UBL has posted consolidated 3QCY22 NPAT of PKR6.5bn (EPS: PKR5.32), down 4% YoY but higher by 2.5x QoQ – although from a very low earnings base in 2Q. This brings 9MCY22 NPAT to PKR18.5bn (EPS: PKR15.09), down 15% YoY. The result is significantly below our projected EPS of PKR7.20, with the deviation primarily stemming from a high provisioning expense charge of PKR5.5bn (largely on account of impairment on international GoP bonds). Results were accompanied with an interim cash dividend of PKR4.0/sh – lower than our estimate of PKR5.0/sh, taking the 9M payout to PKR13.0/sh.
3QCY22 Results Highlights:
Net interest income is up a strong 49% YoY / 17% QoQ to PKR28.9bn - higher than estimated. Margins should continue to expand over the next few quarters, as the impact of asset repricing continues.
UBL has reported a high provisioning charge of PKR5.5bn vs. PKR1bn in the previous quarter – the key reason for the earnings miss. We understand this is driven by impairment on international GoP bonds and some element of equities impairment. Core asset quality remains strong.
Non-interest income clocked in at PKR8.2bn, up 41% YoY but down 8% QoQ. Fee income has depicted a strong rebound (+26%YoY) likely due to strong trade volumes and card related business. Fx income has, however, come off 20% QoQ, similar to other banks due to smoothening PKR volatility.
Admin expenses have risen 22% YoY, tracking the inflationary environment. However, the Cost/Income has come off to 40% on strong revenues (vs. 41% in the previous quarter and 48% SPLY).
The effective tax rate has come off to 59% vs. 85% in 2Q, but still higher than our estimated 54%.
UBL’s core business remains strong, and we believe the bank should be able to sustain a c 60% cash payout ratio over the medium-term. We maintain our liking for UBL. The stock trades at a CY23f P/B of 0.6x and P/E of 3.0x, while offering a DY of 19%. Our TP of PKR160/sh implies a Buy stance (ETR of 60%).