Meezan Bank Posts Record-Breaking Annual Profit in 2023

Meezan Bank (MEBL) announced its highest-ever profit of Rs. 84.5 billion for the calendar year that ended on December 31, 2023, up 88 percent year-on-year (YoY) from Rs. 45 billion in the same period last year. Quarterly earnings clocked in at Rs. 26.4 billion, up 61 percent YoY and 4 percent QoQ in 4QCY23. Alongside the result, the bank announced a final cash dividend of Rs. 8 per share in 4QCY23, higher than industry expectations of Rs. 5 per share. In the full year 2023, the bank announced a total dividend of Rs. 20/share. Net Spread Earned grew by 61 percent YoY and 12 percent QoQ to Rs. 72 billion in 4QCY23. According to Topline Securities, this was driven by rising asset yields and the growth of zero-cost current account deposits. Other income of the MEBL was up 71 percent YoY and 12 percent QoQ to Rs. 6.9 billion in 4QCY23 primarily due to an increase in fee and commission income (+35 percent YoY to Rs. 5 billion) and foreign exchange income of Rs. 979 million in 4QCY23. Other expenses of the bank increased by 48 percent YoY and 7 percent QoQ to Rs. 20.9 billion, driven by the growth of the branch network and inflationary pressures. Despite an increase in other expenses, the cost-to-income ratio of the bank improved to 27 percent in 4QCY23 versus 29 percent in 4QCY22 and 28 percent in 3QCY23. MEBL recorded a provision of Rs. 2.9 billion, up 20 percent YoY and 274 percent QoQ in 4QCY23. This takes the full year 2023 provision expense to Rs. 7.3 billion up 76 percent YoY. The effective tax rate of the bank remained on the higher side at 52 percent in 4QCY23 compared to 49 percent in 4QCY22 and 3QCY23. The higher tax expense is primarily due to the implementation of 40 percent windfall levy tax on FX income for the years 2021 and 2022. MEBL remains a hot pick in the banking sector. The stock is currently trading at an attractive PE of 3.5x, PBV of 1.4x, ROE of 44 percent and dividend yield of 12 percent based on expected 2024 earnings and book value. The earnings per share (EPS) of the bank clocked in at Rs. 14.8 per share for 4QCY23 and Rs. 47.2 per share for CY23.