United Bank Limited (UBL) announced a PAT of PKR 5.4Bn (EPS: PKR 4.3), up 15.3/16.1% on YoY/QoQ basis. For the full year CY20, the bank recorded a PAT of PKR 20.8Bn (EPS: PKR 17.1), up 9.1% YoY. Reason behind the improved earnings was lower than expected provisioning charge of PKR 1.8Bn booked in 4QCY20. The company also announced final cash dividend of PKR 9.5/sh in 4QCY20 (the bank did not pay out any dividends in 2Q & 3Q due to SBP restriction), taking CY20 payout to PKR 12.0/sh. The reported earnings and dividend pay-out were both above our expectation.

Key highlights of the result are discussed below:

Net Interest Income (NII) increased by 21.7% on a YoY basis which we believe is mainly attributed to earlier re-pricing of liabilities in the wake of sizable interest rate cuts over the course of the year. On a QoQ basis, NII declined by 11.7% due to NIMs compression. Going forward, we expect NII to remain under pressure on account of the said reason.

Non-Interest Income of the bank posted a meagre increase of 1.9% YoY to PKR 4.6Bn in 4QCY20. Despite 4.1% YoY increase in fee income, NFI surge remain restricted due to decline in forex income (down 31.0% YoY). As for CY20, it turned out to be a challenging year for the bank in terms of NFI as it dipped by 20.0% YoY with major impetus coming from decline in fee income and forex income of 17.9% and 17.4% YoY respectively.

The bank booked provisioning charges of only PKR1.8 Bn in 4QCY20, taking overall provisions for CY20 to PKR 17.3Bn (up 135.9% YoY). We await published annual accounts to gage the decline in provisioning charges.

Operating expenses during the quarter, although 10.3% higher on a QoQ basis, declined by 1.0% on a YoY basis to PKR 12.2 Bn. For the full year, operating expenses clocked-in at PKR 44.8Bn depicting a marginal increase of 0.3% YoY.

We have a BUY stance on the stock with Dec’21 TP of PKR 150/sh.

Courtesy – BMA Capital Management Ltd.