Earnings Report /
Mauritius

MCB Group (Mauritius): Q1 20 – net profit beat, more rounded earnings mix, Buy

    Rahul Shah
    Rahul Shah

    Head of Corporate & Thematic Research

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    Tellimer Research
    14 November 2019
    Published byTellimer Research

    MCB Group reported Q1 20 net attributable profit of MUR2,533mn, above our estimate of MUR2,391mn (there is no Bloomberg consensus). The key driver of the positive surprise was higher foreign exchange and fair value investment gains and better associate income (notably at BFCOI). The shares trade at 6.9x 2020f PE and 1.2x PTB (2020f ROTE 17.9%). We have a Buy rating and MUR405 target price.

    Key positives

    • A more rounded profit mix, with domestic banking operations contributing 35% of profit (versus just 31% in FY19).
    • Non-core operating income rose 18% yoy (we had forecast a decline); foreign exchange income and fair value investment gains both rose, as did dividend receipts.
    • Associate income rose 28% yoy; Banque Française Commerciale Océan Indien (BFCOI)’s results have improved due to lower risk costs at this entity.
    • Operating cost growth slowed to 6% yoy (from 10% in FY19). The cost/ income ratio improved to 37.4% from 39.8% in Q1 19.
    • Deposit growth was 14% yoy, ahead of our 13% expectation (FY19: 11%). Foreign currency deposits were the key driver. Loans/ deposits stands at 67.8%, down from 71.3% in Q1 19.

    Key negatives

    • Gross funding costs increased by 15bps yoy. Gross interest expense rose 33% yoy (versus 19% growth in gross interest income). Accordingly, net interest income growth slowed to 13%, from 21% in FY19.
    • Fee income growth slowed to 6% yoy (from 10% in FY19).
    • Loan growth was 8% yoy, lower than our 10% yoy expectation (FY19: 14%). Note that this line item has displayed quarterly volatility in the past.

    Outlook

    Management expects H1 20 results to be an improvement on H1 19 (when net attributable profit was MUR4,291mn). We forecast FY20 net attributable profit of MUR10,357mn (+9% yoy).

    Investment view

    Our positive rating on the shares reflects:

    • Solid volume growth prospects in foreign currency/ international lending, notably in the commodities and structured project finance arenas.
    • Likely improvements in operating efficiency following a period of investment.
    • Stable to improving credit risk metrics.
    • Strong and liquid balance sheet (17.6% CAR at Sep-19).
    • Domestic leadership position (c35% market share) and cautious risk culture.