Karachi, August 03, 2022 (PPI-OT): UBL: Earnings disappoint on the back of lower NFI

United Bank Limited (UBL) announced its 1HCY22 result today, where the bank posted consolidated earning of PkR12.2bn (EPS: PkR9.7), down 20%YoY. Along with the result the bank also announced a quarterly dividend of PkR4.0/sh. The earnings were slightly lower than anticipated on the back of lower funded income, however, the management surprised street estimates on the higher side by announcing a dividend of PkR4.0/sh (expectations of PkR2.5/sh). Here are the key takeaways from the result.

UBL’s Net Interest Income (NII) grew by ~28%YoY during 1HCY22 on the back of robust book growth and favourable asset pricing but disappointed our expectations, resulting in the earnings miss.

Non-Funded Income (NFI) clocked in at PkR15.6bn owing to strong performance of FX trading desk which clocked in at PkR4.6bn (up 3.8x YoY). Other notable contributions came from Fee and Dividend Income which increased 17.4%YoY and 61.9%YoY (low base effect) respectively.

Admin expenses reportedly jumped by 19.5%YoY during the period under review on the back of rising inflation, taking the cost-to-income ratio to ~44.8% during the period under review.

Provisioning expenses clocked in at PkR1.4bn during 1HCY22, on the back of hefty provisioning expenses in the quarter of ~PkR1.4bn.

Effective tax rate for the quarter clocked in at ~85%, attributable to imposition of super tax and poverty alleviation tax announced in federal budget.

Along with the result, the bank announced a quarterly dividend of PkR4.0/sh which took the total payout during the period to PkR9.0/sh. The payout announcement surprised our estimates on higher side. We have a buy call on the scrip with a TP of PkR155/sh. The scrip trades at a forward multiple of 0.6x