Elixir Securities Limited – Flash Note

Karachi, October 19, 2017 (PPI-OT): United Bank Limited – Higher Operating Expense Pulls Down 3Q2017 EPS to PKR4.99

United Bank Limited (UBL) declared 3Q2017 consolidated earnings of PKR4.99/share, and a dividend of 3.0/share; the result was in line with our estimate of PKR5.2/share and a dividend of PKR3.0/share.

Net interest income for the quarter was in-line with our estimates. NII increased by 3.6%YoY as asset growth offset NIM compression. NIM compression was constrained at UBL due to a higher weighted average duration for its PIB portfolio.

Non-Interest income declined by 6.7%YoY in 3Q2017 due to a 40.0% decline in capital gains. While fee income growth was in line with estimates at ~5%, interestingly FX income grew by 24.0%YoY in 3Q2017 compared to a 21.0%YoY decline in 3Q2016.

Worryingly operating expenses grew by 17.4%YoY in 3Q2017 vs. a 7.2%YoY growth in 3Q2016. We await the conference call to determine if this is due to a one-off event or higher operating cost growth could sustain into 4Q2017.

Despite a sharp uptick in operating expenses growth, the bottom lie declined by only 13.5%YoY due to a 29.7% effective tax rate for the quarter vs. 34.9% for 3Q2016. Normalizing the tax rate to 35.0% would result in PKR4.61/share in earnings for the quarter; a 20.1%YoY decline over 3Q2016.

Earnings for 9M2017 were similarly down by 10.1%YoY due to a decline in non-interest income led by 18.6% lower capital gains.

UBL declared a PKR3.0/share dividend for the quarter, taking 9M2017 dividends to PKR9.0/share; flat over last year.

We have a Buy stance on UBL with a Jun-18 PT of PKR265/share representing 44.2% total potential upside from last close (including forward dividend yield of 6.7%).


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