Karachi, November 07, 2012 (PPI-OT): UBL conducted its 9MCY12 analyst briefing yesterday.
According to AKD Securities, recall that UBL posted record high quarterly profits of PKR 5.55 billion (EPS: PKR 4.54) in 3QCY12, bringing 9MCY12 NPAT to PKR 14.9 billion (EPS: PKR 12.20). Although these contained a one-off emanating from derivative gains, AKD Securities believes potential where CY12F EPS should easily cross PKR 15. In this regard, despite lower domestic interest rates, AKD Securities believes UBL has the potential to sustain earnings in CY13F based on strong balance sheet growth, improving asset quality with coverage back to ~80%, continued fast-track fee income growth and sizeable capital gains backlog (PKR 2.9 billion net of deferred tax liability). UBL has gained 2.7% since result announcement to trade at a CY13F P/B of 0.09x and P/E of 5.1x where AKD Securities’ target price of PKR 100/share offers 31% upside. Buy!
9MCY12 Review: UBL posted NPAT of PKR 14.94 billion (EPS: PKR 12.20) in 9MCY12 vs. NPAT of PKR 10.60 billion (EPS: PKR 8.66) in 9MCY11, up 41%YoY. Interim dividend of PKR 2/share brought cumulative 9M payout to PKR 5/share (payout ratio: 41%). Earnings growth was primarily driven by halving of provisions and strong non-interest income growth. 3QCY12 NPAT of PKR 5.55 billion (EPS: PKR 4.54), up 33%YoY/23%QoQ, represents record high quarterly profit where sequential growth was greatly influenced by a one-off gain on derivatives.
Con Call Key Takeaways: NPL stock for UBL is up 2.7%YoY/1.8%QoQ in 3QCY12 to PKR 56 billion (NPL ratio: 14%; coverage: 79%). Coverage has increased by 4ppt QoQ due to both ageing and FSV benefit expiry to the tune of PKR 600 million (remaining backlog: PKR 2.9 billion pre-tax). Despite probable further FSV expiry going forward, management appears comfortable on asset quality and is eyeing a modest expansion in ADR in CY13F (54% at present) through selective opportunities in the corporate and SME space. UBL continues to heavily invest in funds owned by its asset management arm but outflow to other asset classes should occur as tax arbitrage on mutual fund income is phased out in FY14. Core admin expenses were up 18%YoY in 9MCY12 due to branch rollout and migration to core banking software – 70 branches have been added since Sep’11 and management expects the bank to add another 50-60 branches in the coming year.
Outlook and Investment Perspective: NII for UBL came off by 1%YoY in 9MCY12 due to tighter NIMs and bank management expects a further 50bps-100bps cut in the DR come Dec’12. Nevertheless, UBL should post EPS of more than PKR 15 in CY12F with potential to sustain earnings in CY13F, in AKD Securities’ view, on 1) anticipated uptick in interest rates in 2HCY13 and 2) tapping of capital gains backlog (PKR 2.9 billion net of associated deferred tax liability), primarily on PIBs and T-bills, in compensation for reduced NII. UBL trades at a CY13F P/B of 0.9x and P/E of 5.1x where out target price of PKR 100/share offers 31% upside. AKD Securities has a Buy stance on UBL that is buttressed by a double-digit forward dividend yield.