Karachi: UBL conducted its 1QCY12 analyst briefing yesterday. To recall, UBL posted NPAT of PkR4.86bn (EPS: PkR3.97), up 43%YoY/13%QoQ in 1QCY12. Alongside, a PkR1 DPS was announced (interim dividends look to be the new norm). Earnings growth was driven by lower provisions, higher fees and strong capital gains. While a 17%QoQ increase in NPL stock appears alarming, this is primarily due to circular debt-related infection that is backed by the GoP and thereby exempt from provisioning. As such, management believes that even if interest rates begin to rise, potentially in 2HCY12, domestic asset quality should continue to improve. While AKD Securities believes near-term challenges remains, management has indicated that the int’l book has stabilized. Having gained a robust 67%CYTD, outperforming the KSE-100 Index by 40% in the process, UBL trades at a CY12F PIB of 1.14x and P/E of 6.7x. While AKD Securities’ target price of PkR82.5/share implies a Reduce stance AKD Securities will shortly look to revisit AKD Securities’ investment case for UBL.
1QCY12 Result Review: 1QCY12 NPAT came in at PkR4.86bn (EPS: PkR3.97), up 43%YoY/13%QoQ. Alongside the result, a DPS of PkR1 was announced. Main impetus to earnings growth came from a 72%YoY decline in loan provisions, 24%YoY fee income growth (higher commission on remittances and general banking services), strong capital gains and a spike in profit from associates. Nil was up a contained 6%YoY as NIMs contracted by 45bps YoY to 6.7% (bank level) while admin expenses were up a steep 20%YoY (+11%YoY after adjusting for new branches/one-offs).
Domestic NPLs up on circular debt: NPLs stock of PkR60bn is up 13%YoY/17%QoQ with the NPL ratio exceeding 15% and coverage dropping by 10ppt QoQ to 70%. That said, of the Pk8.5bn NPLs added in 1QCY12, the bulk of fresh infection came from circular debt-related receivables that are exempt from provisioning. Adjusted for these, the NPL ratio stands at 13.5% while coverage is stable at -80%. Management believes thus far availed FSV benefit of PkR3.2bn (EPS impact: PkR1.70) is not particularly worrisome even if it comes in for gradual expiry going forward.
Int’l book: International advances constitute ~23%of UBLs total loan book and appear to be stabilizing. Management believes asset prices are recovering in the Middle East, and Dubai is no exception, a view that appears to be corroborated by S and P which has recently stated it sees rising market confidence in the Dubai governments ability to resolve debt issues of government-related entities. In AKD Securities’ view, near-term challenges remain – overseas classified loans have climbed by 21%QoQ to PkR8bn while coverage at 67% appears low – but channel checks do suggest that outlook is better.