UBL: Price correction warrants a Buy
​CY17 is shaping up to be a slow year for UBL as reflected by 8.5%YoY lower earnings in 1HCY17. While pressure on NIMs was anticipated, continued weakness in the non-funded income segment has come as a surprise. In this regard, the segment's contribution to total income has gone down to 31% during 1HCY17 vs. 34% in 1HCY16. We expect the deceleration to persist (contribution to come down to 28% by CY20F) where factors like: 1) slowdown in the traditionally strong fee and commission income (last 5yr CAGR of 13.1% vs. 5yr forward CAGR of 4.8%) and 2) lower gains utilization are anticipated to linger on. Adjusting for the same, our revised CY17F/CY18F earnings estimates now stand at PkR22.3/24.3 per share, bringing down our TP to PkR250.8/sh (previously at PkR270.3/sh). UBL has corrected 12% in the last two months with price hovering at 11m low. CAR concerns are valid (CY19F buffer at 44bps), however we anticipate no immediate threat on this front. Expecting earnings to rebound from CY18F, we feel time is opportune for taking position in the stock Trading at a forward PB/PE of 1.3x/8.2x, our TP offers 25% upside.
United Bank is engaged in commercial banking and related services. Co. operates five business segments: Corporate Finance, Trading and Sales, Retail Banking, Commercial Banking and Asset Management. As of Dec 31 2016, Co. operates 1,341 branches inside Pakistan including 47 Islamic Banking branches and 2 branches in Export Processing Zones, and 18 branches outside Pakistan.
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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