Equity Analysis /

MCB Group (Mauritius): Q3 19: Key positive trends sustained; TP raised to MUR385; reiterate Buy

    Rahul Shah
    Rahul Shah

    Head of Financials Equity Research

    Tellimer Research
    15 May 2019
    Published by

    MCB Group reported Q3 19 net profit to shareholders of MUR2,458mn (+36% yoy), well ahead of our MUR2,125mn estimate. The international Segment B lending business remains the key growth driver. Other positive trends include resilient margins, improving cost efficiency and falling risk costs. Higher other income and a lower tax charge completed the package for a very attractive Q3 results announcement.

    We raise our TP to MUR385 from MUR350; maintain Buy rating. We have raised our loan growth forecasts, which has translated into higher net interest income. However, in recognition of the broader geographic profile of the business (higher Segment B weighting), we also raise our cost of equity assumption to 14.0% from 13.0%.

    Management outlook statement cautiously optimistic. “On current trends, Group results for the financial year ending 30 June 2019 should record healthy growth compared to last year, primarily underpinned by the appreciable performance of international operations… Looking ahead, the Group is expected to continue to reap the benefits of its ongoing diversification and capacity-building initiatives”.

    Healthy asset growth (+20% yoy). The key driver was customer lending (+18% yoy) but cash and investments balances also increased. On the liabilities side, customer deposits (+8% yoy) were broadly in line, but we saw strong growth in other borrowed funds. Loans/deposits rose to 73%, from 64% a year ago; we think this ratio can rise to c80% in the future, which is supportive for margins.

    Strong revenue performance (+17% yoy). The key driver was net interest income, which rose 18% yoy on higher foreign lending volumes and better investment yields. Other operating income was also strong, helped by a recovery in FX income and non-banking revenues (real estate). In contrast, associate income was a little weaker than expected, due to reduced profitability at BFCOI. Fee income was also light (+1% yoy).

    Good operating and credit cost discipline. Operating cost growth of 10% allowed the cost/income ratio to fall from 39.9% in H1 to 36.8% in Q3. Loan quality continues to improve, with the NPL ratio declining to 4.0%. Credit risk costs declined to an annualised 49bps of loans (69bps in H1).

    Divisional split points to sharp growth in Segment B. Segment B contributed 57% of group profits, up from 50% in H1 19 and 38% in 9M 18. This relative growth has largely come at the expense of Segment A (29% contribution), with other areas contributing 14%.