Intermarket Pulse: UBL: Challenges on multiple fronts
After an 8%YoY decline in 1HCY17 earnings (EPS: PRs10.81), we cut EPS estimates for UBL across our projection horizon by 11% on average and reduce our TP to PRs228/sh. We are now Neutral on the stock. We see earnings contracting in CY17F before growth resumes. However, high proportion of PIBs may delay double-digit growth until CY20F.
UBL remains a quality bank but two traditional areas of strength are facing headwinds; core fee income growth has stalled while tougher conditions in the GCC carry their own set of challenges. Positives include possible net provisioning reversals in CY17F, and likelihood for relatively tight cost control.
Loans grew 13%YoY in 1HCY17 and management is confident this is a sustainable run rate; Corporate advances are growing swiftly and these will be complemented by more focus on the Consumer & SME segments. Aggressive loan growth will be a drag on CAR (Jun’17: 14.9%) however, and over the medium-term we expect the bank to revert to a mix of stock and lower cash payout ratios.
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.
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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