MEBL has posted 1QCY21 consolidated NPAT of PKR6.0bn (EPS: PKR4.28), up 20% yoy, and 47% qoq. An earnings beat vs. our projected EPS of PKR3.35 – led by (i) surprisingly flat net spread income (vs. an expected decline), (ii) lower-than-expected provisioning expenses, and (iii) strong rebound in fee income likely to be led by high trade commissions. MEBL also announced an interim cash dividend of PKR1.50/sh, higher than our projected DPS of PKR1.0.
MEBL has reported 1QCY21 net spread income of PKR15.0bn, up 2% yoy and flat qoq. This is higher than our projected net spread income of PKR14.0bn, led by a 4% qoq rise in profit earned, which has helped offset a 12% qoq jump in markup expenses. This indicates that asset re-pricing towards lower rates has concluded, lifting instead due to rising KIBOR.
Provisioning expenses have seen a sharp decline to PKR285mn vs. a PKR4bn charge in 4QCY20 (largely on account of Hascol). Importantly this is much lower than the quarterly average run rate of PKR1.5bn reported in CY19-20 and marks a turning point for MEBL’s asset quality outlook, in our view.
Non-markup income has reported a strong 11% yoy and 31% qoq increase to PKR3.9bn in 1QCY21. Fee income has risen sharply to PKR2.4bn (up 51%yoy) likely due to strong trade commissions, similar to the case of HBL and MCB (results reported today). MEBL posted minor capital gains of PKR309mn (vs. a capital loss in 4QCY20). Fx income picked up 49% yoy sequentially to PKR822mn led by c.5% CY21td appreciation of the PKR.
Core admin expenses are up 16% yoy to PKR7.99bn (in line with expectations). Therefore, despite strong revenues, C/I has risen to 42% vs. 39% in 4QCY20 and 38% SPLY.
MEBL has reported a loss from associates of PKR48mn in 1QCY21, vs. PKR907mn loss SPLY, on account of its subsidiary Al Meezan Investments.
With MEBL having conducted its book clean-up last quarter, 1Q should set the tone for CY21f particularly after the strong core performance this quarter. We see MEBL delivering more than c.15% EPS CAGR across CY21-25f as interest rates rise, with mid-cycle ROE projected at more than 20% (highest within our Coverage Universe). We have a Dec 2021 TP of PKR135/sh, which we may look to revise-post availability of detailed financials.