Earnings Report /

MCB Bank (Pakistan): 3QCY22 Review - Strong asset quality remains a hallmark

  • MCB has posted 3QCY22 EPS of PKR7.80, up 16% YoY and 4.0xQoQ – an earnings beat

  • The deviation is led by a combination of net provisioning reversals and strong Fx gains.

  • MCB is a strong D/Y play, and trades at a CY23f P/B and P/E of 0.7x and 3.1x

Yusra Beg
Yusra Beg

Senior Investment Analyst

Intermarket Securities
26 October 2022

MCB has posted consolidated 3QCY22 NPAT of PKR9.2bn (EPS: PKR7.80), up 16% YoY and 4.0xQoQ – coming from a low base in 2Q. This takes 9MCY22 NPAT to PKR20.6bn (EPS: PKR17.40), down 10%YoY. The result is better than our estimated EPS of PKR7.00, led by a combination of net provisioning reversals and strong Fx gains. Results were accompanied by an interim cash dividend of PKR5.0/sh – inline with estimates, taking 9MCY22 payout to PKR14.0/sh.

3QCY22 Results Highlights:

  • MCB reported NII of PKR25.0bn, up a strong 44%YoY and 9% QoQ, inline with estimates as margin repricing and deposit mix improvement continues.

  • MCB reported a total provisioning reversal of PKR377mn. This is likely led by continued strong recoveries on the NPL book, where superior asset quality is MCBs key hallmark. 

  • Fee income has is up 13%YoY, likely led by rise in trade and cards related business. Strong Fx gains of c. PKR4.1bn are a key feature – a function of higher trade volumes and exchange rate volatility. Total non-markup income is up 53%YoY.

  • Admin expenses have risen 22%YoY to PKR12.6bn – in line with expectations, in contrast to other banks where costs came in higher than expected. We understand the increase due to a rise in IT expenses, branch expansion, and high inflation. Strong revenues have helped maintain the cost/Income at 40%, same as 2Q and much lower than 47% SPLY.

  • Other highlights include an effective tax rate of 54% (in line) vs. a high 87% in the previous quarter (due to retrospective impact of ADR related tax) and 41% SPLY.

MCB’s asset quality remains a key strength, backed by its strong recovery pipeline. NII should continue to improve in the coming quarters, keeping revenue momentum buoyant. MCB is a strong dividend yield play (CY23f D/Y: 18%), and trades at a CY23f P/B of 0.7x and P/E of 3.1x. Our TP is PKR180/sh and we maintain our Buy stance.