United Bank Limited : Clarity emerges on key issues; reiterate ‘Buy’
- 2018 is shaping up to be an interesting period for United Bank Ltd (UBL) with possible resolution/settlement of major issues on pension cost, infection on international loan book, capital adequacy and compliance issues on NY operation.
- On most issues, UBL is expected to come on top with; (i) modest hit on pension cost with nominal recurring element, (ii) most of infection acknowledged in CY17, run-down on provisioning likely in 2018, (iii) capital adequacy largely addressed, in our view. Scrutiny on bank’s NY operation may continue.
- On business operations, focus is likely to be on consolidating the major gains on current account generation, advances growth and how to play on interest rate reversal in both domestic and international book.
- We have rolled out revised earnings estimates for CY18-20E with 3-20% cut on the basis of impending pension cost and provisioning. We eye NIMs and earnings for UBL to bottom out in CY18 in line with broader industry trend for local banks.
- We reiterate our Buy rating on UBL, our favorite name in banking space and also one of our top ten picks in BMA Universe. We set justified P/BV based TP of PKR265. UBL trades at CY18 P/BV of 1.3x and offers average ROE of 15% (CY18E-20E).
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.
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.
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