Intermarket Pulse: MCB: First among Equals
- Although 1QCY18 results disappointed (EPS: PRs3.97; -20%YoY), normalized for a one-off PF charge and other reversals, earnings were inline with our expectations. Nevertheless we lower our CY18-22F EPS estimates for MCB by 5.5% on avg. leading to downward revision in Dec’18 TP to PRs215/sh; maintain Neutral. Other contributing factors to the TP downgrade are (i) continuation of Super Tax over the next few years and (ii) cut in our estimated recoveries from NIB, after soft LLP reversals in 1QCY18.
- With interest rates expected to rise across the medium-term, we see NIMs expanding from c.4% in CY18F to 4.5% by CY22F. Focus on fee income is also a plus (+20%YoY in 1QCY18) while cost efficiencies should also materialize going forward. Accordingly, we see MCB’s ROE (including surplus) converging towards 20% by CY22F (after a poor sub-14% in CY18F).
- With peers facing challenges abroad, MCB stands out as a quality alternative in our view where we flag superior (i) ROE generation, (ii) asset quality, (iii) cost efficiency and (iv) capital strength (CAR: 17.0% in 1QCY18). MCB trades at a CY18/19F P/B of 1.5x/1.4x and P/E of 10.9x/8.9x where we believe premium valuations are warranted.
Muslim Commercial Bank, and its subsidiaries, are engaged in commercial banking and the floating, administration and management of modaraba companies, modaraba funds and modarabas.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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