UBL posted flat YoY earnings of PRs2.25/sh in 1Q10 as direction of key earnings drivers was a mixed bag i.e. asset contraction offsetting margin expansion.
Balance sheet consolidation continued in 1Q10 with asset book down 6% YoY and asset gearing declining to 9x from 12x in 1Q09.
We believe margins have peaked, 6.8% in 1Q10, & we expect net int. income growth to remain flat with decline in provisions to drive credit income & net profit in 2010E.
NPLs inched up to PRs42bn while CASA remained healthy at 67%, up 700bp YoY. We believe NPLs are nearing peak. On CASA, we do not expect further upside.
We eye UBL as a relatively attractive momentum change play on recovery in domestic economic activity, trading at 1.0x 2010E P/B – lowest among private sector large cap banks.
KASB Securities and Economics Research
29 April 2010