E Financial Services Limited.

United Bank Limited (UBL) recently announced corporate results for the period ended September 30, 2015. Therefore in our today’s morning briefing we would discuss the performance of the bank during the period.

Cumulative earning climbs 22% YoY

On back of rise in interest and non-interest income, the profit after taxation (PAT) of the bank reached Rs 19,271 million (EPS: Rs 15.74) in 9MCY15 resulting in a 22% YoY growth when compared to a PAT of Rs 15,852 million (EPS: Rs 12.95) in 9MCY14. However, the bottom-line growth was affected by significant rise in provisions and higher effective taxation due to one-time imposition of 4% Super tax.

The provisions of the bank witnessed a hefty rise of 216% YoY in 9MCY15 to Rs 2,680 million due to general provisions within the domestic and international business based on prudent estimates. The effective taxation of the bank surged to 40.3% in 9MCY15 versus 34.3% in the identical period in CY14. The corporate results were accompanied with a third interim cash dividend of Rs3/share taking the total cash dividend during 9MCY15 to Rs9/share.

NII manages an impressive rise

Despite the reduction of 300 bps in discount rates, the Net Interest Income (NII) of the bank post a 28% YoY growth during the period under review to Rs 41,141 million as compared to Rs 32,139 million in 9MCY14. This growth in NII was attributed to buildup in low cost deposits. The interest income grew by 16% YoY in 9MCY15 to Rs 70,137 million as against an interest income of Rs 60,395 million in the identical period in CY14. On the other side, the interest expense surge by 3% YoY in 9MCY15 to Rs 28,996 million versus Rs 28,256 million in 9MCY14.

Double digit growth in non-funded income

The non-interest income of the bank increased by 18% YoY in 9MCY15 on back of higher income from; fees and commissions, dividend, and capital gain. The noninterest income totaled Rs 17,144 million in 9MCY15 versus Rs 14,530 million in the similar period in CY14. The income from fees and commission rose by 6.5% YoY, dividend income grew by 72.9% YoY while capital gains climbed by 101% YoY in 9MCY15. However income from dealing in foreign currencies dropped 23.6% YoY.

Deposits, Advances, and investment surge

The deposits of the bank reached Rs 993,753 million at Sept 30, 2015 which is 11% more from deposits of Rs 895,083 million at Dec 31, 2014 on back of higher domestic deposits. The advances of the bank hike by 5.7% to Rs 459,163 million at Sept 30, 2015 as against Rs 434,264 million at Dec 31, 2014. The investments witnessed an impressive growth of 43.3% to Rs 712,518 million at Sept 30, 2015 versus Rs 497,334 million at Dec 31, 2014 due to investment in government securities.

Recommendation

We are positive on the bank which is trading at Rs 163/share at present offering an upside potential of 27% to our June’16 target price of Rs 207/share.