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Meezan Bank (MEBL): 1Q2019 EPS of Rs2.4, +49% YoY (+5% QoQ); DPS Rs1/share, Bonus Shares 10% (Above expectations)

 

• Meezan Bank Limited (MEBL) announced PAT of Rs2.9bn in 1Q2019 (EPS Rs2.4, up 49% YoY), slightly above our expectations on the back of 1) reversal in provisions and 2) foreign exchange gain.
• Earnings on yearly basis were up 49% on the back of increase in net spread earned, +57% YoY. The bank also announced final cash dividend of Rs1.0/share and bonus shares of 10%.
• We attribute significant rise in net spread earned to the non-applicability of Minimum Deposit Rate (MDR) on Islamic banks which has resulted in higher sensitivity of income to the tightening monetary policy (policy rate up by 475bps since Jan 2018 to date to 10.75%).
• MEBL’s other income grew by 7.7% to Rs1.9bn YoY where fee & commission income grew by 17.5% YoY. Further, the bank booked foreign exchange gain of Rs417mn vs. gain of Rs373mn in similar period last year.
• Other expenses during the outgoing quarter were up 24% YoY to Rs5.6bn. This was on the back of 23% increase in operating expenses.
• While pretax earnings were increased by a considerable 86% YoY in 1Q2019, net earnings growth was restricted to 49% owing to higher effective tax rate, +13ppts to 48%.
• To note, the govt. in its last economic reforms package imposed super tax on banks for the year 2017 to 2020, due to which banks are now recording additional super tax (2017 annual earnings) in their 1Q2019 accounts.
• Key risks for the bank include 1) deterioration in Pakistan macros, 2) uptick in provisioning charge, 3) lack of investment avenues & 4) lower than expected rate hike in policy rate.