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United Bank Limited’s (UBL) 1Q2012 earnings came slightly above our expectations at Rs4.9bn (EPS: Rs3.97) witnessing a growth of 49%YoY. Expansion in the bottom line was predominantly led by a sharp decline in provisions and write offs and a healthy increase in non funded income. Although net interest income (NII) also increased by 5%YoY but the bank witnessed a reduction of 45bps in net interest margins (NIMs) in 1Q. Surprisingly, the bank also announced an interim cash dividend of Rs1 per share (usually the bank practiced a semi annual dividend policy). On account of this impressive result, we have revisited our investment case and consequently tweaked our assumptions. As a result, we have revised up our earnings estimates by 11-6% for 2012E-14F. Our new target price arrives at Rs100 and we upgrade our stance to ‘Buy’ from ‘Hold’. The stock currently trades at 2012E PBV and PE of 1.2x and 5.6x respectively.
1Q2012 financial highlights
UBL’s NII witnessed a growth of 5%YoY to Rs9.6bn albeit a reduction in NIMs by 45bps to 6.7% in 1Q2012. However, the chunk of growth in the profitability was led by a sharp reduction in provisions and write offs which declined by 67%YoY to Rs766mn (provision on loans were down
72%YoY).
Furthermore, higher dividend income (up 7x to Rs810mn) and fee and brokerage income (up 17% to Rs1.9bn) led non funded income to grow by 35%YoY to Rs4.1bn which helped the bottom line to expand. On the expenses front, administrative expenses grew by 18%YoY mainly on account of opening up of 108 new branches.
Earnings assets grow by 9%QoQ
The bank’s deposit base remained flat at Rs614bn in 1Q2012 compared to Rs613bn in December 2011 - with domestic CASA coming down to 79% from 80% in December 2011. Investments and net advances too grew by a notable 12%QoQ and 6%QoQ to Rs331bn and Rs345bn, respectively. UBL’s ADR improved to 60% in 1Q from 56% in December 2011.
Amid rising NPL stock of Rs59.7bn (up 17%QoQ), bank’s asset quality deteriorated as the infection ratio came in at 15.4% from 13.9% in December 2011. With this, the bank’s coverage ratio also dropped to 68% from 78% in December 2011. As most of the new injection (Rs8.5bn) in the NPL stock is government guaranteed, it is exempt from provisioning.
Adjusting for these, the coverage and infection ratio come to 79% and 13.2%, respectively.
Investment perspective: upgraded to ‘Buy’
Post this result we have revised our 2012E-14F earnings
estimates by 11-6%. At current levels, the stock is trading at 2012E PBV and PE of 1.2x and 5.6x, respectively and we upgrade our stance to ‘Buy’ with a revised target price of Rs100.
(JS)
