Meezan Bank (MEBL) announced 1Q2024 unconsolidated earnings of Rs25.4bn (EPS of Rs14.18), which is up 65% YoY. The result came in line with industry expectations. Alongside the result, the bank also announced a first interim cash dividend of Rs7/share. This strong profitability was led by growth in Net spread earned, which grew by 65% YoY to Rs68bn in 1Q2024.

A rise led to this growth in Net Spread in asset yields and growth in zero-cost current account deposits. As a result, the profit earned by the bank grew by 45% YoY to Rs119bn, whereas the cost of deposit was up by 26% YoY to Rs52bn in 1Q2024. MEBL recorded a provision reversal of Rs344mn in 1Q2024 compared to a provision expense of Rs2.1bn in 1Q2023. Other income of the bank also grew by 64% YoY to Rs6.4bn in 1Q2024, which was led by strong 40% growth in fee & commission income. Other bank expenses increased by 42% YoY to Rs21.2bn, which was driven by a growing branch network and inflationary pressures, we believe.

Despite an increase in other expenses, the bank’s cost-to-income ratio improved to 29% in 1Q2024 as against 33% recorded in 1Q2023. On a QoQ basis, MEBL witnessed a 4% decline in earnings, primarily driven by a decrease in net spread earned amidst a fall in asset yields. The bank’s effective tax rate clocked in at 52% in 1Q2024 vs. 45% in 1Q2023 and 52% in 4Q2023.

MEBL remains our preferred pick in the banking sector. The stock trades at a 2024E PE of 4.2x and PBV of 1.7x with a dividend yield of 12%.