BMA Capital report on Ubl 1 hcy15 earnings preview

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United Bank Limited (UBL) is scheduled to announce its 1HCY15 financial results on Jul
23’15 where we expect the bank to declare earnings of PKR12.7bn (EPS: PKR10.4), up
20%YoY compared to PKR10.5bn (EPS: PKR8.6) registered in 1HCY14. The result
announcement is expected to accompany a second interim cash dividend of PKR2.5/sh,
bringing cumulative dividends to PKR5.5/sh for 1HCY15. The improvement in earnings
during 1HCY15 can be attributed to 10%YoY increase in interest earned to PKR44.3bn on
the back of high earnings PIBs coupled with 10% decline in interest expense to
PKR17.2bn. On the other hand, new taxation measures are likely to increase taxes by
65%YoY to PKR8.8bn in 1HCY15E vis‐à‐vis PKR5.3bn charged in 1HCY14, thereby
containing the earnings growth. Given healthy fundamentals of the bank (strong core and
non‐core operations), we reiterate our ACCUMULATE stance on the scrip with TP of
PKR200/sh offering an upside of 12% along with DY of 7%. On the last closing, the stock
traded at Dec’15 P/B and P/E of 1.7x and 9.6x, respectively.
1HCY15 earnings to portray a decent increase…: The Board of Directors (BoD) of United
Bank Limited (UBL) is scheduled to announce 1HCY15 financial results on 23rd
Jul’15. We
expect UBL to declare 1HCY15 earnings of PKR12.7bn (EPS: PKR10.4), depicting an
impressive growth of 20% compared to PKR10.5bn (EPS: PKR8.6) registered in 1HCY14. The
result announcement is expected to accompany a second interim cash dividend of
PKR2.5/sh, bringing cumulative dividends to PKR5.5/sh for 1HCY15. The improvement in
the earnings during 1HCY15 can be attributed to 10%YoY increase in interest earned to
PKR44.3bn on the back of high yielding PIBs coupled with 10% decline in interest expense
to PKR17.2bn. Also, 17%YoY accretion in non‐interest income to PKR11.7bn in 1HCY15 from
PKR10.0bn in 1HCY14 due to robust fee income of PKR5.7bn, higher dividend income of
PKR1.1bn and robust expected capital gains of PKR2.9bn will further add to the growth in
bottom‐line. On the flip side, administrative expenses are likely to increase by 10%YoY to
PKR15.8bn on account of higher staff cost and branch expansion.
… while taxation measures and lower IR to dampen 2QCY15 earnings: Given notable
changes in the taxation measures introduced in FY15 Federal Budget, namely
implementation of ‘Super tax’ and a flat 35% income tax on all sources of income, the tax
liability of the banking sector is likely to post a significant growth. Consequently the bank’s
total tax expense is expected to clock in at PKR5.0bn in 2QCY15, up a whopping 32%QoQ
primarily due to i) super tax of 1.3bn, translating into an adverse EPS impact of PKR1.1/sh,
and ii) higher tax on capital gains realized during 1QCY15. Thus, for 2QCY15 alone, we
expect the bank’s earnings to clock in at PKR5.5bn (EPS: PKR4.5), down by massive 22%
from PKR7.1bn (EPS: PKR5.8) registered in the preceding quarter. Given decline in
benchmark interest rates, the bank’s interest earned declined by 6%QoQ to PKR21.4bn in
2QCY15 while interest expense is likely to register a larger decline of 24% due to immediate
re‐pricing of deposit rates.
Financial Summary
1HCY15 Earnings Preview
United Bank Limited (UBL)
Wednesday July 22, 2015
UBL Performance
1M 3M 12M
Absolute % 9% 13% ‐3%
Relative to KSE % 5% 2% ‐22%
Bloomberg UBL.PA
Reuters UBL.KA
MCAP (USD mn) 2,153
12M ADT (USD mn) 2.9
Shares Outstanding (mn) 1,224
UBL ‐ ACCUMULATE
Target Price: PKR 200
Current Price: PKR 179
Iqbal Dinani
iqbal.dinani@bmacapital.com
+92 111 262 111 Ext: 2059
UBL vs. KSE100 Relative Chart
Source: BMA Research
‐20%
‐10%
0%
10%
20%
30%
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
Feb‐15
Mar‐15
Apr‐15
May‐15
Jun‐15
Jul‐15
UBL KSE100 Index
PKRmn 1HCY15E 1HCY14 YoY 2QCY15E 1QCY15 QoQ
NII after provision 25,541 20,165 27% 13,201 12,340 7%
Non Interest Income 11,718 10,040 17% 5,491 6,226 ‐12%
Non Interest Expense 15,796 14,357 10% 8,147 7,649 7%
Profit Before Tax 21,463 15,848 35% 10,545 10,918 ‐3%
Profit After Tax 12,674 10,532 20% 5,547 7,127 ‐22%
EPS (PKR) 10.4 8.6 20% 4.5 5.8 ‐22%
DPS 5.5 5.0 10% 2.50 3.0 ‐17%
Source: BMA Research
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