MCB GROUP Q2-FY19 EARNINGS REVIEW

Transcription

1 MCB GROUP Q2-FY19 EARNINGS REVIEW

2 DISCLAIMER AXYS Stckbrking Ltd (ASL) has issued this dcument withut cnsideratin f the investment bjectives, financial situatin r particular needs f any individual recipient. ASL will nt be under any liability fr lss r damage f any kind whatsever arising in cnnectin with the cntents f this dcument. This dcument is nt, and shuld nt be cnstrued as, an ffer t sell r the slicitatin f an ffer t purchase r subscribe fr any investment. This dcument has been based n infrmatin btained frm surces believed t be reliable but which have nt been independently verified. ASL makes n guarantee, representatin r warranty and accepts n respnsibility r liability as t its accuracy r cmpleteness. ASL is a member f the Stck Exchange f Mauritius and is licensed by the Financial Services Cmmissin. 2

3 CONTENTS EXECUTIVE SUMMARY 4 KEY FINANCIALS 5 11 BALANCE SHEET 6 8 INCOME & RETURNS 9 11 APPENDIX GLOSSARY 13 15

4 Series = 100 n 12-Feb-14 EXECUTIVE SUMMARY MCB GROUP RATINGS UPDATE We revise ur Fair Value (FV) fr MCB t Rs (-3% n previus FV) fllwing the publicatin f its H1-FY19 results reflecting the slwer grwth in Q2-FY19 as cmpared t Q1-FY19. This cntinues t represent a 27% upside n its clsing price n Feb 13 th f Rs274 RATING BUY SELL Reduce#REF! HOLD #REF!#REF! Acc. BUY We therefre maintain a BUY rating n MCB Q4-18 was a recrd quarter fr MCB in terms f EBIT (+19%) and FAIR VALUE Rs PAT (+10%). Bth have been bsted by a surge in NII (+26%) n the back f internatinal activities, and stable Impairment ratis MCB SEMDEX ALCAPEX-12 We jettisn traditinal IFRS-based Return KPIs this quarter which we replace with Basel III inspired Return Metrics n Slide

5 MOVE THE PHOTO BACK TO ITS PLACE DEAR COLLEAGUE AND POWERPOINT AFFICIONADO KEY FINACIALS

6 BALANCE SHEET

7 BALANCE SHEET ASSET & LIABILITY MATCHING MCB s balance sheet has grwn at an annualised (ann.) rate f 12% since 2014 MCB is principally funded thrugh custmer depsits [77% f ttal assets] which it has increasingly redeplyed int markets whse share f ttal assets has increased frm 16% in 2014 t 24% in Q4-18 Depsits have grwn at an ann. rate f 11% since 2014 and Lans at a slwer 9%. On a QQ basis, Depsits edged up by 6% against an 24% surge in Lans n the back f freign/internatinal lending which is expected t translate int higher Interest Incme key ASSETS are n the Left LIABILITIES n the Right ASSETS & LIABILITIES [Rs bn] % Q4-14 Q4-14 Q4-14 Q4-15 Q4-15 Q4-15 Q4-16 Q4-16 Q4-16 Q4-17 Q4-17 Q4-17 Q4-18 Q4-18 Q Interbank Assets Lans Market Assets Other Assets Equity Interbank Liab Deps Market Liab Other Liab

8 BALANCE SHEET DEPLOYMENT, EFFECTIVENESS & QUALITY DEPLOYMENT & EFFECTIVENESS QUALITY LDR [%] LDR w Mkt [%] NIS [%] Lans [Rs bn] NIR [bps] Q4-14 Q4-15 Q4-16 Q4-17 Q4-18 Strng grwth in depsits against tepid lcal demand fr credit led t a steady decline in the LDR t 62% in Q4-17 which nly returned t 73% in Q4-18 n the back f an acceleratin in internatinal activities linked t Energy, Cmmdities & Structured Finance. Cnsequently, the LDR including investment in securities shws full deplyment f funds at 102% Unsurprisingly therefre albeit belw 2016 levels interest rate spreads/margins (NIS) experienced a marginal uptick Q4-14 Q4-15 Q4-16 Q4-17 Q4-18 As previusly discussed lans have grwn at an annualized rate f 9% since Q4-14 t Rs224bn bsted by internatinal peratins After a deteriratin f lan bk quality as evidenced by the jump in Net Impairment Rati (NIR) in 2015 int the 70s, the rate has since hvered at ~78bps 8

9 INCOME & RETURNS

10 INCOME GROWTH & EFFECTIVENESS OPERATING INCOME EFFECTIVENESS NII [RsM] NFCI [RsM] OI [RsM] 4,051 3,641 3, ,045 2,176 2,421 4, ,619 4, ,032 3,292 Op Incme [RsM] NIE CIR [%] Cre CIR [%] 4,051 3,386 3, ,389 1,470 1, ,941 4, ,831 1, Q4-14 Q4-15 Q4-16 Q4-17 Q4-18 Since Q4-14, NII has grwn at an ann. rate f 13% t Rs3.29bn grwing at an accelerated 26% QQ bsted by greater internatinal lending as well as higher yield n gvernment securities Over the same perid, NFCI has grwn at an ann. rate f 7% t Rs1.03bn and a strnger 14% QQ n the back f a pick up in trade finance, and its capital markets divisin Other Incme (OI) has grwn by 13% ann. peaking at Rs802M in Q4-17, then plunged t Rs616M (-23%) this quarter mainly due t the absence f gains n sale f investments Q4-14 Q4-15 Q4-16 Q4-17 Q4-18 While Operating Incme (Op. Inc) has been grwing at an ann. rate f 10% these past yur years t a recrd Rs4.9bn, Nn-Interest Expenses (NIE) have grwn at a slightly slwer 9%. Cnsequently, MCB s Cst Incme Rati (CIR) which has averaged 40% in recent years peaking at 42% in Q4-17 but has since returned i.e. imprved t 40% Similarly, Cre CIR, i.e. CIR excluding OI have averaged 48% since 2014, peaked at 52% in Q4-17 thereafter returning t 48% 10

11 RETURNS & KEY INDICATORS SHAREHOLDER & RISK-ADJUSTED NAVPS [Rs] Adj. R4Q EPS [Rs] 18.8 ROTE [%] Q4-14 Q4-15 Q4-16 Q4-17 Q4-18 NAV has grwn at an ann. rate f 12% since 2014 t a recrd Rs220, i.e. PBV f 1.24x dwn frm 1.31x a quarter ag Adj R4Q EPS has grwn at 13.5% ver the crrespnding perid t its highest ever Rs33, i.e. crrespnding t a PER f 8.3x which is its lwest since Q1-17! Return n Tangible Equity (ROTE) which had been slipping year after year, experienced a slight uptick t 17% 11 SHAREHOLDER RISK ADJUSTED CET1 CAR [%] CAR [%] RAROC [%] RORWA [%] Q4-14 Q4-15 Q4-16 Q4-17 Q4-18 As a cnsequence f the recent increased lending and implementatin Basel III, bth MCB s CET1 CAR and CAR have slipped t 15.7% and 17.6% respectively therein shrinking its buffer abve regulatry minima frm ~5.0%-pts t ~3.3%-pts Return n Risk Weighted Assets (RORWA) has declined t 2.5% after having steadily risen in recent years reflecting greater investments in Gvies between as a result f the significant grwth in lans Risk Adjusted Return n Capital (RAROC) n the ther hand, has been steadily declining in recent years in spite f grwing prfits thereby spelling ut the nn-negligible impact f Basel III requirements n bank prfitability

12 MOVE THE PHOTO BACK TO ITS PLACE DEAR COLLEAGUE AND POWERPOINT AFFICIONADO APPENDIX

13 GLOSSARY A I WHAT IT MEANS BRIEF EXPLANATION Adj. Adjusted Usually adjusted fr nn-recurrent and/r exceptinal items Assc. Assciate A cmpany in which MCB has an appreciable but nn-cntrlling stake Att. Attributable Usually refers t NAV r PAT which is attributable t sharehlders f MCB Basel III 3rd iteratin f banking regulatins develped by Bank fr Internatinal Settlements CAR Capital Adequacy Rati Ttal Equity as cmputed under Basle III instead f IFRS measured against RWA CET1 Cre Equity Tier 1 Cre Equity as cmputed under Basle III instead f IFRS CIR Cst Incme Rati The inverse f a margin whereby we measure the efficiency as Csts measured against Incme rather than Net Incme ver Revenue Cre CIR Cre Cst Incme Rati CIR as measured against Operating Incme less Other Incme EBIT Earnings befre Impairment and Taxes Operating Prfits befre credit impairments and taxes EPS Earnings per Share Prfits after Tax attributable t sharehlders typically calcultated n a re-current basis, i.e. excluding exceptinal items FV Fair Value What we calculate t be MCB's valuatin per share FY-19 Financial Year ended June 2019 H1 IFRS 1st half f Financial Year Internatinal Financial Reprting Standards 13

14 GLOSSARY K P WHAT IT MEANS BRIEF EXPLANATION KPI Key Perfrmance Indicatr A measure f peratinal r financial perfrmance LDR Lan t Depsit Rati Measures the rate f deplyment f depsits in the frm f credit facilities LDR w Mkt Lan t Depsit Rati including (with) Investments & Brrwings frm capital markets Measures the rate f deplyment f depsits and brrwings frm markets in the frm f credit facilities and investments in capital markets MCB MCB Grup Ltd The largest banking & financials services grup in Mauritius bth by Market Cap. & Assets NAV Net Asset Value Als referred t as "Bk Value" r "Equity" NAVPS Net Asset Value per Share Net Asset Value attributable t sharehlders NFCI Net Fee and Cmmissin Incme Fees & Cmmissins earned frm assets less Fees & Cmmissins paid n liabilities NIE Nn Interest Expenses All perating expenses including depreciatin and amrtisatin excluding impairments f credit facilities and taxes NII Net Interest Incme Interest earned frm assets less interest paid n liabilities NIR Net Impairment Rati Measures the fractin f net credit facilities written ff by the bank n an annualised basis NIS Net Interest Spread Measures the annualised effective margin/spread between csts f funds and interest rate earned n lending and investments OI Other Incme All ther incme earned including frm dealing n markets PAT Prfits after Tax 14

15 GLOSSARY Q Z WHAT IT MEANS BRIEF EXPLANATION Q2 Financial Year 2nd Quarter Usually used in text t refer t the financial year quarter under review Q4 Calendar year 4th quarter Usually used in charts t allw fr cmparisn against peers with different financial year end QQ Quarter n Quarter Typically cmpares a perfrmance in a given quarter against the previus crrespnding quarter R4Q Rlling Fur Quarters Effectively the sum f mst recent fur quarters RAROC Risk Adjusted Return n Capital A measure f the impact f regulatin and risk n returns. Calculated as Net Incme using expected impairments ver the Minimum Capital required by the bank RORWA Return n Risk Weighted Assets Replaces the traditinal Return n Assets KPI by substituting RWA fr Ttal Assets ROTE Return n Tangible Equity Replaces the traditinal Return n Equity KPI by subsituting NAV fr CET1 RWA Risk Weighted Assets Assets f the bank adjusted fr the risk prfile f each investment and/r credit facility 15

16 REFERENCES & AUTHORS REFERENCES AUTHORS TRADING MCB Grup Ltd, Annual Reprts & Abridged Financial Statements & Management Statements [ ] RATING SCALE Bhavik DESAI Head f Research Yuviraj A. PUTTEN Investment Analyst Fr buying r selling stcks, bnds and ETFs please liaise with: Adlette RIOUX r Akash BABOOLALL r Melvyn CHUNG KAI TO SELL Reduce HOLD Acc. BUY < -12% % ± 5% % > 12% 16

17 CONTACT US 6 th Flr, Dias Pier Building, Le Caudan Waterfrnt, Caudan, Prt-Luis, (230) research@axys-grup.cm