MEBL posted 2QCY22 consolidated NPAT of PKR7.9bn (EPS: PKR4.84), up 18%YoY. This takes 1HCY22 NPAT to PKR17.1bn (EPS PKR: 10.48), up 34%YoY. The 2Q result is higher than our estimated EPS of PKR4.25, with the deviation largely stemming from very high Fx gains (PKR2.3bn, up nearly 3x QoQ). MEBL announced a second interim DPS of PKR1.75, above our estimated PKR1.25 (1HCY22 DPS: PKR3.50), as well as a 10% bonus.
2QCY22 results highlights:
MEBL reported 2QCY22 net spread income of PKR24.0bn, up 49%YoY and 12%QoQ, in-line with expectation. Higher interest rates have likely pushed up margins.
Total provisions have clocked in at PKR961mn, higher than our estimated PKR350mn. We understand this includes c.PKR750mn worth of general provisions and is not due to credit stress.
Non-markup income reported a sharp 80%YoY increase to PKR6.6bn in 2QCY22. This was led by (i) Fx income that nearly tripled from last year to PKR2.3bn, courtesy Fx volatility and strong trade flows, and (ii) a robust 43%YoY rise in fee income to PKR3.5bn on strong trade commission and card-related fee.
Core admin expenses are up 23%YoY to PKR10.5bn, likely driven by branch expansion amid higher inflation. That said, strong revenues have helped reduce the C/I to 34% versus 39% in the previous quarter and 43% SPLY.
MEBL reported a loss of PKR136mn from associates against a profit of PKR153mn SPLY, likely due to weak equity market performance. The bank reported an elevated tax rate of 58% against 39% in 1Q – in line with estimates.
Net spread income is strengthening and is yet to fully reflect the impact of higher interest rates, in our view. Strong margin sensitivity to high interest rates, superior asset quality, and a high growth trajectory help us maintain our liking. MEBL trades at a CY22f P/B of 1.8x and P/E of 5.7x. We retain our Buy rating.