EUR 4.36 For Business Accounts Only

Intermarket Pulse: MCB: Quality comes at a price and rightly so

• We marginally raise our CY18-22F EPS estimates for MCB by 1% on average, while maintaining our Dec'18 TP at PRs225/sh; Neutral. Significant NPL recoveries on NIB’s loan book complemented by healthy pick up in fee income are likely to offset flat NIMs and drop in capital gains in CY18F, in our view.
• MCB posted NPAT of PRs22.0bn (EPS: PRs18.53) in CY17, flat compared to CY16 (pre-tax: -17%YoY). We now see EPS of PRs21.15/24.61 in CY18/CY19F, where double-digit growth should continue over the medium-term. Furthermore, we expect MCB to maintain average payout well above the 60% mark going forward.
• With peers facing challenges abroad and on domestic litigation pertaining to pension funds, MCB stands out as a quality alternative. Moreover, with (i) aggressive book recoveries from NIB’s books that can kickstart MCB’s growth and (ii) superior CAR (16.3% in CY17), MCB warrants a premium, in our view. The bank trades at a CY18/19F P/B of 1.54x/1.46x and P/E of 10.21x/8.99x where we would build positions on dips.