MCB announced earnings today for 1HCY21 above expectations (due to significant net reversals), at PKR 14.9bn (EPS: PKR 12.56), depicting a YoY uptick of 11% / 12% QoQ (2QCY21 EPS: PKR 6.64). Sequential uptick came primarily on the back of major net reversals booked this quarter, while a jump in NII and slight surge in NFI mainly from healthy other income also supported earnings. The bank announced a DPS of PKR 5.00 for the quarter taking total payout to PKR 9.50/share for 1H.

Result Highlights

· Net Interest Income of the bank settled at PKR 33.7bn, portraying a decline of 12% YoY during 1HCY21 while improving 7% QoQ, most likely on account of balance sheet growth.

· NFI has posted a 32% YoY uptick led by capital gains worth PKR 535mn against losses SPLY of PKR 58mn, and improved fee income by 17% YoY. During the quarter other income settled at PKR 661mn (PKR 8mn in 1Q and PKR 61mn SPLY) which supported NFI. The spike is on account of sale of some property as per management. Capital gains clocked in 54% lower QoQ and fee income declined 18% QoQ.

· The bank booked a significant net reversal of PKR 1.8bn this quarter taking total reversals to PKR 2bn for 1HCY21, which we attribute to improved outlook on the asset quality following the rebound in economic activity across the country. The management expects net reversals of PKR 1.5-2bn for the entire year.

· OPEX clocked in higher by 6% YoY during 1HCY21 / 4% QoQ with cost/income settling at 47% during 1HCY21 against 42% SPLY.

· Effective tax rate was 42% during 1HCY21.

Recommendation

· Currently, we have a “BUY” Call on the stock with a Dec’21 TP of PKR 226/share.

Courtesy – AHL Research