Karachi, July 09, 2021 (PPI-OT): MCB: Gaining prominence as a dividend play

Updating our macro assumptions post budget FY22, we revise up our CY21-23F estimate for MCB Bank Limited (MCB) by 5.2% on avg., whereas LT earnings remains largely stable. Recalibrated TP stands at PkR239.6/sh (Previously: PkR223.4/sh) — an upside of 50.4% from last close while CY22 DY stands at an attractive 12.6%.

The catalyst for stock performance could be the beginning of monetary tightening possibly by 4QCY21/1QCY22. That said, concerns on potential exclusion of Pakistan from MSCI EM to MSCI FM could keep near term performance in check, providing attractive entry points in the stock.

MCB features robust earnings quality relative to its peers with CY21-23F ROE avg. at 15.7% vs. 12.8% of peers — a product of, i) bank refining its deposit mix in favor of CAs (1QCY21: 39.0% vs. 35.7% in the same period last year), ii) recoveries from NIB portfolio amid limited risks of credit fallout from existing portfolio and unwinding of COVID-related provisioning (cumulative provisioning of PkR4.5bn), and iii) strong value creation through cost containment (C/I: 44.4% avg. CY21-23F, lowest amongst peers).

Previewing 2QCY21 results, we expect MCB to post an NPAT of PkR6.9bn (EPS: PkR5.75), flat QoQ/YoY while dividend payout should stand at PkR5/sh taking cumulative payout to PkR9.5/sh in 1HCY21.