EUR 4.62 For Business Accounts Only

MCB: A winner post amalgamation 08-12-16

• ​According to latest stock filing, Board of Directors of NIB Bank (NIB) has approved amalgamation with and into MCB Bank (MCB). As a result, MCB would be issuing 73.57mn shares on the basis of a swap ratio of 1 ordinary share of MCB for every 140 shares of NIB Bank.
  
• MCB’s stock is up 3.4% since announcement of the amalgamation as we speak, where the market has been quick to appreciate the positives, including (i) potential NPL recoveries of around PkR8-10bn over the next 2-3yrs, (ii) incorporation of 171 branches of NIB into MCB Islamic Bank, and (iii) reduction in deferred tax liabilities to PkR2.7bn. Addition of PkR8/sh to MCB's book value could potentially lead to a contribution of PkR12/sh to the bank's valuation.
  
• MCB currently trades at a CY17F P/B of 1.66x, where potential support to ROEs can override the slight hit to balance sheet quality; (i) CASA expected to drop by 3ppt to 87.6%, (ii) NPL ratio to jump by 4ppt to 10%, and (iii) Cost/Income to cross the 40% mark. We have a target price of PkR230/sh for MCB, where we are yet to incorporate the impact post amalgamation.