We raise our CY21/22f EPS estimates for MEBL by 12% and 3% as we build in stronger balance sheet growth (in the backdrop of consistent branch expansion), lower provisioning and a marginally higher mid-cycle ROE at 23%. We therefore raise our December 2021 TP to PKR140/sh (vs. PKR135/sh previously).

1QCY21 Results: Earnings beat on strong core performance

MEBL posted 1QCY21 consolidated NPAT of PKR6.0bn (EPS: PKR4.28), up 20% yoy, and 47% qoq. This was an earnings beat led by (i) surprisingly flat net spread income (vs. an expected decline), (ii) lower-than-expected provisioning expenses, and (iii) strong rebound in fee income likely to be led by high trade commissions. MEBL also announced an interim cash dividend of PKR1.5/sh, higher than our projected DPS of PKR1.0.

Balancing growth with mix

MEBL continues to expand its brick and mortar network (825 branches at end-Mar’21). This has helped deliver a 5-year deposit CAGR of 22%. Over the next 5 years, we expect a 15% deposit and loans CAGR, which would still be quicker than the industry. This is aligned with MEBL’s target to grow its network to 1000 branches over the next 2-3 years. On the flipside, we expect admin expenses to grow at a 5-year CAGR of 16% with the Cost-to-Income ratio to remain elevated at 47% through the cycle vs. 39% in CY20. That said, with current accounts rising to 40% of deposits in 1QCY21 – second only to BAFL – MEBL is well placed to depict margin expansion when the interest rate cycle turns.

Courtesy – excerpt from report of Intermarket Securities Limited.