MEBL to hit Rs240/share by December 2024

April 03, 2024 (MLN): The scrip of Meezan Bank Limited (PSX: MEBL) is likely to hit Rs240 per share by the end of December 2024 on the back of a robust balance sheet growth of over 15% per annum, unvieled a report issued by Intermarket Securities today. 

"We raise our CY24-28f EPS estimates for MEBL by 15% on average as we build in a robust balance sheet growth of over 15% pa. and higher profit margins at 11% in CY24f and 8% in CY25f as we build in a more gradual cut in interest rates," the report reads.

This should help offset higher credit costs CY24/25f: 70/65bps vs. 40/30bps previously and a sharp growth in admin expenses.

Strong revenues should keep the Cost-to-income ratio at a low 25% this year, but it is expected that the Cost-to-income ratio will settle at 45% over the medium term as interest rates normalize.

"Our new CY24/25f EPS estimates are PKR65.03/55.77, up 19%/20% from earlier. This leads us to raise our TP to PKR240/sh vs. PKR205 previously," it added. 

At the same time, the brokerage house downgraded its stance to Neutral, with earnings at a cyclical peak and valuations no longer at a discount to the historical average.

The report also highlighted that MEBL continues to swiftly grow its deposit base by 34%YoY in CY23. This has been achieved while impressively improving the mix as current accounts have risen to 48% of deposits.

This, together with its sizeable funding cost advantage, and absence of a floor on savings deposit rates is helping deliver a significantly lower cost of deposit vs. peers.

In addition, MEBL reported a sharp 37%YoY rise in fees in CY23 courtesy debit cards business and branch banking fee. This is helping offset normalizing Fx income.

MEBL continues to expand its brick-and-mortar network, with 42 branches opened in CY23 to 1,004 in total, but at a much slower pace.

The report expects the admin expenses to grow at a 5-yr CAGR of 15% with the C/I ratio to lift to 45% through the cycle as revenues normalize in line with interest rates.

Cherry on the top, strong profits over the last few years together with a restrained cash payout ratio have taken MEBL’s CAR to 22.4%, much above the regulatory minimum.

This gives MEBL ample space to enhance its dividend profile if it so chooses.

At the time of writing, the scrip of the company is being traded at Rs210.5 per share, down by Rs5.75 or 2.66% compared to the last close. 

Since October 2023, the scrip price has been riding a strong bullish trend, with an upside of 81.46% growth. 

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