3QCY24 Review: Higher effective tax rate masks strong core revenues
MEBL has posted 3QCY24 consolidated NPAT of PKR26.2bn (EPS: PKR14.58), flat YoY and QoQ. The result is lower than our estimated EPS of PKR15.77/sh. This takes 9MCY24 NPAT to PKR78.3bn (EPS: PKR43.62), up 34% YoY. Core revenues have grown swiftly (net spread income and fee); however, these positives are masked by a large provisioning charge of PKR2.5bn and a higher effective tax rate of 55% (preemptive provisioning for year-end ADR tax) – excluding which this would be an earnings beat. Results were accompanied with cash dividend of PKR7.0/sh – in line with estimates.
3QCY24 Key result highlights include:
§ Net spread income rose a sharp 9% QoQ and 20% YoY to PKR76.9bn. This is led by a sharper drop in the cost of deposits (savings deposits repriced fully to the recent rate cuts) vs. the rates on loans. MEBL’s cost of borrowing has also come off sharply – although it has a relatively low base. MEBL’s CASA remains intact at 90% while reporting strong deposit growth of 27% YoY in 3Q. Advances have also grown by 17% YoY while investments are up 12% YoY.
§ MEBL has posted LLP charge of PKR2.4bn in 3QCY24 vs. cumulative reversals of PKR943mn in 1HCY24. NPLs are growing quickly –14% QoQ; however, the NPL ratio remains largely unchanged at 1.7% while total coverage stands at 165%.
§ Non-funded income has come in at PKR7.9bn, up 10% YoY and 18% QoQ. This was primarily driven by strong pick-up in fee (up 34% YoY and 29%) at PKR6.9bn – led by strong cross selling and broad-based growth in branch banking, debit cards and trade. Most other non-core income lines came off with MEBL reporting a capital loss of PKR745mn. Moreover, Fx income has dropped to PKR29mn vs. a high PKR1.6bn SPLY.
§ Core admin expenses grew 18% YoY to PKR22.0bn – a slower growth driven by a high base last year. The C/I has inched lower to 28% – lowest within our coverage universe.
§ MEBL effective tax rate came in at a high 55% vs. an estimated 49%. We understand this may be pre-emptive provisioning for ADR related taxation due in Dec 2024. Importantly, MEBL’s net ADR slipped to 42% in 3Q vs. 46% in 2Q.
On core earnings this is a strong result. We are not fazed by the high LLP charge as MEBL still maintains one of the highest NPL coverage levels in the listed Banking space. Dividends remain upbeat (DPS of PKR21/sh in 9MCY24). We are, however, Neutral on MEBL with a TP of PKR255/sh, given earnings are now at a cyclical peak and valuations no longer at a discount to historical average. MEBL trades at a CY24f P/B of 1.8x and P/E of 4.0x.
Courtesy- IMS Research
