Meezan Bank Limited (MEBL) reported 4Q2019 result earlier today posting
Profit after Tax (PAT) of PkR5.5bn or EPS of PkR4.28/sh, up 97%Y/Y and 27%Q/Q. As expected MEBL skipped cash dividend for March quarter. The result is above market consensus of PkR2.84/sh and KASB’s estimate of PkR3.1/sh by 51% and 38% respectively. We expect the stock to perform on the back of above expectation result due to sharp growth in non-interest income driven by FX income and gains booked on sale of securities. Moreover, higher interest rate during the quarter also led to sharp growth in core income.
Net Interest Income (NII) grew 66%Y/Y and 8%Q/Q to PkR14.7bn. We believe NII would decline going forward due to 425bps cut in the policy rate.
Non-Interest Income grew 64%Y/Y and 23%Q/Q to PkR3.2bn. Within NonInterest income, income from dealing in foreign currency grew 1.3xY/Y and 12%Q/Q to PkR963mn. Gain on sales of securities came in at PkR680mn against a loss of PkR125mn recorded in 1Q2019. This was partially offset by decline in fee income, down 15%Y/Y and 16%Q/Q to PkR1.3bn.
In our opinion, market was a bit concerned about MEBL’s credit quality. Provisioning expense came in at PkR1.6bn against a reversal of PkR100m recorded in 1Q2019. However, on a sequential basis provisioning expense declined 3%Q/Q. We are modelling MEBL’s infection to increase form 1.78% in 2019 to 2.5% in 2020.
Operating expenses increased 30%Y/Y but declined 3%Q/Q to PkR7.1bn. Consequently, cost to income ratio dropped to 40% in 1Q2020 compared to 50% in 1Q2019 and 45% in 4Q2019.
Following the result, key questions to ask the management will be: (i) guidance on branch expansion (ii) credit quality and (iii) quantum of gains which could be realized going forward.
We have an Outperform rating on MEBL with a target price of PkR93/share.
The stock is currently trading at one year forward P/Bv of 1.16x
