MCB has posted consolidated Q3 19 NPAT of PKR5,732mn (EPS: PKR4.84), up 38% yoy and 5% qoq, taking 9M 19 NPAT to PKR16,152mn (EPS:13.63), up 19% yoy. The result was in line with our estimates. Growth in Q3 19 was led by an impressive 39% yoy jump in NII (slightly higher than projected) with asset re-pricing coming through more meaningfully. This helped offset a relatively high PKR916mn provisioning charge, which possibly reflects some impairment as well. MCB announced a third interim dividend of PKR4.0/sh, taking the 9M payout to PKR12.0/sh.
- MCB posted impressive 39% yoy growth in NII to PKR16,445mn (above expected), led by asset re-pricing following aggressive rate hikes earlier in the year. The 100bps rate increase in Jul’19 should reflect in margins in Q4 19, in our view, keeping revenue growth momentum intact.
- Total provisions of PKR916mn came in higher than our projections of PKR175mn. It is possible that there is an element of equities impairment in this figure (similar to UBL).
- Non-interest income dropped 5% yoy to PKR3,637mn, largely inline with expectations. Fee income growth was muted at 6% yoy, while other heads registered a net decline.
- Admin expenses came in at PKR9,576mn up by a modest 5% yoy, slightly lower than our expectations. Cost/income remained within a manageable range at 49%, down from the 53% average run rate in the last four quarters.
- Other highlights include: (i) effective tax rate of 39.6% and (ii) marginally higher profits from associates at PKR174mn.
MCB’s result is in line with our expectations. Similar to other banks, provisions are on the rise, but we continue to believe that revenue growth will more than offset a higher cost of risk going forward. MCB trades at a 2020f P/B of 1.2x while offering a dividend yield of 9.3%. We maintain our Buy stance on MCB with a Dec’20 target price of PKR210/sh.
Risks: (i) Failure to record provisioning reversals as per management guidance, (ii) continued sluggish fee income growth, and (iii) higher-than-expected admin expenses.