The
State Bank
of Pakistan (SBP)
announced a 50bps
hike in the discount
rate to 9.5%
in its September
2013 Monetary Policy Statement (MPS) against market
expectation of maintaining the status quo. This brings much awaited
relief for the banking sector specifically to the large banks which have seen a
continuous decline in core earnings due to tighter spreads on the back of monetary
easing of up to 300bps since July 2012. Rise
in inflation has been intimated by the SBP,
we anticipate further rise in discount
rate to 150bps by the end of 2014. We hereby revise our estimates incorporating
the hike of 50bps in our models.
United
Bank Limited (UBL) has
the second highest
local CASA deposit base
after MCB Bank Limited (MCB) and this
potentially will result in a healthy 32.3% increase its Non Interest Income (NII) in CY14 due to rising spreads. The bank
will be less sensitive to asset quality shocks
in the increased
interest rate environment
because of its
prudent lending policies. Bank’s diversification via international operation
provides a cushion from potential loss of currency devaluation. We anticipate United Bank Limited (UBL) to report
bottom-line of Rs. 20.35bn in CY14 translating into EPS of Rs. 16.62. Please refer
to the valuation matrix on the following page for key annual financials.
2QCY13 Result Highlights:
During 2QCY13,
Net Interest Income (NII) declined
sharply due to
lower realized interest
rates and provisioning against
Non Performing Loan’s (NPLs). Increase in non core earnings about 33% primarily
comes from gain on sale of securities. The bank posted earnings of Rs. 3.52/share
translating into PAT of Rs. 4.3bn for the quarter. Furthermore, the bank announced
an interim cash payout of Rs. 2.0/share.
Valuation:
United
Bank Limited (UBL)
stock is currently trading at CY14(E) P/Bv of 1.70x yielding significant upside
to justified P/Bv
multiple of 1.99x. We reiterate Positive stance for the stock with a Dec-14 TP of 166.45/share.
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