MCB_The right mix of growth and value
Asset quality deterioration and increase in expenses characterized MCB's earnings performance in CY17. This, we believe was more a consequence of NIB acquisition with the bank inheriting PkR29bn additional infected loans while cost inefficiencies were a function of the bank's small size. Impairment charge during the year was another drag on earnings with the bank booking provisions worth PkR3.5bn - highest ever as the benchmark index lost 15% during the year. That being said, the bank is encouragingly focusing on: 1) building its loan book (17%YoY growth in advances ex-NIB) particularly in the consumer space, 2) targeting CA growth to support NIMs alongwith concentration towards the shorter end of maturity profile to benefit from DR upcycle and 3) increasing its fee income base (+22%YoY). While earnings will rebound from CY18F, improvements on the cost front (C/I ratio to go down to 44% by CY19F from 51% in CY17) and provision (NPL ratio to gradually come down to 6% by CY19F) should become more visible by CY19F. MCB has gained 6% CYTD to trade at a forward PB/PER of 1.5x/11.0x where superior earnings growth (3yr NPAT CAGR of 13%) and strong management credentials justify premium valuations. Additionally, price performance can continue particularly in the backdrop of the upcoming MPS with market participants eyeing another rate hike. Our revised TP of PkR249/sh offers 12% upside.
Muslim Commercial Bank, and its subsidiaries, are engaged in commercial banking and the floating, administration and management of modaraba companies, modaraba funds and modarabas.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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