Karachi, August 16, 2022 (PPI-OT): MEBL: Higher yielding assets keep robust ROE intact

With a Target Price of Rs195, we reiterate Buy on our top pick in the banking space – Meezan Bank (MEBL). Even with the recent stock performance of 20%, the stock offers an upside of ~45%, as we believe its P/B is justified at 2.7x vs 1.9x currently.

1HCY22 robust results affirm our view where the bank reported 2QCY22 EPS of Rs4.85, 18% higher YoY, as Core Income increased 49% YoY, while Non-core income expanded 80% YoY.

In addition to a larger lending portfolio, the bank’s core income expansion is also supported by the increase in government Shariah Investments (+5x YoY), which has more than doubled the bank’s IDR to 79% in one year (2QCY21: 35%).

MEBL’s CY22 Tier I ROE is expected at 41% over asset re-pricing and increase in share of higher yielding assets. Incorporating a long-term Policy Rate of 10% still keeps recurring Tier I ROE at 33%, higher than peer average of 20%.