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Flash Note: Engro Fertilizer (EFERT): 1H2018 Analyst Briefing Notes

• MCB declared earnings of Rs9.4bn (EPS Rs7.95), down 30% YoY in 1H2018. This was due to 12% lower non-interest income (primarily due to lower capital gains) & higher admin charge.
• Advances of MCB in 2Q2018 clocked in at Rs564bn, up 11% in 2018 to date which was driven by corporate, consumer and seasonal commodity financing. The management expects advances growth of 7-8% going ahead.
• Gross NPL ratio of the bank also improved to 7.7% in Jun 2018 vs. 8.9% in Dec 2017 primarily due to recoveries mainly on account ex NIB’s NPL portfolio (merged with MCB). Consequently, MCB booked net provision reversals of Rs1.1bn during the quarter.
• The management is targeting to recover 40-50% of NIB’s NPL portfolio during the next few years.
• Current T-Bill portfolio of MCB is around Rs452bn, which is up from Rs384bn in Dec 2017. The T-Bill portfolio is entirely of 3-months tenure.
• Net Interest Income (NII) of the bank improved by 13% in 1H2018 to Rs23bn due to higher interest income on assets amid higher interest rates and lower interest expense due to reduced repo borrowings by the bank.
• The bank has so far booked the entire pension cost as per the instructions of Supreme Court in 1H2018 and there is no un-booked amount as of now on account of pension cost.
• Current to total deposits of MCB stood at 38% in Jun 2018, which the bank plans to increase to at least 40%.  
• The management is eyeing 17-18% growth in fee, commission income going forward which will support Non-Interest Income of the bank.
• Deposit Insurance scheme would cost around Rs100mn/month during 2018 (starting from Jul 2018) and slightly over Rs100mn/month from 2019 onwards.