Meezan Bank Limited (MEBL) 1Q2020 Result-EPS at PkR4.28/sh-beats market consensus

 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

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