United Bank Limited (UBL) held its webinar today to discuss 1QCY21 financial results and management’s guidance on outlook going forward. To recall, UBL reported above expected earnings of PKR 7.4Bn (EPS: PKR6.0), ↑49/51% YoY/QoQ respectively. Significant decline in provisioning expense was the primary reason behind the above expected result alongside hefty gains from the foreign bonds portfolio. Apart from the said reasons, earnings increase was also supported by limited rise in admin expenses which dipped by 8% QoQ (↑7% YoY). Along with the result, the bank announced an interim dividend of PKR 4.0/sh.
Key highlights of the webinar are discussed below:
The management highlighted that reduced provisioning on the foreign loan book was mainly on account of deferrals in 3 major GCC countries which kept credit risk profiles of the exposures unchanged hence there was no need to book a charge. Furthermore, provisioning is expected to remain subdued on the international side as loan deferrals might continue till September. Going forward, the management highlighted that a de-risking strategy on the international portfolio will continue with the bank only focusing on lending to top corporates or financial institutions.
The management expects deposit growth to continue its strong momentum in the current calendar year with average growth expected at 16-18%. As for lending growth, the management expects 6-8% build-up in the loan portfolio with focus on running finance facilities along with adding ancillary business like trade, cash management and commission income rather than conventional long term financing.
The management signaled that the bank is focusing on a two pronged strategy with simultaneous focus on branch banking and digital platform. The bank is working on introducing more products via both platforms with focus on each individual consumer segment rather than blanket products for all segments.
The bank has rekindled its focus on the Islamic segment and aims to increase its share in deposits to 13-14% of total deposits from current 7-8%. For the purpose, the management is already working on a medium term strategy. The management expects 10-15 Islamic branches to be opened in the current year. This shall be done via a mix of conversion of conventional branches as well as new branches being added to the overall network.
The management does not expect major change in the yields of investment portfolio as a result of PIB maturity however, that remains subject to interest rate hikes. The management highlighted an investments portfolio composition with 1/3 exposure in each of fixed rate PIBs, floater rate PIBs and T-Bills.
The bank’s management expects interest rates to start increasing only in the later half of the year with a cumulative hive of 50-100bps expected starting from July/September.
The management reiterated that there is no specific timeline set for the implementation of IFRS-9 by the State Bank of Pakistan as yet however, with regards to its impact the management quoted it to be around PKR 3.0-4.0Bn which will likely not impact the capital ratios much as CAR stands at a robust 23.8%.
We have a BUY call on the scrip with a Dec-21 TP of PKR 150/sh.
Courtesy – BMA Capital Management Ltd.