Meezan Bank: 1QCY21 review – Strong core performance leads to earnings beat
- MEBL has posted 1QCY21 EPS of PKR4.28, up 20% yoy, and 47% qoq – an earnings beat.
- This was led by stronger-than-expected net spread income, lower provisioning expenses, and a rebound in fee.
- MEBL also announced an interim cash dividend of PKR1.50/sh, higher than our projected DPS of PKR1.0
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.
- 1 Macro Analysis/Global G7 reiterates support for SDR allocation and seeks to boost its impact
- 2 Strategy Note/Global G7's 'Build Back Better World' is not an answer to China's Belt and Road
- 3 Strategy Note/Vietnam Vietnam: The best emerging market is still spoilt by foreign ownership limits
- 4 Macro Analysis/Pakistan Pakistan's FY22 Federal Budget – Serious push on growth
- 5 Strategy Note/Global Egypt's military spend is not securing the Nile in its dispute with Ethiopia
The analyst certifies that the views expressed in the report reflect their personal views about the subject securities. He or she also certifies that no part of their compensation was, is, or will be,...