Topline Revises UBL Target Price Up

Staff Report

Islamabad: Topline has maintained its BUY stance on UBL, however, it has revised up our target price from Rs450/share to Rs560/share for Dec-2025, implying a total upside of 19% (including a dividend yield of 10%). The stock is currently trading at a 2025E PE of 5.4x, PBV of 1.7x, and ROE of 35%. 

Topline has revised its earnings estimates for United Bank Limited (UBL) upward by 55% for both 2025 and 2026 to Rs96/share and Rs85/share, respectively, following the incorporation of 1Q2025 results.

UBL’s 1Q2025 results have been above industry expectations. They were primarily driven by higher-than-expected Net Interest Income (NII).

This was supported by strong growth in current account deposits, increased repo borrowings with improved spreads, and higher-than-expected capital gains.

Strong Deposit Growth: UBL reported a strong total deposit growth of 23% YoY and 29% QoQ in 1Q2025 compared to the peer banks’ (HBL, MCB, ABL, NBP, MEBL) average of 15% YoY and 5% QoQ.

UBL’s current account deposits also showed robust performance, rising by 50% YoY and 20% QoQ compared to the peer banks’ average of 16% YoY and 11% QoQ. As a result, UBL’s current account mix improved to 54% as of Mar-2025, compared to 44% in Mar-2024.

According to our channel checks, the strong deposit growth is attributable to (1) a low base effect from the previous quarter, as UBL recorded a 7% QoQ decline in total deposits in 4Q2024 to avoid ADR-related tax, and (2) the bank’s significantly better performance compared to the industry, thanks to the new management.

Based on the 1Q2025 trend, we have revised our deposit growth assumptions to 30% for 2025 and 15% for 2026. We have assumed a current account mix of 55% for both 2025 and 2026.

Repo Borrowings: UBL’s repo borrowings stood at Rs5.1trn at the end of 1Q2025. Though in 2024 UBL’s Leverage Ratio (LR) was below the minimum requirement of 3.0% for which the bank had obtained an exemption from the SBP but it has now increased to 3.06% as of Mar-2025. However, it still remains lower than the peer average of 5.12%.

According to our channel checks with industry players, the government’s reliance on repo borrowings is expected to remain elevated for at least the next 2-3 years. In line with this, we have assumed that UBL’s share in total repo borrowings will also remain on the higher side. We estimate UBL’s average OMO size to be Rs5.0trn for 2025 and Rs4.1trn for 2026. We have assumed an average spread of around 100- 150 bps on these OMOs.Pakistan Stock Market Rises 515 Points

Capital Gains: UBL recorded a capital gain of Rs5.8bn from federal government securities in 1Q2025. The cumulative net unrealized gain after tax on these securities stands at Rs30bn as of 1Q2025. UBL’s investment book is largely skewed toward floating-rate PIBs.

In recent auctions, yields have declined by around 40 bps, leading to further gains on UBL’s floating rate holdings. Given this trend, we assume that UBL will continue to record capital gains going forward.

Accordingly, we have assumed capital gains of Rs16bn for 2025 and Rs15bn for 2026.

SILK amalgamated into UBL: SILK has successfully amalgamated into UBL. As of Dec-2024, SILK carried deferred tax assets of Rs 43 bn. Following the merger, UBL reduced its deferred tax liability by Rs27bn, declining from Rs39bn in Dec-2024 to Rs12bn in Mar-2025. That said, we do not expect any significant reduction in UBL’s tax expense for 2025.

Accordingly, we have assumed effective tax rates, including super tax of 53% for 2025 and 52% for 2026, to be in line with tax laws,” Topline said.

Capital Adequacy Ratio (CAR): UBL’s consolidated CAR increased from 20.59% in Dec-2024 to 21.40% in Mar-2025, well above the regulatory requirements of 12.5%. Supported by strong profitability, we now expect UBL to announce an annual cash dividend of Rs52/share, earlier of Rs44/share for both 2025 and 2026.

Valuations: Topline has maintained its BUY stance on UBL, however, it has revised up our target price from Rs450/share to Rs560/share for Dec-2025, implying a total upside of 19% (including a dividend yield of 10%). The stock is currently trading at a 2025E PE of 5.4x, PBV of 1.7x, and ROE of 35%. 

Key Risks: Higher than expected decline in interest rates, Lower or Negative spreads on Repo Borrowings, lower than expected current account deposit growth as a key risks for banks.