August30,2013

Banks
MCBPA

SELL

Stockpriceasof29Aug

269.6

Targetprice
Currentupside/(downside)
Outstandingshares(mn)
MarketCap(PKRbn)
Freefloat
3MAvg.dailyvaluetraded(PKRmn)
3MAvg.dailyvolume(mn)
12MHigh
12MLow

228.6
15.2%
1,012
273
37%
352.0
1.3
316.9
177.5

Keyfinancials
Yearend
inPKRbn
NII
Noninterestincome
Underlyingprofit
Provisions
PBT
PAT

Keymatrics

CY12A CY13F CY14F CY15F

40.94
9.54
32.95
0.48
32.48
21.24

37.92
11.35
32.25
(0.53)
32.77
21.26

45.60
11.16
37.27
0.68
36.59
23.57

INSIGHT

MCBBank
Provision reversals and higher non funded income bol
sterbottomline
MCBannouncedits2QCY13resultswherethebankreportedprofitaftertax
of PKR6.34bn, translating into EPS of PKR6.25/share depicting slight QoQ
growth of 7.4%. Resultantly, 1HCY13 earnings of the bank stood at
PKR12.24bn(EPSof12.06,higher7.2%YoY).Thecompanyalsoannounced
2ndinterimdividendofPKR3.5/sharealongwiththeresult,takinghalfyear
cash payout to PKR7.0/share. Despite 11% decline in NII during 2QCY13
compared to SPLY, the company reported growth in bottom line due to 1)
sizeablegrowthinnonfundedincomedrivenbyhighercapitalgainsduring
the period, 2) continued trend in reversal of provisions during 2Q, and 3)
flatoperatingexpenses.

48.47
12.44
39.58
0.76
Wehaverevisedourestimatesregardingprovisions,duetoheftyprovision
38.82
25.12 reversalsin1HCY13,andalsoincreasedthenonfundedincomeprojections.

Resultantly,wechangeourearningsforecastupby9%and6%forCY13and
CY14,respectively,andaccordinglyreviseourTPtoPKR228.6/share.Atcur
20.91 20.96 23.24 24.76 rent price level, the scrip offers downside of 15% to our Dec13 TP, and is
11.82 13.50 14.00 15.00
currentlytradingatexpensiveCY13EPBof2.4x.WemaintainourSELLrating
104.0 113.4 123.7 134.6
onthescrip.

EPS
DPS
BVPS
P/Ex
12.9 12.9 11.6 10.9
P/BVx
2.6 2.4 2.2 2.0 NIIdropsby11%YoYduring2QCY13dueto155bpsNIMcontraction
DividendYield 4.4% 5.0% 5.2% 5.6%
Earningsgrowth 10%
0% 11%
7% MCBreportedNIIofPKR9.1bn,whichdeclinedby11%YoY.Althoughaverageearning
ROA 3%
3%
3%
3% assets (mainly investments) of the bank have increased by 14% YoY during the said
ROE 22% 19% 20% 19% period,thedeclineinNIIwasmainlyledbysizeablecontractioninNIM.Comparedto
NIM
6.8% 5.6% 6.1% 5.9% thereportedNIMof7.17%in2QCY12,theNIMduringtheoutgoingquarterclocked
inat5.62%,showingYoYdeclineof155bps.

Unprecedentednonfundedincome

Price performance
350

MCB

Rel.KSE100

300
250
200

Nonmark up income of the bank clocked in at PKR3.6bn, highest ever reported by

bank,andshowingQoQriseof48%.Continuedgrowthinfee,commissionandbro
kerageincome,andespeciallyprodigioussurgeingainofsalessecurities,whichwere
reported at PKR1.46bn, resulted in healthy surge in nonfunded income and conse
quentlymitigatedtheimpactofdropinNII.

Hassan Raza
hassan@taurus.com.pk
Direct:+922135216403

Jul13

Aug13

Jun13

Apr13

May13

Jan13

Feb13
Mar13

Dec12

Oct12

Nov12

Sep12

150

Provisionreversalscontinue
Similarto1QCY13,thebankbenefittedfromprovisionreversalsofPKR469mnduring
theperiodunderreview,takinghalfyearprovisionreversalstoPKR1.31bncompared
to provisions of PKR2.4bn in SPLY. These reversals have come in handy during the
Continuedonpage2

DISCLAIMER:Theaboveinformationandadviceisgiveningoodfaith,withoutanylegalresponsibility.TaurusSecuritiesLimitedorindividualsconnected
withitmayhaveusedresearchmaterialbeforepublicationandmayhavepositionsinormaybeinterestedinthesecuritiesmentionedherein.

TAURUSSECURITIESLIMITEDINSIGHT
hardtimeswhenfallingassetyieldshaveplaguedthebankingsector.Asaresultof
these provision reversals, together with healthy growth in noninterest income, the
bankwasabletoreport5%QoQgrowthinPBTduring2Q.

Healthydepositgrowthin2Q
DepositsofMCB,whichhaveremainedmoribundduringthepast2years,exhibiting
meagerquarterlygrowthofonly2.6%,haveshowndecentriseof8%QoQduringthe
quarterunderreview. In its drive for deposit mobilization, the bankhas only raised
low cost funds, while has further shed expensive fixed deposits during the period.
ConsequentlytheCASAofbankhasfurtherimprovedto88%from85%atthebegin
ning of CY13. The healthy trend in deposits will also aid the bank to mitigate some
impactofsevereNIMcontractionfacedbybankintherecentpast.
(PKR m n)
Interest income
Interest expenses
Net interest income
Non mark-up income
Gross income
Operating expenses
Pre provisioning profit
Provisions
Profit before tax
Provision for tax
Profit after tax
EPS
DPS
NII/GII
Cost-Icome
Prov/PPP
Tax rate
Source: Company data, TSL

2QCY12

2QCY13

YoY

1QCY13

QoQ

16,967
6,741
10,225
2,957
13,182
4,154
9,028
325
8,703
2,927
5,776
5.69
3.64

16,289
7,176
9,113
3,849
12,962
4,133
8,829
(474)
9,303
2,963
6,340
6.25
3.50

-4%
6%
-11%
30%
-2%
-1%
-2%
n.m
7%
1%
10%
10%
-4%

16,740
6,996
9,744
2,602
12,346
4,318
8,028
(840)
8,868
2,966
5,903
5.82
3.50

-3%
3%
-6%
48%
5%
-4%
10%
n.m
5%
0%
7%
7%
0%

60.3%
31.5%
3.6%
33.6%

55.9%
31.9%
-5.4%
31.8%

58.2%
35.0%
-10.5%
33.4%

Continuedonpage3
DISCLAIMER:Theaboveinformationandadviceisgiveningoodfaith,withoutanylegalresponsibility.TaurusSecuritiesLimitedorindividualsconnected
withitmayhaveusedresearchmaterialbeforepublicationandmayhavepositionsinormaybeinterestedinthesecuritiesmentionedherein.

TAURUSSECURITIESLIMITEDINSIGHT
Aboutthecompany
MCBwasestablishedin1947,andisoneofthelargestbanksinPakistan.Ithasavastnet
workof1187branches;1179locatedwithinPakistanand8outsidethecountry.Thebank
ranks no. 4 in terms of asset size and deposits and has one the strongest liability fran
chisesinPakistan.ThebankisownedbyNishatGroup,aleadinglocalconglomeratewith
interestsintextiles,energy,cementandinsurancebusiness.In2008,MaybankofMalaysia
acquired 20% stake in MCB Bank. The bank is listed on all three stock exchanges of the
countryanditsGDRsaretradedontheLondonStockExchange.

DISCLAIMER:Theaboveinformationandadviceisgiveningoodfaith,withoutanylegalresponsibility.TaurusSecuritiesLimitedorindividualsconnected
withitmayhaveusedresearchmaterialbeforepublicationandmayhavepositionsinormaybeinterestedinthesecuritiesmentionedherein.