Meezan Bank Limited (MEBL)

Dear Clients,

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

Key Highlights

– Meezan Bank Limited (MEBL) reported Profit after Tax (PAT) of PkR22.2bn (EPS: PkR15.7, up 46%Y/Y) during CY20. The result was below the consensus due to recognition of higher than anticipated provisioning.

– Bank’s deposits during CY20 touched a mark of PkR 1.3trn and the CA/SA mix improved to 40%/36% from 36%/38% in CY19. The management expects a deposit growth of 12%-16% and would maintain current account ratio at 40% in CY21.

– The market share of MEBL’s deposits in Banking industry clocked in at 7.0% and 36% in Islamic Banking Industry.

– The management expects the ROE to normalize to 20% – 25% in CY21 in comparison to ROE of 34.6% in CY20.

– The bank recorded specific and general provisioning amounting to PkR 7.3bn and PkR 1.1bn, respectively during CY20. MEBL prudently accounted for risk factors from any client specific provisioning and prepared for IFRS 9 implementation. As per the management, the level of provisioning for CY21 would be lower than CY20.

– The management expects a hike in policy rate from the end of 3QCY21 and 4QCY21 due to rising inflation.

– The branch expansion would roughly have the same pace as over the past few years. To highlight, MEBL added 55 new branched in CY20. Furthermore, MEBL plans to invest in digitization and digital transformation initiatives are in implementation phase.

– The investment mix for MEBL comprises GoP Ijara Sukuk (41%), Energy Sukuk (27%) and GoP Bai Muajjal (25%).

– The management highlighted that out of PkR 29bn loans deferred under SBP’s COVID led scheme, only PkR 11bn are left.

– As per the management, the impact of asset repricing has been completely accounted for in 4QCY20.

– The bank foresees a loan growth of 10-12%, dividend payout of 35% – 40% and ADR at current level in CY21. Additionally, the management highlighted that CAR above 16% is a comfortable level for the bank that clocked in at 17.8% in CY20.

– We have an Outperform rating on MEBL with a target price of PkR118/sh. The stock is currently trading at one year forward P/Bv of 1.8x and offers a dividend yield of 6%.

Regards,
KASB Research

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