Earnings Report /
Pakistan

MCB Bank (Pakistan): 2QCY22 review – Payout surprises, tax is transitory

  • Reported profits are down c. 70%yoy in 2Q, but core performance is strong

  • Admin expenses have risen sharply but cost to income remains in check at 40%

  • Asset quality is intact, MCB trades at a CY23f P/B of 0.8x and P/E of 3.8x

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
17 August 2022

MCB has posted consolidated 2QCY22 NPAT of PKR2.3bn (EPS: PKR1.92), down 71% YoY and 75% QoQ. On a pre-tax basis however, profits are up 30%YoY/18%QoQ. The result takes 1HCY22 NPAT to PKR11.4bn (EPS: PKR9.58), down 24%YoY. The result is significantly lower than our estimated EPS of PKR2.75, due to a combination of admin expenses and high tax. Results were accompanied with a cash dividend of PKR4.0/sh, higher than our expected DPS of PKR2.25.

2QCY22 results highlights:

  • MCB reported NII of PKR22.9bn, up 31%YoY and 18% QoQ, higher than our estimated PKR21.7bn, led by strong push on low cost deposits and repricing of the asset base. Margins should continue to rise in the next few quarters.

  • MCB reported a minor provisioning expense of PKR71mn vs. an estimated reversal. We understand this is due to an impairment charge of c. PKR1bn, which has been offset by strong NPL recoveries.

  • Fee income has jumped 29%YoY, likely led by rise in trade and cards related business. MCB has reported strong Fx gains of c. PKR3.0bn – a function of both volumes and exchange rate volatility. Total non-markup income is up 43%YoY.

  • Admin expenses have risen sharply – up 19%YoY to PKR11.8bn much higher than expectations. We understand this is due to rise in IT expenses, consistent branch expansion strategy and impact of high inflation. That said, strong revenues have helped keep the cost/Income at a low 40% vs. 44% in 1Q and 47% SPLY.

  • Other highlights include a very higher effective tax rate of 87% vs. 41% in the previous quarter and 43% SPLY. This is led by high ADR related taxation and super tax.

MCB continues to maintain asset quality health as the recovery pipeline remains strong. NII is likely to show further improvement in the coming quarters, and should limit the impact of high admin expenses for the balance of the year. The dividend payout provides comfort, where MCB’s capital buffers are more than adequate (standalone CAR: 16.45%). MCB remains a strong dividend yield play (CY23f D/Y: 17%), and trades at a CY23f P/B of 0.8x and P/E of 3.8x.