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Pakistan

MCB Bank (Pakistan): CY19 review: Impressive 4Q, dividend payout steals the show

    Yusra Beg
    Yusra Beg

    Senior Investment Analyst

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    Intermarket Securities
    4 February 2020

    MCB has posted consolidated 4Q19 NPAT of PKR7,716mn (EPS: PKR6.51), up 14%yoy and 35%qoq, taking CY19 NPAT to PKR23,868mn (EPS:20.14), up 17%yoy. The result was significantly above our expected EPS of PKR4.96, primarily due to (ii) lower provisioning expenses (impairment reversals), (ii) higher than expected capital gains of PKR1.0bn, and (iii) significantly lower admin expense where C/I is now 42%. 

    MCB announced a final cash dividend of PKR5.0/sh, beating consensus expectations of PKR4.0/ share to take the full-year dividend to PKR17.0/sh (84% payout).

    4Q19 Key result highlights include:

    • MCB posted impressive 37%yoy growth in NII to PKR17,693mn (above expected) on margin expansion with interest expenses coming off by 3% qoq (likely lower borrowings). 
    • Total provisions of PKR850mn came in lower than our projection of PKR1.4bn, possibly due to impairment reversals on equities.
    • Non-interest income, although lower by 5%yoy, came in much higher than expected at PKR5,495mn, led by hefty capital gains which overcame a 66%yoy decline in Fx income (high base). Fee income depicted a 5%yoy decline. 
    • Admin expenses came in at PKR9,300mn up 9%yoy, much below our expectation of PKR9.9bn, with MCB demonstrating strong cost control. The Cost/Income came down to 42%, sharply down from the 50% average run rate in 9M19. 
    • Other highlights include: (i) effective tax rate of 38.5% and (ii) loss from associates at PKR35mn.

    CY19 Key result highlights include:

    • MCB posted CY19 NPAT of PKR23,868bn (EPS: PKR20.14), up 17%yoy (pre-tax basis: up 30%yoy). This was led by strong 33%yoy growth in NII, which helped more than offset (i) a sharp rise in total provisioning expenses to PKR2,674mn in CY19 vs. net reversals of PKR1,732mn in CY18, (ii) lower non-funded income and (iii) a 6%yoy increase in admin expenses. The latter is particularly impressive, in our view, given double-digit inflation.

    MCB’s result has been buttressed by capital gains and possible impairment reversals, that are by nature non-recurring. That said, core performance appears to be strong as well – NII is growing at a healthy pace, the cost of risk appears to be in check, and cost control is impressive. These positives are expected to carry into 2020f with added confidence coming from the strong year-end payout of PKR5.0/sh. MCB trades at a 2020f P/B of 1.4x while offering a dividend yield of 7.9%. We maintain our Buy stance on MCB with a Dec’20 target price of PKR246/sh.