The Bell about Banks – Elixir Securities Limited

Karachi: MCB Bank Limited – Healthy growth in asset base driving 1HCY11 earnings

Net Interest Income up 26% YoY

Net interest income of MCB during 1HCY11 increased by 26% YoY to PKR22bn against PKR18bn in 1HCY10. Net Interest income grew on the back of increase in earning assets which grew by approximately PKR57bn while deposit base increased by 18% to PKR496bn during 1HCY11 against deposits of PKR419bn in 1HCY10. MCB has been able to maintain a healthy CASA of 82% during 1HCY11. During 1HCY11 the asset base of the bank grew by 11% (PKR63bn) to PKR630bn. On the other hand the investments saw an increase of 22%, increasing bank’s IDR from 49% in Dec-10 to 52% in Jun-11. The net advances of the bank have only grown by 2% during the period resultantly decreasing its net ADR from 59% in Dec- 10 to 52% in Jun-11. On QoQ basis MCB’s deposit base increased by 7.3%, allowing for 3.7% increase in average earning assets, which resultantly increased net interest income by 3%.


MCB Bank Limited       Outstanding Shares: 836mn
Interest Income 32,842 26,396 24% 16,882 13,295 27%
Interest Expense 10,615 8,699 22% 5,578 4,322 29%
Net Interest Income 22,227 17,697 26% 11,304 8,973 26%
Non Interest Income 4,153 2,991 39% 2,145  1,591 35%
Operating Expense 7,779 6,426 21% 3,881 3,555 9%
Provisions (NPLs) 2,439  2,050 19% 1,242 1,048 19%
Pre-tax Profit 16,162 12,212  32% 8,326 5,961 40%
Tax 5,591 4,270 31% 2,778 2,160 29%
Profit After Tax 10,571 7,942 33% 5,548 3,801 46%
EPS (PKR) 12.64  9.50 33% 6.63 4.55  46%
DPS (PKR) 6.00 5.00 20% 3.00 2.70 11%
Source: Elixir Research; Company Accounts


Non Interest income witnessed robust growth of 39% YoY

The non interest income segment saw aggressive growth of 39% YoY in 1HCY11 to PKR4bn, emanating from higher capital gains, dividend income and high spreads earned in foreign currency dealings. During 1HCY11 capital gains jacked up by 270% YoY to PKR581mn, while dividend income rose 56.3% YoY to PKR352mn. Income on foreign currency dealings witnessed an increase of 76.4% in 1HCY11 to PKR486mn. On QoQ basis, 2Q growth was mainly seen in foreign currency dealing which increased by 27.3% QoQ to PKR214mn.

Provisioning expense up 19% YoY

During 2QCY11 the bank booked NPL provisioning expense of PKR1.2bn against Elixir Securities Limited expectation of PKR315mn. The bank has increased its coverage ratio to 83.6% in comparison to 80.2% held last quarter, as NPL accretion stood at a mere PKR528mn during 2QCY11. On the back of higher provisions booked by MCB Elixir Securities Limited has revised Elixir Securities Limited full year provisioning estimates and now expect MCB to book NPL provisioning at PKR4.7bn during CY11 taking the NPL coverage to 85.3%.

Effective tax rate was recorded at 33%

Elixir Securities Limited estimated tax rate of 39% for 2QCY11 due to 15% flood surcharge. However MCB did not book flood surcharge, as the management is of the view that the flood surcharge was not applicable on financial institutions. However, as disclosed by MCB’s management, if flood surcharge is accounted for, the bottom line of the bank will have an impact of PKR400bn (EPS impact of PKR0.48).

Earnings revised and Price Target increased to PKR220

On the back of higher than expected deposit growth Elixir Securities Limited has revised Elixir Securities Limited CY11 and CY12 earnings estimates to PKR26.8 and PKR30.6 and have increased Elixir Securities Limited PT to PKR220. At yesterday’s closing, the scrip provides a potential upside of 26% to Elixir Securities Limited Jun-12 PT of PKR220/share and is trading at a CY11E P/E of 6.5x respectively. BUY!

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