Topline Pakistan Research has featured Meezan Bank Limited (MEBL) in its special report, revising its earnings estimates upwards by 20-25% for 2025 and 2026. The new estimates are Rs 47 per share for 2025 and Rs 54 per share for 2026, following the incorporation of the first-quarter results.
Key Highlights:
– **Stronger Q1 Results**:
MEBL’s first-quarter results exceeded expectations, driven primarily by higher-than-expected Net Interest Income (NII), supported by strong deposit growth, and lower-than-anticipated administrative expenses.
– **Strong Deposit Growth**:
MEBL reported a remarkable deposit growth of 27% year-on-year (YoY) and 11% quarter-on-quarter (QoQ) in the first quarter, compared to sector growth rates of 12% YoY and 4% QoQ during the same period. Current account deposits performed well, rising by 30% YoY and 14% QoQ. Consequently, MEBL’s current account mix improved to 49% as of March 2025, up from 48% in March 2024.
– **Management Insights**:
During the recent corporate briefing, management indicated that the strong deposit growth was largely a carryover from the previous quarter, as deposit growth was limited to just 1% QoQ in the subsequent quarter to avoid additional risk from tax regulations.
– **Revised Growth Assumptions**:
Based on the first-quarter trend, we have adjusted our deposit growth assumptions to 25% for 2025 and 18% for 2026, with anticipated current account mixes of 49% for 2025 and 50% for 2026.
– **Lower Administrative Expenses**:
Administrative costs fell by 7% YoY to Rs 19.2 billion, resulting in a Cost-to-Income ratio dropping to 28%, the second-lowest in the industry, following UBL. This reflects the bank’s efforts to control expenses amidst declining earnings. We expect the average Cost-to-Income ratio to stabilise around 30.5% for 2025 and 2026.
– **Dividend Maintenance**:
MEBL’s Capital Adequacy Ratio (CAR) increased from 20.3% in December 2024 to 23.2% in March 2025, well above the regulatory requirement of 11.7%. Despite a year-on-year decline in profitability, we expect MEBL to maintain its annual cash dividend at Rs 28 per share. Management has also expressed a commitment to preserve the dividend in absolute terms during the last conference call.
– **Valuations**:
We maintain a BUY stance on MEBL, having revised our target price upwards to Rs 460 per share, implying a total upside of 41% (including a dividend yield of 8%). The stock is currently trading at a 2026 forecasted Price-to-Earnings (PE) ratio of 7.3x and 6.6x, and a Price-to-Book Value (PBV) of 2.2x, with a Return on Equity (ROE) of 32%.
– **Key Risks**:
Potential risks for the bank include a greater-than-expected decline in interest rates, lower-than-anticipated growth in current account deposits, and higher-than-expected provisioning risks.
Courtesy – Topline Pakistan Researcharch
