Dear Clients,

– United Bank Limited (UBL) reported CY20 result today posting Profit after Tax (PAT) of PkR20.8bn (EPS: PkR17.1, up 9% Y/Y. The result was 2.2% above our expectations of PkR16.7/sh.

– The result was accompanied with a final cash dividend of PkR9.5/sh taking the full payout to PkR12/sh (in-line with our expectations).

– Net Interest Income increased 22% Y/Y as a result of decline in interest expense by 16%Y/Y amid reduction in policy rate by 625bps.

– Non-interest income decreased 20% Y/Y largely driven by i) 18% Y/Y reduction in fee income, ii) 22% Y/Y decline in dividend income and iii) 17% Y/Y reduction in FX income.

– Provisioning expense came in at PkR 17.3bn against PkR 7.3bn in corresponding period last year.

– Operating expenses remained flat at PkR 44.8bn and the C/I ratio improved to 46% in CY20 as compared to 51% in CY19.

– During 4QCY20, the company posted a profit of PkR 5.1bn (EPS: PkR4.2) up by 6%Y/Y and 9%Q/Q.

– The bank’s provisioning expense came in at PkR 1.8bn in 4QCY20.

– Moreover, non-markup income during 4QCY20 increased by 7% Q/Q because of higher fee and dividend income.

– On the other hand, operating expense increased 10% Q/Q to PkR12.2bn. The cost income ratio deteriorated to 55% in 4Q2020 as against 45% in the prior quarter.

– We have an Outperform rating on UBL with a target price of PkR 140/sh. The stock offers a dividend yield of 9.4% and is currently trading at a one year forward P/Bv of 0.79x.

Regards,
KASB Research