Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Thematic (Sector/Industry)

Pakistan Financials / Thematic (Sector/Industry)

<p>One cannot but feel giddy analysing <strong>Meezan Bank</strong> data. This is a bank taking Pakistan by storm and especially the Islamic Banking market.</p><p>Many banks face growth of risk and trade well below BV. Meezan’s greatest risk is risk of growth: shares trade above BV.</p><p>We like Pakistan banks and see varied opportunity. There are a number of Pakistani banks currently in the top decile and quartile, respectively, of our global VFM model. Cheap NBP has an enviable Public Sector customer base. MCB has scale and is owned by a particularly astute entrepreneur. Askari has military connections which carry weight in Pakistan, providing investors with some degree of insurance.</p><p>Meezan dominates the fastest-growth market in Asia: Islamic Banking. In a Rs2.7 trillion deposit space (17% of the system), Meezan commands a leading 34% market share. Meezan is now the seventh largest bank in Pakistan by deposits and branches. Deposit market share jumped to 6.4% vs 5.8% at 1H19. 120 branches have been added over the last 12 months to meet explosive demand for Islamic Banking. The bank dedicates itself to supporting investment (Corporate/SME) which in our opinion is exactly what a bank should be doing. In fast growing AM, the bank now manages Rs163 billion and has more than 120,000 investors with a Shariah-compliant investment proposition. The bank is making huge advances in digitalization too with its number 1 rated mobile app on Google Play Store.</p><p>The pace of growth at Meezan is impressive. Having said that, it must be said that growth brings risks of “Balance Sheet Bloat” as management struggles to control such a heated expansion. We are mindful of aforementioned risks, having seen ample examples in the past of forceful credit growth undermining Capitalisation. (An example that comes to mind is Banco Panamericano in Brazil).</p><p>Given its growth, it is a tribute to Meezan management that the PH Score™ variables remain so strong. Our PH Score™ shows that the bank is making marked headway on all fronts. The top-line shows vibrant growth, fatter margins, and better Efficiency while Liquidity (swelled by CASA expansion) and Capital Adequacy are improving. Asset Quality saw some erosion but still remains far better than the system average. The bottom-line was impacted lower by higher Credit Costs as elsewhere which may reverse going forward. Comprehensive Income (up 124%YoY) was in excess of Net Profit – a good sign.</p><p>VFM expresses an asset according to its value-quality characteristics (PH Score™), its technical picture, and an additional valuation filter. Meezan is in the top decile globally.</p><p>The shares are not expensive in light of the growth. A FV of 11%, a PBV of 1.6x, an Earnings Yield of 21.95%, and a Dividend Yield of 3.3% might seem unattractive for bargain-basement specialists but few banks currently are experiencing such a surge in business and Meezan is no ordinary narrative.</p><div><div><div class="content-highlight"><p>VFM expresses an asset according to its value-quality characteristics (PH Score™), its technical picture, and an additional valuation filter. Meezan is in the top decile globally.</p></div></div></div><div></div><div><div class="content-highlight"><p><span>The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. </span></p></div></div>

One cannot but feel giddy analysing Meezan Bank data. This is a bank taking Pakistan by storm and especially the Islamic Banking market.Many banks face growth of risk and trade well below BV. Meezan’s greatest risk is risk of growth: shares trade above BV.We like Pakistan banks and see varied opportunity. There are a number of Pakistani banks currently in the top decile and quartile, respectively, of our global VFM model. Cheap NBP has an enviable Public Sector customer base. MCB has scale and is owned by a particularly astute entrepreneur. Askari has military connections which carry weight in Pakistan, providing investors with some degree of insurance.Meezan dominates the fastest-growth market in Asia: Islamic Banking. In a Rs2.7 trillion deposit space (17% of the system), Meezan commands a leading 34% market share. Meezan is now the seventh largest bank in Pakistan by deposits and branches. Deposit market share jumped to 6.4% vs 5.8% at 1H19. 120 branches have been added over the last 12 months to meet explosive demand for Islamic Banking. The bank dedicates itself to supporting investment (Corporate/SME) which in our opinion is exactly what a bank should be doing. In fast growing AM, the bank now manages Rs163 billion and has more than 120,000 investors with a Shariah-compliant investment proposition. The bank is making huge advances in digitalization too with its number 1 rated mobile app on Google Play Store.The pace of growth at Meezan is impressive. Having said that, it must be said that growth brings risks of “Balance Sheet Bloat” as management struggles to control such a heated expansion. We are mindful of aforementioned risks, having seen ample examples in the past of forceful credit growth undermining Capitalisation. (An example that comes to mind is Banco Panamericano in Brazil).Given its growth, it is a tribute to Meezan management that the PH Score™ variables remain so strong. Our PH Score™ shows that the bank is making marked headway on all fronts. The top-line shows vibrant growth, fatter margins, and better Efficiency while Liquidity (swelled by CASA expansion) and Capital Adequacy are improving. Asset Quality saw some erosion but still remains far better than the system average. The bottom-line was impacted lower by higher Credit Costs as elsewhere which may reverse going forward. Comprehensive Income (up 124%YoY) was in excess of Net Profit – a good sign.VFM expresses an asset according to its value-quality characteristics (PH Score™), its technical picture, and an additional valuation filter. Meezan is in the top decile globally.The shares are not expensive in light of the growth. A FV of 11%, a PBV of 1.6x, an Earnings Yield of 21.95%, and a Dividend Yield of 3.3% might seem unattractive for bargain-basement specialists but few banks currently are experiencing such a surge in business and Meezan is no ordinary narrative.VFM expresses an asset according to its value-quality characteristics (PH Score™), its technical picture, and an additional valuation filter. Meezan is in the top decile globally.The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 

Meezan Bank: A Trusted Partner in Islamic Banking