-We preview 9M2013 results for United Bank Limited (UBL) and MCB Bank (MCB), where we anticipate profitability to decline by 11%YoY in the case of UBL while MCB’s earnings are anticipated to grow by 2%YoY in 9M.
-We anticipate tighter Net Interest Margins (NIMs) and higher operating expenses are likely to come into play for UBL which is expected to post 3Q2013 earnings of Rs4.3bn (EPS: Rs3.48), down 10%YoY and 1%QoQ.
-MCB’s 3Q2013 earnings are expected to clock in at Rs5.1bn (EPS: Rs5.00), down 5%YoY and 17%QoQ. Resultant 9M2013 EPS is eyed at Rs16.75 (up 2%YoY).
-We maintain our ‘Under-weight’ stance on Pak banks where SBP’s recent decision to link saving deposits floor rate to the Discount Rate has limited triggers for the sector. Any softening of the Central Bank’s stance on this front would pose the key upside risk for banks.
Following the general theme of the banking sector, UBL’s core operations are likely to remain under pressure in 3Q, due to compression in NIMs. We expect 3Q2013 Net Interest Income (NII) to decline by 11%YoY and 2%QoQ to Rs8.8bn. Furthermore, (1) lower non-interest income (down 10%YoY) and (2) higher operating expenses of Rs7.0bn (up 12%YoY and 5%QoQ) are likely to add to the bottom line pressure. However, 1) lower cumulative provisions of Rs385mn (down 80%YoY and 45%QoQ) are likely to provide some support to dwindling core operations. Overall, 3Q2013 earnings are expected to decline by 10%YoY and 1%QoQ to Rs4.3bn (EPS: Rs3.48). Consequently, 9M2013 earnings are likely to clock in at Rs12.5bn (EPS: Rs10.23), down 11%YoY. We also expect UBL’s board to announce a third interim cash dividend of Rs2.0 per share (taking cumulative 9M dividend to Rs6 per share). At current levels, we maintain our ‘Sell’ call on UBL with a Target Price of Rs130. The stock is currently trading at 2013E P/E and P/B of 8.5x and 1.5x respectively and offers a dividend yield of 7%.
MCB’s 3Q2013 earnings are likely to witness a decline of 5%YoY though the same are expected to shrink by 17%YoY to Rs5.1bn (EPS: Rs5.00). Earnings are anticipated to decline on a YoY basis mainly due compression in NIMs where NII is eyed at Rs9.0bn, down 13%YoY. On a QoQ basis, 3Q earnings are likely to come off from the high base in 2Q2013 where the bank booked gains on sale of its Unilever Pakistan (ULEVER) shareholding. That said, 9M2013 earnings are likely to register a meager growth of 2%YoY mainly led by (1) provisioning reversals of Rs1.2bn and 2) 26%YoY higher non-interest income (due to higher gain on sale of securities). We do not rule out a third interim cash dividend of Rs3.5 per share (taking cumulative dividend for 9M2013 to Rs10.5 per share). At current levels we maintain our ‘Sell’ stance on MCB with a Target Price of Rs256. MCB is trading at 2013E P/E and P/B of 12.5x and 2.3x respectively and offers a dividend yield of 6%.