Earnings Report /

Meezan Bank: 4QCY21 Review: Strong revenues offset sharp rise in costs - earnings beat

  • MEBL posted 4QCY21 EPS of PKR5.21, up a sharp 2.0x yoy, and 21% qoq.

  • Strong net spread and Fx income have helped offset high admin expenses

  • Strong balance sheet growth, superior asset quality, and low cost deposits help maintain our liking

Yusra Beg
Yusra Beg

Senior Investment Analyst

Intermarket Securities
21 February 2022

Meezan Bank Ltd (MEBL) has posted 4QCY21 consolidated NPAT of PKR8.5bn (EPS: PKR5.21), up a sharp 2.0x yoy and 21% qoq. This takes CY21 NPAT to PKR28.2bn (EPS PKR: 17.35), up 26% yoy. The result is higher than our estimated final EPS of PKR4.81 with the deviation stemming from better-than-expected Net Spread (up 35% yoy) and high Fx income (PKR1bn, up c. 2.0x qoq), which helped offset a sharp rise in non-interest expenses (up 37% yoy to PKR9.9bn). MEBL has also announced a final cash dividend of PKR1.50/sh, in line with our estimates.

Key result highlights of 4QCY21 include:

  • MEBL has reported 4QCY21 net spread income of PKR20.4bn, up 35% yoy and 18% qoq, much higher than our estimated PKR19.0bn. We understand spreads have remained largely stable on a sequential basis, and growth may have been pushed by a larger balance sheet. We expect a more prominent rise in spreads in the coming quarters and an accompanying rise in net spread income.

  • Provisions have clocked in at PKR439mn. While this is higher than the c. PKR200mn/quarter average rate in the previous 9M, provisions have come off sharply vs. PKR4bn reported last year (which included one-offs).

  • Non-markup income is up a sharp 52% yoy increase to PKR4.5bn in 4QCY21. This was led by (i) fx income which has nearly doubled vs. last year to PKR1bn and (ii) a robust 31% yoy rise in fee income to PKR3.1bn (up 31% yoy) likely due to strong trade commission and card related fee. Capital gains are negligible while other income remain flat at PKR245mn.

  • Core admin expenses have risen substantially (up 38% yoy) to PKR9.6bn – higher than our estimated PKR9.3bn. We understand this is led by opening of new branches (c. 50 branches opened in 4Q) and higher utilities. That said, strong revenues have helped reduce the C/I to 39% vs. 41% in the previous quarter and are stable vs. 39% SPLY.

  • MEBL has reported minor profit from associates of PKR29mn in 4QCY21, vs. PKR279mn SPLY, likely due to muted equity market performance. Moreover, the bank has reported a slightly elevated effective tax rate of 42% vs. 41% SPLY and in 3Q.

Net spread income is strong and is yet to reflect the full impact of higher interest rates. That said, if costs continue at the current pace, this may have an offsetting impact. Aggressive balance sheet expansion, superior asset quality, and a unique low cost depositor base help us maintain our liking for the bank. MEBL trades at a CY22f P/B of 2.0x and P/E of 7.0x and offers a 28% upside to our Dec’22 TP of PKR175.0/sh.