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United Bank Limited (UBL): 4Q2018 EPS of Rs4.7, -16% YoY (+61% QoQ); DPS Rs 3/share (Above expectations)

• United Bank Limited (UBL) reported earnings of Rs4.7/share in 4Q2018, down 16% YoY primarily due to a hefty provisioning charge during the quarter. However, the earnings are much higher than market consensus due to reversal in pension charge as well as reversal in Workers Welfare Fund (WWF) expense. UBL announced a dividend of Rs3/share for 4Q2018.
• Net Interest Income (NII) of UBL has remained flat in both this quarter and in 2018 despite 425bps hike in policy rate during 2018. This could likely be due to both high proportion of fixed rate PIBs in UBLs book, we believe.
• The bank booked a provision charge of Rs5.6bn in the quarter, primarily due to provisioning for NPLs in its international operations in order to increase its coverage ratio, we believe. The total provision charge for 2018 was reported at Rs13.1bn.
• The bank’s earnings we supported by reversal of Rs2.1bn in pension charge. To note, UBL had booked pension charge of Rs8.7bn in 9M2018. Further, UBL also booked a reversal of Rs2.6bn in WWF expense during 4Q2018.
• Bank’s non-markup income fell by 8% YoY mainly due to Rs309mn loss on sale of securities compared to Rs503mn gain in the same period last year.
• Admin expenses of the bank rose by 18% YoY. We believe that the higher growth in admin expenses could be due to expenses related to closure of bank’s US branch. However, we await management guidance with respect to this.
• For 2018 cumulatively, EPS clocked in at Rs12.6, down by 41% YoY primarily due to Rs6.7bn in total pension charge and 4.7x higher total provision expense booked by the Bank.
• Key risks for UBL include: 1) Further NPL creation on international book 2) lower than expected advances growth, 3) delay in hike in interest rates, and 4) deterioration of Pakistan macros.