1CYQ20 NPAT of PKR4,878mn (EPS: PKR3.98), up 21%yoy and flat qoq. Alongside the result, UBL announced an interim dividend of PKR2.50/sh. Both EPS and DPS are in-line with our projections. While provisions are high (possibly due to IFRS-9 implementation in overseas markets) this has been offset by strong cost control, where admin expenses are up just 6%yoy. Fee income is beginning to show signs of stress, but capital gains have partially compensated. 

1QCY20 key result highlights include:

NII came in in-line with estimates at PKR17,789mn, up 19%yoy and 5%qoq. likely led by lagged repricing of assets, while most peer banks have depicted a qoq decline in NII. 

Provisions & Impairment are a high PKR3,701mn vs. our expectation of PKR2,900mn and higher than peers. This may be due to IFRS-9 being applicable in GCC where UBL has a large book, alongside some element of impairment on equities portfolio.

Non-interest income declined 8%yoy to PKR5,080mn, and although it is up 12%qoq, it is still lower than our expectation of PKR5,675mn. The pressure on fee is evident, clocking in at PKR3,461mn (down 16%yoy). This has been partly compensated by higher than expected capital gains.

The pace of admin expense growth has noticeably slowed to 6%yoy, where core admin expenses of PKR10,315mn are much lower than our projected PKR11,568mn. C/I has therefore dropped to 47% vs. 49% SPLY and much lower than the CY19 average run rate of 51%. 

This is a decent result by UBL where the bank has demonstrated the ability to offset high provisions and protect the bottom line. The moratorium on bank dividends is having an adverse impact on share prices but, as long as profits remain in-line with projections, bumper dividends could be on the cards once the moratorium ends. We continue to like UBL best among peers where it trades at a 2020f P/B of 0.7x; Buy.