JS Securities Limited – Morning Briefing

Karachi, November 08, 2018 (PPI-OT): MCB: Key takeaways from 9M2018 result conference call

MCB Bank Ltd (MCB) held its quarterly conference call yesterday, in which it discussed 9M2018 performance and outlook.

During 3Q2018, MCB’s deposits grew 11% YoY, while the company maintained its proportion of zero-cost deposits amid a slight decline seen in share of savings deposits.

The bank expanded its loan portfolio by 17% YoY, taking ADR to 50% (+3ppt YoY). MCB’s target of recovering ~10bn in the next 18-24 months remains intact, which is much higher than our base case assumption of Rs1.25bn per annum during 2019F/2020F.

The bank’s Net Interest Income (NII) remained stable during 3Q2018 on a YoY basis, despite 53% of the bank’s deposits witnessing increase in rates almost immediately.

We maintain our Justified P/B for MCB at 1.75x, with a D/Y of 8%. The stock currently trades at Jun-2019 P/B of 1.50x.

Asset placements to optimize higher interest rate benefit

MCB Bank Ltd (MCB) held its quarterly conference call yesterday, in which it discussed 9M2018 performance and outlook of the bank. During 3Q2018, MCB’s deposits grew 11% YoY, with share of zero-cost deposits intact and a slight decline in share of savings deposits. On the other hand, Borrowings were reduced by more than 50% YoY as Repos from the State Bank of Pakistan (SBP) decreased during the period. On asset allocation front, the bank expanded its loan portfolio by 17% YoY, taking ADR to 50% (+3ppt YoY). Investments declined by 33% YoY on lower MTB and PIB Investments, taking IDR down to 42% (-27ppt YoY). However, to optimize benefit of the 100bps Policy Rate (PR) hike announced in Sep-2018, the bank placed partial funds under Lending to Financial Institutions (13% of Deposits) with a relatively shorter duration. Asset quality remained in check where recoveries from ex-NIB NPLs accumulated to Rs2.8bn as at Sep-2018, accounting for ~10% of NIB’s NPL portfolio at the time of merger. The bank’s target of recovering ~10bn in the next 18-24 months remains intact, which is much higher than our base case assumption of Rs1.25bn per annum during 2019F/2020F.

3Q2018: Core income remains stable

The bank’s Net Interest Income (NII) remained stable during 3Q2018 on a YoY basis. This was despite 53% of the bank’s deposits witnessing increase in rates almost immediately. Nonetheless, NIMs contracted by ~20bps YoY to 3.66% during 3Q2018. We expect MCB to recover NIMs during 4Q2018 as loan portfolio is usually re-priced with a lag of one quarter.

Fee Income witnessed sluggish growth of 5% YoY as decline in income from Banc assurance and Investment Banking offset growth driven from Cards and Trade segments. Going forward, the bank expects further PR hike of 250-300bps in the next twelve months, out of which 100bps is expected to be announced in the Nov-2018 Monetary Policy meeting. We maintain our Justified P/B for MCB at 1.75x, with a D/Y of 8%. The stock currently trades at Jun-2019 P/B of 1.50x. We flag the bank is one of the highest beneficiaries of interest rate increase among the top-tier/Big 5 banks.