Topline Names Meezan Bank as Its Preferred Pick

Staff Report:

Topline Pakistan Research has labelled Meezan Bank (MEBL) as a preferred pick in the banking sector due to attractive rate of return and dividend yield along with other positive factors.

Topline has named MEBL as preferred pick in the banking sector. The stock is currently trading at an attractive PE of 4.2x, PBV of 1.8x, ROE of 49% and dividend yield of 12% based on expected 2024 earnings and book value.” Topline said in key takeaways after corporate briefing.

Meezan Bank (MEBL) has held its 9M2024 Corporate Briefing Session on Wednesday. The bank management discussed financial performance and future outlook.

Management hoped the SBP would cut interest rates further to drop to around 13-14% by Dec-2024.

Gross Advance to Deposit (ADR) ratio of MEBL stands at 43.8% as of Sep-2024, and management is confident of closing the year with an ADR level of 50%. However, being prudent, the bank has made an additional provision of Rs6bn in 9M2024 in case it does not meet the 50% target.

MEBL informed it had added 11 new branches in 9M2024, exxpanding the branch network to 1,015. Management highlighted that 35 more branches are under construction and will be added in 4Q2024.meezan bank account

MEBL deposits grew by 15% to Rs2.56trn in 9M2024. Management highlighted that the focus will remain on improving the deposit mix.

CASA ratio of bank was 90% in Sep-2024 against 89% in Dec-2023. Current accounts now accounts for 47% of total deposits, compared to 49% in Dec-2023.

Capital Adequacy Ratio (CAR) ratio stands at 27.3%, comfortably above the minimum requirement of 11.5%.

MEBL’s average yield on the fixed portfolio is 12.25%, while the yield on the variable portfolio is 20%. The average deposit cost of MEBL is 6.5-7%.
NPL coverage ratio presently stands at 179%, while infection ratio stands to 1.7% during 9M2024. Management highlighted that there is stress in the steel and textile sectors due to lower demand.

Cost to income ratio of bank has slightly fallen to 28.6% in Sep-2024 from 28.9% in 2023.

Net spread earned increased by 39% YoY to Rs215bn in 9M2024. Management highlighted that 70% of this growth came from an increase in interest rates, while 30% was due to an increase in volumes.

Keeping in mind the inflation declining to single digits and the expanding branch network, management expects OPEX growth to be in the early to mid-teens in 2025.

MEBL has witnessed significant growth in digital channels, including increases in debit card usage, POS machines, mobile app active users, digital throughput composition, and POS & e-commerce transactions, among others.

To recall, MEBL recorded earnings of Rs25.8bn (EPS of Rs14.4) in 3Q2024, which is up 1% YoY while down 3% QoQ. This takes 9M2024 earnings to Rs77.5bn (EPS Rs43.3) up 34% YoY.

Alongside the result, the bank also announced third interim cash dividend of Rs7.0/share in 3Q2024, taking 9M2024 dividend to Rs21.0/share.