• Global values Union National Bank at AED4.12 and maintains “BUY” rating.
Global Investment House – Kuwait – Commercial Bank International (UAE)
Financial Performance
Union National Bank (UNB) posted a net profit (attributable to shareholders) of AED1.41bn in 2008, a growth of 20.2% as compared to AED1.17bn in 2007. UNB has reported 20.3% NII growth post-impairment in FY08 as compared to FY07. The higher growth attributes 34.9% advances growth and 8.4% growth in interest income this coupled with 9% de-growth in interest expenses.UNB has reported 23.1% and 34.9% growth in deposits and advances in FY08 as compared to FY07. The loan portfolio grew in all segments except a de-growth in government sector.
The net interest margins increased to 2.64% (excluding provisions) in FY08 as compared to 2.37% in FY07 a jump of 27bps YoY. The increase in margins was driven by 34.9% growth in Advances, high C/D ratio at 101.9% in FY08 and declining cost of deposits by 104bps in FY08 at 2.86% as compared to 3.9% in FY07.
UNB reports 41.7% growth in fee income in FY08 as compared to FY07. This was mainly on account of strong business growth generating exuberant growth in fee income.
At the CMP of AED2.37 (as on April 5th ‘2009), the stock trades at P/E and P/BV of 5.06x and 0.36x FY09E and 4.42x FY10E and 0.35x FY10E earnings. Based on the combination of Dividend Discount Model and Gordon Growth Model valuation method we maintain our “BUY” rating on the stock with a price target of AED4.12, an upside of 73.9% from current levels.
Analysis of 2008 Performance
UNB has reported 37.4%, 35.0% and 20.2% growth in NII, Operating income and Net income respectively in FY08 as compared to FY07. The growth in NII was higher despite the fall in yield on advances by 123bps which was faster as compared to fall in cost of deposits by 104bps. This growth was mainly on account of high incremental C/D ratio of 141.8% in FY08 as compared to 97.5% in FY07.
