JS Securities Limited - JS Research.

Karachi -- November 08, 2022 (PPI-OT)

MCB: Stable earnings to keep D/Y at 19%

We reiterate MCB Bank (MCB) among the attractive D/Y plays from our coverage as it currently offers an annual D/Y of 19%, in addition to significant capital upside. We believe the stock currently trading at 0.8x P/BV is at deep discount to its justified P/B of 1.3x. We flag the bank's higher ROE has kept historical premium over peer multiples at 2x, vis-a-vis 55% currently.

The management, in yesterday's Corporate Briefing, reiterated its earlier guidance regarding increasing ADR levels up to 50% by CY22 end (3Q: 42%) in order to avoid higher taxes related to ADR levels. This means it would need to increase existing Gross Advances portfolio by 20% QoQ in the last quarter, assuming deposit size remains unchanged.

On the Investment front, the management presented break up of its investment book, where floater PIBs and T-Bills contributed 47% and 18% to the total book, respectively, while Fixed PIB contribution declined to 24%.

Sustainable D/Y intact at 19%

Post release of MCB Bank's (MCB) 3QCY22 financials and Corporate Briefing session held yesterday, we reiterate MCB Bank (MCB) among the attractive D/Y plays from our coverage, as it currently offers an annual D/Y of 19% for CY23E, in addition to 60% capital gain. Our investment thesis remains intact as the bank announced Rs5/share dividend alongside 3QCY22 results where EPS clocked in at Rs7.8/share (+16% YoY) over improving core income.

We believe the stock is currently trading at a discount to its justified P/B of 1.3x. We flag the bank's historical premium over peer multiples has been 2x, vis-AA -vis 55% currently. MCB's Tier I ROE is expected to sustain at 24%, surpassing other conventional players. In addition, MCB has managed robust return generation in spite of...