Report
EUR 8.70 For Business Accounts Only

MCB Bank Limited : Stage set for strong earnings growth ahead; Buy reiterate

  • Our liking for MCB Bank Limited (MCB) has further increased post CY17 results and release of detailed accounts. MCB has set the platform for robust earnings profile ahead. Meanwhile, bank’s balance sheet is sweetly positioned for upturn in interest rate.
  • We have revised our earnings estimates by +6/-4/+10% over 2018-20E, and have raised our TP (based on justified P/BV) to PKR265 and reiterate Buy on MCB. We rate MCB just behind UBL, our top pick in banking space.
  • MCB trades at CY18E P/BV of 1.6x or 23% premium to its local peers. Premium valuation is justified on many counts (high ROA of 1.7%, low cost to income ratio, asset quality with NPL ratio of under 9% and 91% coverage).
  • We eye 3-yr PBT/PAT CAGR of 3/9% supported by expected load recovery, above-industry average volume growth with best-in-class CASA franchise, low-duration investment book and fee income growth.
  • Key risks to our call are; (i) delays in spin-off of branches to Islamic banking division, (ii) lower than expected loan recoveries on NIB portfolio, and (iii) delay in policy rate hikes (we expect cumulative 75bps jump in policy rate in CY18).
Underlying
MCB Bank Limited

Muslim Commercial Bank, and its subsidiaries, are engaged in commercial banking and the floating, administration and management of modaraba companies, modaraba funds and modarabas.

Provider
BMA Capital Management Limited
BMA Capital Management Limited

​BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.

Analysts
Fawad Khan

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