MCB Bank Limited (MCB)

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Dear Clients,

MCB Bank Limited (MCB) held its conference call today to discuss financial performance of CY20 and company outlook going forward.

Key Highlights

– MCB Bank Limited (MCB) reported annual result today posting profit (consolidated) of PkR29.6bn (EPS: PkR24.8/sh), up 23%Y/Y. Earnings were 7% below our estimates.

– The bank’s deposits increased by 13% Y/Y to clock in at PkR1,290bn during CY20. However, MCB’s share in industry reduced by 54bps to 6.91% from 7.45% in corresponding period last year.

– The growth in deposit base was led by 15% Y/Y and 16% Y/Y increase in current and saving deposits, respectively. Consequently, CASA was reported at 92.96% posting an uptick of 254bps.

– Capital Adequacy Ratio for MCB improved to 20.98% in comparison to 18.86% in CY19, way above the requirement of 11.50%.

– The bank’s coverage ratio increased to 98.87% as infection ratio increased to 9.97%, up 82bps YoY from 9.15%. As per the management, gross advances are expected to register a double digit growth of 15% -16%.

– MCB’s investment portfolio recorded an increase of 35.67% Y/Y mainly driven by investments in T-Bills and PIBs that increased by 51% Y/Y and 19% Y/Y, respectively. The investment mix for the bank shifted to short term T-Bills that accounted for 59% (as opposed to 53%) with an average yield of 10.37%. PIBs comprised 34% of the investment mix with an average yield of 11.41%.

– With regards to the implementation of IFRS 9, the management highlighted that it has not been implemented so far and the bank awaits clarity on it.

– For CY2021, there would be an addition of 13 – 14 new branches as opposed to an addition of 19 branches in 2020.

– The bank expects reversal in provisioning up to PkR2.0bn – PkR2.5bn in 2021.

– The management expects a hike in policy rate by 100-150bps during CY21; 50bps increase in May2021 and 100bps increase in Jul2021.

– We have an Outperform rating on MCB with a target price of PkR215/sh. The stock offers a dividend yield of 11% and is currently trading at a one year forward P/Bv of 1.3x.

KASB Research

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