MCB Bank posted above expected earnings of PRs5.58/sh in 1Q10 primarily due to decline in provisions. The bank also announced PRs2.5/sh cash dividend.
The result mainly depicts that key earning drivers are in-line with our sector thesis under which we expect decline in operating provisions to drive credit income and earnings in 2010E.
Operating profit in 1Q10 posted a reduction YoY and QoQ, -6% and -8% respectively, as earning asset growth could not compensate for margin decline.
NPLs are nearing their peak in our view while NPL coverage is up to 75%. Loan loss provisions declined on QoQ and YoY basis in 1Q10.
Pension income accounted for ~14% of PBT, PRs0.9bn. Unrealized actuarial gains stand at PRs4bn as per change in net assets of the defined pension plan.
Our conviction on MCB’s growth potential and relatively low tail risk vs peers is intact but we await further clarity on capital mgmt and remain neutral on the stock.
KASB Securities and Economics Research
22 April 2010
