Morning Call about Profitability up by 36% YoY on higher NIMs and Non-funded income – Arif Habib Limited

Karachi: United Bank Limited (UBL) has posted an impressive 36% earnings growth during 9MCY11. The bank’s earnings cloaked in at PKR 10,952mn (EPS: PKR 8.95) compared to PKR 8,060mn (EPS: PKR 6.58) during the same period last year.

According to Arif Habib Limited, this growth is attributed to higher NIMs, up by 16bps to 7.1%, as lending rate was up by 121bps YoY and 22% jump in non funded income. In 3QCY11 alone, the profitability has witnessed a rise of 24% QoQ to PKR 4,248mn (EPS: PKR 3.47) as provisioning witnessed a decline of 39% QoQ. The bank is currently trading at CY12 P/B of 0.8 and offering a potential upside to Arif Habib’s June 2012 Target Price of PKR 73.8/share. Arif Habib’s earnings expectation for CY11 is PKR 11.36 and final dividend payout of PKR 4.0/share.

Net Interest Income rises by 18% YoY

UBL’s net interest income grew by 18% YoY to PKR 29,582mn as average earnings assets during the period augmented by 18% YoY and 121bps YoY rise in the lending rate. The bank’s interest bearing investments during the period has risen by 71% YoY (11% since December 2010), however, advances contracted by 0.5% to stand at PKR 366bn. The bank’s deposits rose by 13.4% YoY to PKR 557bn from 491bn in the 9MCY10 with CASA deposit ratio standing at 79%. This effectively resulted in the UBL’s ADR to stand at 66% compared to 75% in 9MCY10. During the period the bank’s cost of funds appreciated by 43bps to 4.3%

NPLs increases by 17% YoY while provisioning rises by 4.2% YoY

UBL’s Non Performing Loans (NPLs) by 9MCY11 have reached PKR 54.5bn in 9MCY11, depicting a rise of 17.6% YoY (5.5% QoQ). This subsequently has resulted in the bank’s infection ratio to reach 14.9% (9MCY10: 12.6%) and coverage ratio to stand at 74.6%. Arif Habib Limited believes this expansion in NPLs will likely witness a reversal with the conversion of circular debt related loans of Power Holding Limited into PIBs and T-bills. During the 9MCY11, the bank’s provisioning against NPLs has increased 12.7% YoY to PKR 5,922mn, primarily due to aging of NPLs.

Non-funded income jumps by 22% YoY

Non-funded income depicted a rise of 22% YoY to PKR 8,920mn. This growth is mainly driven by 27% YoY increase in income from dealing in foreign currencies, 100% YoY jump in derivative income and fee & commission income augmented by 6% YoY.

Financial Highlights                                            PKRmn
9MCY11 9MCY10 YoY 3QCY11  2QCY11  QoQ
NII  29,582 25,081  17.9% 10,321  10,155 1.6%
Provisions against NPLs  5,922 5,255 12.7% 1,438 2,279  -36.9%
Fees and commission   4,992 4,710 .0%  1,712 1,681 1.8%
Dividend income 430 447  -3.9% 108 221  -51.2%
Non Interest income   8,920  7,294 22.3% 3,038 2,872  5.8%
Admin Expenses  14,690  12,860 14.2%  5,016  5,034  -0.4%
PBT   16,752 12,925 29.6% 6,522 5,217 25.0%
PAT  10,952  8,060 35.9%  4,248   3,432 23.8%
EPS 8.95    6.58  3.47  2.80    

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