UBL – Provisioning drags net profit
Key takeaways from the result
Earnings inline with consensus at PRs6.22/sh in 9M09, 23% lower YoY. Op profit increased by 4% YoY however net profit was hit by hefty credit cost (+1.5x higher provisions YoY). Gearing declined to 10x (-6% QoQ assets in 3Q09), 13x in 2008, due to contraction in treasury book – caused improvement in margin & CASA to 6.5% & 69% in 3Q09 – while CAR increased to 12.8%. Net NPL ratio is up and expected to increase provisions QoQ in 4Q09E. Meanwhile we maintain our Estimates & Neutral rating on the stock with PO of PRs62/sh (1.2x implied P/B).
Net interest income (NII) taking the lead
Inline with the current trend, YoY NII gained +15% on +20bp margins (9M09: 6.3%) amid high asset yields and +7% YoY avg ear assets in 9M09. Non-Int-Inc headed south (-11% YoY) due to lower fee and forex income. NII would decline in our view ahead as sequential margin decline QoQ and YoY base affect kicks in.
Opex growth in control - credit cost continue its grip
Admin expenses remain under control, +8% YoY & +2% QoQ, but +1.5x higher provisions (1.96% of loans) kept strong foot hold on op profits, sending earnings growth to red. The bank also wrote off PRs1bn of bad debts and took PRs380mn hit from securities impairment (outstanding PRs86mn).
NPL accumulation persistent – but lower run rate
NPL accumulation is still persistent where 3Q09 reflects PRs3.3bn addition however the run rate has declined QoQ (see table inside). Net NPL ratio has edged up again to 3.2% while coverage remained stagnant QoQ at 70%. This reflects that provisions could head upwards in 4Q09E. KASB Research
