S e c t o r C o v e r a g e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +9714 507 1744
Loubna ElHassan Michael Malkoun Nisreen Assi Jonathan Milan Christine Kalindjian Zeina Nasreddine Arqaam Capital Research offshore s.a.l.
Changes in core portfolios Strong performance core portfolios: The Core Buy portfolio has generated a positive return of 9.6% vs. a negative performance of the S&P Arabia of (0.13%), resulting in a relative outperformance of over 9.7%. The largest positive contribution came from CAE and COMI, while Muscat worked against us. The Avoid portfolio has generated a negative return of (2.7%) vs. a negative performance of the S&P Arabia of (0.13%), resulting in a positive contribution from our sells of 2.55%. The largest positive contribution came from MASQ and Medgulf, while EGB worked against us. All in all, the long/short portfolio generated an alpha of 12.3%. We have substantially increased our TPs for Egyptian banks We have increased the TPs for Egyptian banks and we continue to strongly recommend CIB and CAE. The support from the GCC has been even stronger with Qatar unveiling an investment plan of USD18bn, which should address the balance of payment deficit and significantly boost the GDP and reduces the macro risk, while as we expected QNB is looking actively at Egypt for inorganic expansion. Elsewhere we have also increased our TPs and EPS for Albilad, while we have cut the EPS FY12e for most Kuwaiti banks due to a higher cost of risk in FY12e. We remove RJHI and Salama include Samba. We close our long positions in Al Rajhi and replace it with Samba as the net interest margin compression has come to a standstill and the bank is re-leveraging, while competition in retail banking should continue to affect Al Rajhi’s net interest margins. We expect a poor Q3 12 for Salama, but underwriting margins should improve as of Q4 12. We close our shorts in Mashreq and Shuaa. We close our short positions in Shuaa and Mashreq after their sharp falls. We cannot rule out renewed speculation about a break-up of Shuaa given the very low valuation, while our TP for Mashreq now points to upside. We continue to strongly recommend QNB, with any M&A acquisition unlocking value, while we continue to see UNB, FGB and CBD as the preferred plays in UAE. We see strong value in bank Muscat after the poor share price performance, even though we reduced our TP to reflect further net interest margin pressure. The consolidated profits of the MENA financials increased 3.8% y/y and 1.2% sequentially. The largest y/y increase was achieved by the Egyptian banks (44.4%), helped by stronger margins, followed by Omani (+18.9%), KSA (10.9%), Qatari (9.1%) and Bahraini banks (5.9%). UAE (-8.2%), Kuwaiti (-0.9%) and Lebanese banks (-2.4%) reported lower earnings.
Core Buy Portfolio
Company Ticker UNB UH
Price Target AED 4.7 Upside (%) 49.7
Company Ticker BKMB OM Price Target OMR 0.81
Upside (%) 46.7
Company Ticker CBD UH
Price Target AED 4.2 Upside (%) 45.3
Company Ticker QNBK QD Price Target QAR 193.0 Upside (%) 44.7
Company Ticker FGB UH Price Target AED 13.9
Upside (%) 41.2
Company Ticker AAAL AB
Price Target SAR 37.3 Upside (%) 38.5
Company Ticker SAMBA AB Price Target SAR 64.7
Upside (%) 38.2
Company Ticker COMI EY
Price Target EGP 44.2 Upside (%) 34.4
Company Ticker CIEB EY
Price Target EGP 15.5 Upside (%) 28.2
Company Ticker BURG KK Price Target KWD 0.6
Upside (%) 14.7
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
September 12 2012
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Table of Contents
Core Portfolio performance .................................................................... 3
KSA Banks: positive stance ................................................................... 13
UAE Banks: Be selective ........................................................................ 19
Qatar Banks: Play QNB ......................................................................... 25
Egyptian Banks: Plenty of upside left in COMI & CIEB .......................... 30
Lebanese Banks: Not investable now ................................................... 35
Kuwaiti Banks: Avoid, with one exception: Burgan .............................. 39
Omani Banks: Play Bank Muscat ........................................................... 43
Bahrain Banks: Better value elsewhere ................................................ 47
Insurance: Very disappointing Q2, improvements still uncertain ........ 49
Commercial International Bank ............................................................ 71
National Societe Generale Bank ........................................................... 75
Credit Agricole Egypt ............................................................................ 79
Qatar National Bank ............................................................................. 83
Albilad Bank .......................................................................................... 87
Al Rajhi Bank ......................................................................................... 91
National Bank of Kuwait ....................................................................... 95
Bank Muscat ......................................................................................... 99
MedGulf Insurance ............................................................................. 103
Qatar Insurance Company .................................................................. 107
Salama Insurance ................................................................................ 111
Tawuniya Insurance ............................................................................ 115
September 12 2012
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Core Portfolio performance
The Core Buy portfolio has generated a positive return of 9.6% vs. a performance of the S&P
Arabia of (0.13%), resulting in a relative outperformance of 9.74%. The largest positive
contribution came from CIB and CAE.
CAE and COMI increased substantially on the back of a perceived improvement in the Egyptian
political situation, the election of a new president and the renewed (M&A) interest of GCC
countries in Egypt. We believe foreign investors still have to step in and could provide a further
boost for the shares. We are also less concerned about the macro picture. We argue that a
strong devaluation is unlikely given the potential social unrest (80% of food is imported), the
potential impact on interest rates (every 1% hike in interest increases the deficit by 0.6%
within 12 months), while a fiscal deficit of c. 10% is consistent with a stable net debt/GDP ratio.
We expect funds from the Middle East and IMF, in addition to a credible fiscal consolidation to
stabilize the current account.
Burgan Bank is our second best performer, and still offers substantial value and stronger
growth (supported by the Tekfen acquisition). FGB and UNB performed well, helped by lower
impact of new retail banking regulation in UAE and investors hunting deep value. We expect
UNB to increase its pay-out and further increase its net interest margins, which should allow it
to absorb a higher cost of risk.
Bank Muscat worked against us, due to the rights issue, and now shows the second highest
upside in the sector. We very positive on the macro outlook of Oman, which a very balanced
growth, strong loan growth related to projects, growth in Islamic finance, partly offset by
continued margin pressure in retail, and relatively below average returns.
Exhibit 1: Core Buy Portfolio Performance
Source: Bloomberg, Company Data, Arqaam Capital Research
The Avoid portfolio has generated a negative return of -2.77% vs. a performance of the S&P
Arabia of -0.13%, resulting in a positive contribution from our Sells of 2.52%. The largest
positive contribution came from Medgulf (on very disappointing claims in Q2 12), Shuaa (due
to ongoing operational losses) and Mashreq (due to its unjustified valuation premium), while
BJAZ and EGB (renewed M&A speculation after QNB doing a due diligence of NSGB) worked
Bank Curr TP Upside YTD Initiation Investment case
CBD AED 4.2 45.3% 5.00% 3.57% Share buy-back of potentially 35% of market cap
FGB AED 13.9 41.2% 28.03% 10.44% Good entry point after pull back due to impatience on buy back
UNB AED 4.7 49.7% 8.65% 8.62% Offers deepest value, higher NIMs absorbing higher loan losses
QNB QAR 193.0 44.7% (2.30%) --% Best LT growth, strong RORWA & capital, acquisitions unlocking value
CAE EGP 15.5 28.2% 54.53% 34.15% Take-over target, positive outlook FY12 after transitional FY11
CIB EGP 44.2 34.4% 79.68% 28.54% Growing when others do not, helped by higher NIMs, and very low valuation
Al Rajhi SAR 94.9 28.6% 5.76% 0.68% Best geared to benefit from retail growth, strong RORWA to be maintained
SHB SAR 37.3 38.5% 8.72% (1.10%) Very cheap, potential to cut C/I, new potential core shareholder a positive catalyst
Muscat OMR 0.8 46.0% (14.53%) (4.19%) Two capital increases should bolster its growth outlook, cheap entry point
Burgan KWD 0.6 14.7% 14.95% 25.30% Best Kuwait growth story. Tekfen could add 12% to EPS and 3% to loan growth CAGR
Salama AED 0.8 20.1% 22.14% (0.29%) Deep value. RoE to improve due to growing GWP, improve underwriting margins & yields
Average 36% 19.15% 9.61%
S&P Arabia 4.98% (0.13%)
Outperformance 14.17% 9.74%
September 12 2012
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against us. We continue to keep both in our Avoid portfolio, as we expect an earnings dilutive
capital increase for BJAZ, while for EGB we cannot justify its M&A premium. However, EGB
significantly underperformed CIB and CAE. Boubyan did not perform despite the bid from NBK,
and after acquiring 57% of the shares, we see downside risk, as the M&A support has
effectively disappeared.
Exhibit 2: Avoid Portfolio Performance
Source: Company Data, Arqaam Capital Research
Our Buys of our entire coverage across MENA financials have performed well (+10.7%). Our
Holds gave a negative return of -5.9%, while our average Sell recommendation gave a negative
return of -1.9% since our initiation (23 May 2012).
Exhibit 3: Banks performance since initiation
Source: Company Data, Arqaam Capital Research
NSGB was the strongest performer in our universe, followed by CAE and CIB. We missed NSGB
as we saw CAE as a more likely take-over candidate, as the bank is smaller in size and the
capital position of Credit Agriciole SA, the parent company of Credit Agricole Egypt, is a lot
tighter as compared to SocGen, the parent company of NSGB.
Bank Curr TP Upside YTD Initiation Investment case
DIB AED 1.75 (10%) 0.52% 2.63% Substantial hidden losses on associates, real estate, provisions and fair value reserves
MASQ AED 62.45 19% --% (21.42%) Unjustified premium, below average fundamentals
Khaliji QAR 14.1 (19%) 2.56% 0.99% Low quality of earnings
EGB USD 1.16 (32%) 11.18% 13.33% Unjustified M&A premium
BOB USD 10.5 (45%) (2.06%) --% Weakest capital base of sector due to high reliance on preference shares
BJAZ SAR 22.0 (20%) 64.60% 10.00% Sector-worst returns and asset quality
HBMO OMR 0.22 (1%) (21.17%) (6.44%) Merger synergies fully factored in its valuation
Boubyan KWD 0.29 (52%) 3.39% (1.64%) Valuation artificially high
KFH KWD 0.60 (13%) (18.40%) (5.48%) Capital gains should come down
Gulf Bank KWD 0.34 (14%) (18.68%) (3.66%) Valuation fully reflects earnings recovery
MedGulf SAR 19.3 (26%) (5.00%) (11.49%) Exposed to higher claims in medical, expensive and high capitalized goodwill
Shuaa AED 0.63 (1%) 11.82% (9.43%) Break-up unlikely and upside too low to play this scenario.
DFM AED 0.74 (23%) 15.00% (2.26%) Only option value
Average (18%) 3.37% (2.68%)
S&P Arabia 4.98% (0.13%)
Outperformance 1.61% 2.55%
Total alpha (Core Buy & Core Sells) 15.78% 12.29%
-29.0%
-19.0%
-9.0%
1.0%
11.0%
21.0%
31.0%
41.0%
NSG
BC
IEB
CO
MI
HD
BK
BU
RG
TAM
WEE
LEG
BE
SALA
MA
ENB
DFG
BA
LBI
HR
HO
BJA
ZU
NB
AD
CB
AD
IBC
BQ
KQ
IIKA
LIN
MA
KC
BK
CB
DD
IBM
AR
KQ
NB
KQ
IBK
DFM
NB
AD
RA
KB
AN
KA
AA
LB
OU
BYA
NR
JHI
KFI
NB
OB
BK
MB
SAM
BA
DH
BK
RIB
LA
RN
BSI
BC
BLO
MO
IBB
GB
KQ
ATI
BYB
BK
SBSA
BB
AU
DI
NB
KM
EDG
ULF
AU
BTA
WU
NIY
AB
SFR
SHU
AA
MA
SQ
Core buy in green
Core sell in red
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 5
Exhibit 4: Target Price vs. Current Market Price
Source: Bloomberg, Arqaam Capital Research
RAK now shows the highest upside in our universe, followed by BMBK, NBAD and UNB. We do
not play RAKbank as we remain wary of future retail regulation, while we shy away from
Lebanon due to the spillover effects of Syria, while NBAD’s growth strategy could be severely
impacted by new regulation capping single party exposures.
We see the largest downside in Boubyan (the valuation support of NBK has fallen away, and
the stock is trading over 4x P/tNAV12e), BOB (very tight capital position), EGBE (unjustified
M&A premium), KCBK (investment income unsustainable) and BJAZ (upcoming dilutive capital
increase).
Exhibit 5: Core buy portfolio performance since initiation
Source: Company Data, Bloomberg, Arqaam Capital Research
Exhibit 6: Core sell portfolio performance since initiation
Source: Company Data, Bloomberg, Arqaam Capital Research
Egypt doing best: The consolidated profits of the MENA financials increased 3.8% y/y and 1.2%
sequentially. The largest y/y increase was achieved by the Egyptian banks (44.4%), helped by
stronger margins, followed by Omani (+18.9%), KSA (10.9%), Qatari (9.1%) and Bahraini banks
-60%
-40%
-20%
0%
20%
40%
60%
RA
KB
AN
KN
BA
DU
NB
BK
MB
CB
DQ
NB
KB
LOM
FGB
RIB
LA
AA
LSA
MB
AA
RN
BC
OM
IA
UD
ITA
MW
EEL
RJH
IC
IEB
ALB
ISI
BC
MA
SQA
UB
SAB
BB
SFR
NB
KB
UR
GA
LIN
MA
BK
SBEN
BD
QIB
KD
HB
KC
BQ
KA
DC
BQ
IIKM
AR
KN
SGB
HD
BK
HB
MO
BYB DIB
AD
IBK
FIN
GB
KB
JAZ
KC
BK
EGB
EB
OB
BO
UB
YAN
0.0%
-2.2%
1.4%
5.8%
9.6%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
May Jun Jul Aug Sep
Core Buy S&P Arab Index
0.0%
-1.3%
-4.2%
-2.8%-2.9%
-4.5%
-4.0%
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
May Jun Jul Aug Sep
Core Sell S&P Arab Index
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 6
(5.9%). UAE (-8.2%), Kuwaiti (-0.9%) and Lebanese banks (-2.4%) reported lower earnings, for
the latter two due to higher loan loss charges, while for UAE this was caused by exceptional
items in Q2 11 for ADCB & ENBD (excluding these two banks, net earnings would have
increased 5.4% y/y). Without those, the consolidated group profits of our financials coverage
would have increased 8.3% and 1.6% respectively.
The sequential earnings growth was 1.2%. The largest q/q increase was Egypt again (12.2%),
Oman (+9.3%), Bahrain (8.5%), KSA (3.7%), Qatar (3.3%), UAE (2.3% (without ENBD & ADCB
4.7%)). Lebanon’s earnings were virtually flat (0.9% vs Q1 12), while the Kuwaiti banks were
very disappointing due to general provisions (-24.6% vs. Q1 12).
Exhibit 7: Consolidated Net Income by Company
Source: Company Data, Arqaam Capital Research
-150%
-100%
-50%
0%
50%
100%
150%
200%
KFI
NB
JAZ
ALB
IEG
BA
LIN
MA
CA
EC
IBB
KSB
SHB
BK
MB
NSG
BQ
NB
KR
akb
ank
FGB
RJH
IM
ASQ
UN
BB
OU
BYA
NR
IBL
KC
BK
HB
MO
SAB
BC
BQ
KA
UB
SIB
CB
OB
SAM
BA
DH
BK
AN
BB
UR
GA
DIB
MA
RK
NB
AD
AU
DI
QIIK
BLO
MB
SFR
DIB
QIB
KEN
BD
CB
DB
YB QIC
Tam
we
el
Sala
ma
GB
KN
BK
AD
CB
Taw
un
iya
Me
dG
ulf
y/y q/q
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 7
Exhibit 8: Consolidated Net Income by Country
Source: Company Data, Arqaam Capital Research
Changes to our Core Buy portfolio:
We have penciled in a higher net interest margin compression due to the increased rivalry in
the retail segment, particularly affecting Al Rajhi, which has 60% of its loans in this segment,
and we remove Al Rajhi from our Core Buy portfolio, given the lower upside. We include
Samba as a Core Buy after slightly exceeding our forecasts, and maintaining its net interest
margins. Samba’s net interest margin has come to an end (at least on a sequential basis) and
the bank is actively re-leveraging its balance sheet.
We remove 2 stocks from our Avoid portfolio: Mashreq and Shuaa
Mashreq fell substantially, while we have increase our forecasts for the stock post a strong Q2
12. We also remove Shuaa from our Avoid portfolio after a fall of 15%. At the current
valuation, potentially renewed talk could re-emerge, though we view a break-up still unlikely.
We calculate a break-up value of AED 1.11 per share.
-60%
-40%
-20%
0%
20%
40%
60%
Egypt Oman KSA Qatar Bahrain Lebanon Kuwait UAE Insurance Sector
y/y q/q
September 12 2012
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Exhibit 9: Breakup value for Shuaa shows significant upside
Item Value Comments
Total equity 1,140,939
Goodwill 34,111
NAV 1,106,828
Adjustments third party investments 0
Adjustments investments 0
Adjustment Gulf Finance House 64,234 1-1.9x bv (12% equity allocation)
Adjustment for asset management 35,706 0.39% of AuM
Adjustment for stock listing 10,000
Redemption staff -34,546 3 months salaries 222 staff
Adjustment for net debt 0
Total break-up value 1,182,222
Shares outstanding 1,065,000
Value per share 1.11
Source: Company Data, Arqaam Capital Research
Islamic Portfolio
We also introduce our portfolios comprising solely of Sharia compliant banks. We include
Tamweel, QIB, Albilad, Alinma and Al Rajhi as Core Buys, while we highlight DIB, ADIB, BJAZ,
Boubyan and QIIB as the least attractive Islamic banks.
Exhibit 10: Islamic portfolio
Source: Bloomberg, Arqaam Capital Research
Bank Curr TP Upside FY 13e P/E FY 12e P/tNAV YTD Investment case
TAMWEEL AED 1.7 32% 12.5x 0.5x 90.7% Very low valuation, best geared towards improving sukuk market and real estate market
QIB QAR 85.7 11% 10.8x 1.6x (8.3%) Impressive loan growth, strong capital base
Albilad SAR 36.0 22% 11.3x 2.0x 36.0% Strong fee generation, coupled with strong commercial momentum and margins
Alinma SAR 15.4 13% 21.5x 1.2x 41.7% Burgeoning bank with ample capital to grow
Al Rajhi SAR 94.9 29% 12.3x 3.1x 6.5% Best geared to benefit from retail growth, strong RORWA to be maintained
Average 21% 13.7 1.7 33.3%
Short Islamic Portfolio
Bank Curr TP Upside FY 13e P/E FY 12e P/tNAV YTD Investment case
DIB AED 1.75 (10%) 8.0x 0.8x (2.6%) Substantial hidden losses on associates, real estate, provisions and fair value reserves
ADIB AED 2.87 (13%) 7.1x 1.1x (1.9%) Unjustified premium, below average fundamentals
BJAZ SAR 22.8 (17%) 14.7x 1.5x 50.4% Sector-worst returns and asset quality
Boubyan KWD 0.29 (52%) 40.8x 4.1x 3.4% Valuation artificially high
QIIB KWD 53.15 3% 11.9x 1.6x (7.5%) Worst quality of earnings among islamic banks in Qatar, to be impacted by normalization of capital gains
Average (18%) 16.5 1.8 8.4%
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 9
Buys:
Al Rajhi
Blue chip bank with strong returns (RORWA), high commercial momentum, coupled with a strong capital and liquidity base.
Margin compression is concern, and we have increased NIM compression due to the retail exposure, but performance continues to be impressive.
TP of SAR 94.9 with upside of 29%. Bank is trading at a P/E13e of 12.3x and P/tNAV12e of 3.1x and has an ROTE12e of 23.8% and RORWA of c. 4%. We removed it from our Core Portfolio, but we include it in the Sharia compliant portfolio given the smaller universe.
Albilad
Improving Islamic banks, with highest returns among KSA banks and impressive lending growth of 30% in FY 12e.
Strong growth prospects, ample capital and liquidity.
TP of SAR 36.0 offers 21% upside. Bank is trading at a P/E13e of 11.3x and a P/tNAV12e of 2.1x and has an ROTE12e of 16.5%.
Alinma
Youngest bank in KSA with high growth potential given ample capital reserves.
We estimate 39% FY 12e net lending growth with pristine asset quality.
TP of SAR 15.4 offers 12.3% upside. Bank is trading at a P/E13e 33.5x and P/tNAV of 1.3x and has an ROTE12e of 5.6%, but the bank has substantial surplus capital and deploying it at solid returns should unlock value.
Tamweel
Tamweel is most geared towards an improving real estate market. It reported an increase of 10-15% in sales price over the last 18 months. Higher selling prices have a direct effect on LGD and an indirect effect on NPLs. We use an average NPL of 19.2% (vs. 10% YE 2011) and a loss given default of 45%. A fall of 1% in NPLs increases our TP by 2.6% and a fall in LGD of 10pp increases our TP by 11.3%.
Tamweel could benefit from lower funding costs depending on successful placements of Sukuks. Demand for Sukuks could triple between 2012-2017, outstripping supply (E&Y study).
RoE could be boosted by an increasing leverage. Tamweel has the lowest leverage in UAE, with a CET1 of >20% even when risk-weighting the real estate investment book at 1250% (i.e. 100% equity allocation for the real estate investment).
Our TP of AED 1.7 (just 0.7 P/tNAV) offers 39% upside. The stock is the cheapest within UAE banking sector in terms of P/tNAV after the re-rating of UNB.
QIB
Impressive loan growth in Q2 12A, much stronger than expected and capturing most of the growth in Qatar. We expect higher NIMs and fees, along with lower provisioning after removing the Arcapita exposure.
We expect QIB to regain market share and has ample capital to do so.
TP of QAR 85.7, offering an 11% upside. Bank is trading at a P/E13e of 10.8x and P/tNAV of 1.6x and has an ROTE12e of 14.2%.
September 12 2012
Banks
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Avoids:
DIB
Large hidden losses from (1) valuation from associates (though they have increased y-t-d), 2) aggressive valuation of Tamweel, 3) real estate portfolio not fully impaired 4) fair value losses not deducted from capital ratios
Severe asset quality concerns due to high exposure to commercial real estate and low pre-provisioning earnings capacity
Low P/tNAV of 0.7 fully warranted due to tight capital and hidden losses
ADIB
Weakest capital base in UAE under Basel III:(1) low capital base (2) high reliance on Tier-1 debt and 3) dividends not deducted from capital
ADIB plans to rebuild capital ratios, but that should go at the expense of its growth.
Average return bank, valuation not fully reflecting the low capital base.
BJAZ
Low returns and weak asset quality
Capital increase of 10% anticipated, diluting EPS
High growth already reflected in its valuation
Boubyan
Strong fundamentals (growth, capital, returns)
RORWA to improve, strong EPS growth
However, Boubyan is the most expensive stock in our universe, while valuation support from NBK has disappeared after NBK acquired 58% of the shares.
QIIB
NIM compression continues unabated, strong liquidity negatively affects NIMs, and we have cut our EPS forecasts significantly.
Highest real estate exposure and high concentration risk
Fully valued at P/E13e of 11.9x and P/tNAV12e of 1.6x.
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 11
Exhibit 11: Composition of Tier 1 (Basel III FY 13e)
Source: Arqaam Capital Research
Audi 11.9% 1.2% 0.0% 0.3% 0.2% 0.0% 0.0% 0.0% 0.0% 10.5%
Blom 12.9% 1.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11.8%
Byblos 13.9% 3.1% 0.0% 0.0% 0.0% 1.1% 0.4% 0.0% 0.0% 11.5%
BOB 12.9% 6.3% 0.0% 0.5% 0.2% 0.0% 0.0% 0.0% 0.0% 6.4%
Lebanon 12.9% 3.0% 0.0% 0.2% 0.1% 0.3% 0.1% 0.0% 0.0% 10.0%
QNB 23.8% 0.0% 0.0% 2.5% 1.9% 0.0% 0.0% 0.0% 0.0% 23.2%
Doha 11.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11.1%
QIB 21.0% 0.0% 0.0% 2.5% 2.5% 0.0% 0.0% 0.0% 0.0% 21.0%
CBQ 13.2% 0.0% 0.0% 5.6% 2.8% 0.0% 0.0% 0.0% 0.0% 10.4%
MARK 15.1% 0.0% 0.0% 1.1% 1.1% 0.0% 0.0% 0.0% 0.0% 15.1%
Khaliji 15.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 15.6%
QIIB 18.8% 0.0% 0.0% 0.8% 0.4% 3.0% 2.8% 0.0% 0.0% 18.7%
Qatar 17.0% 0.0% 0.0% 1.8% 1.3% 0.4% 0.4% 0.0% 0.0% 16.4%
NBK 20.3% 0.0% 0.0% 5.9% 4.9% 0.0% 0.0% 0.0% 0.0% 19.4%
Burgan 13.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13.9%
GBK 14.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 14.8%
KFH 11.7% 0.0% 0.0% 1.1% 0.6% 0.0% 0.0% 0.0% 0.0% 11.1%
Boubyan 21.5% 0.0% 0.0% 2.5% 1.2% 0.0% 0.3% 0.0% 0.0% 20.3%
Kuwait 16.5% 0.0% 0.0% 1.9% 1.3% 0.0% 0.1% 0.0% 0.0% 15.9%
Muscat 12.2% 0.0% 1.2% 0.8% 0.5% 0.0% 0.0% 0.0% 0.0% 11.0%
Sohar 9.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9.3%
OIB 13.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13.3%
Oman 11.3% 0.0% 0.4% 0.3% 0.2% 0.0% 0.0% 0.0% 0.0% 10.8%
CIB 12.9% 0.0% 0.0% 0.2% 0.0% 3.5% 0.9% 0.5% 0.1% 14.8%
CAE 10.6% 0.0% 0.0% 0.0% 0.0% 2.2% 1.0% 0.0% 0.0% 11.8%
NSGB 12.7% 0.0% 0.0% 0.2% 0.0% 3.0% 1.0% 0.0% 0.0% 14.4%
HDB 15.5% 0.0% 0.0% 4.1% 4.1% 1.6% 0.7% 0.0% 0.0% 16.5%
EGB 18.7% 0.0% 0.0% 3.1% 0.0% 0.0% 0.6% 0.0% 0.0% 15.1%
Egypt 14.1% 0.0% 0.0% 1.5% 0.8% 2.0% 0.8% 0.1% 0.0% 14.5%
ADCB 14.5% 0.0% 2.4% 0.1% 0.0% 0.0% 0.5% 0.0% 0.0% 11.6%
ADIB 12.8% 0.0% 2.7% 1.1% 0.0% 0.0% 0.6% 0.0% 0.0% 8.4%
NBAD 14.7% 0.0% 1.7% 0.0% 0.0% 0.0% 0.5% 0.0% 0.0% 12.5%
FGB 17.7% 0.0% 2.3% 0.3% 0.0% 0.0% 1.5% 0.0% 0.0% 13.6%
UNB 15.8% 0.0% 2.2% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0% 12.9%
ENBD 12.8% 0.0% 1.7% 0.0% 0.0% 0.0% 0.3% 0.0% 0.0% 10.8%
DIB 10.5% 0.0% 0.0% 0.6% 0.0% 0.0% 0.4% 0.0% 0.0% 9.5%
CBD 17.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 17.0%
Mashreq 15.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.4% 0.0% 0.0% 15.4%
Rakbank 23.2% 0.0% 0.0% 0.0% 0.0% 0.0% 2.6% 0.0% 0.0% 20.7%
Tamweel 22.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.5% 0.0% 0.0% 22.4%
UAE 16.2% 0.0% 1.2% 0.2% 0.0% 0.0% 0.7% 0.0% 0.0% 14.1%
SAMBA 16.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.0% 15.8%
RIYAD 13.7% 0.0% 0.0% 0.1% 0.1% 1.6% 0.5% 0.0% 0.0% 14.8%
ALRAJHI 14.8% 0.0% 0.0% 0.0% 0.0% 4.0% 1.7% 0.0% 0.0% 17.1%
BSFR 14.2% 0.0% 0.0% 0.1% 0.1% 0.0% 0.4% 0.0% 0.0% 13.7%
SABB 12.4% 0.0% 0.0% 0.4% 0.2% 1.9% 0.4% 0.0% 0.0% 13.6%
ANB 14.0% 0.0% 0.0% 0.3% 0.2% 0.0% 0.0% 0.0% 0.0% 13.9%
SHB 12.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 12.3%
SIB 17.8% 0.0% 0.0% 2.0% 1.0% 0.0% 0.7% 0.0% 0.0% 16.2%
ALBILAD 15.6% 0.0% 0.0% 0.0% 0.0% 2.7% 0.3% 0.0% 0.0% 18.0%
BJAZ 13.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.4% 0.0% 0.0% 12.7%
ALINMA 24.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24.8%
KSA 15.3% 0.0% 0.0% 0.3% 0.1% 0.9% 0.4% 0.0% 0.0% 15.7%
AUB 11.3% 0.5% 0.0% 2.7% 1.3% 1.7% 0.6% 0.0% 0.0% 10.5%
Bahrain 11.3% 0.5% 0.0% 2.7% 1.3% 1.7% 0.6% 0.0% 0.0% 10.5%
Intangibles CET1Allowed
minorities
(Dividends)Tier-1 (Basel 3) (Preference
shares)
(Subordinated
debt)
(Associates) Associates already
deducted
Current year
earnings
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 12
QNB to acquire NSGB: attractive financial impact
QNB has recently expressed an interest in NSGB. The discussions between SocGen and QNB are preliminary and there can be no certainty as to whether an agreement will be reached, and the potential deal is currently subject to due diligence. NSGB had previously denied that SocGen would be willing to sell, but SocGen never ruled out a sale. We assign a probability of a deal at well above 50%. We expect an attractive ROI of 12% & QNB's EPS would increase 6.3%, with a manageable negative impact on CET1 of -5.9% & Tier-1 of -6.2% if executed at 31.8 (price as of takeover news) which valued NSGB at a P/E 13e of 8.2x and P/tNAV 1.7x leaving QNB’s CET1 at a still solid 16.5%. This would imply that QNB is to buy listed shares (23%), given Egyptian take-over regulation (enforced by EFSA), and hence minority shareholders could reap additional benefits. QNB might even pay at yesterday’s closing price of EGP 39.9x, which has surged 26% since takeover news. We believe this should be considered an extremely full price (P/E 13e of 11.2 and P/tNAV12e of 2.13x vs. RoTE of 20%). QNB has shown to have a very disciplined approach on M&A opportunities, it has previously shied away from acquiring Denizbank and we believe this could be the ceiling QNB could be willing to pay. We do, however, add a 10% take-over/control premium to our old TP. We expect the deal should unlock value for QNB, as the market does not value QNB's surplus capital base. The news also supports our very positive view on Egypt. With QNB’s potential acquisition, QNB acquires a strong foothold in Egypt, the most
promising market for the next few decades in financial services in the MENA region. QNB can
increase NSGB’s growth by allocating more capital or reducing dividends, as SocGen was
constrained by its capital position. The sale of NSGB should bolster the capital ratios of SocGen
and reduce its capital deficit. SocGen is also in the process of selling its Greek subsidiary, as is
Credit Agricole.
Exhibit 12: M&A scenario
Source: Company Data, Arqaam Capital Research
at 31.8 at 39.9
QNB Acquisition of NSGB FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
EPS: old (QAR) 12.01 13.72 15.47 12.01 13.72 15.47
EPS: new (QAR) 12.78 14.59 16.58 12.62 14.43 16.42
Change 6.4% 6.3% 7.2% 5.1% 5.2% 6.1%
Return on investment (earnings/price paid)11.2% 12.1% 14.0% 8.9% 9.6% 11.2%
Tier-1 ratio: old 21.9% 22.2% 21.7% 21.9% 22.2% 21.7%
Tier-1 ratio: new 16.1% 16.8% 16.8% 15.0% 15.9% 16.1%
Net impact on T1 from the acquisition(5.9%) (5.4%) (4.8%) (6.9%) (6.2%) (5.6%)
CET1 ratio: old 21.4% 21.5% 21.4% 21.4% 21.5% 21.4%
CET1 ratio: new 15.8% 16.5% 16.8% 14.8% 15.6% 16.0%
Net impact on CET1 from the acquisition(5.6%) (5.0%) (4.6%) (6.6%) (5.9%) (5.3%)
tNAV: old 59.85 68.23 77.14 59.85 68.23 77.14
tNAV: new 55.42 64.61 74.51 52.68 61.85 71.75
Net impact on tNAV (7.4%) (5.3%) (3.4%) (12.0%) (9.3%) (7.0%)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 13
KSA Banks: positive stance
We are generally positive on KSA with an average upside of 27%. The sector is trading at a
P/E13e of 10.8x and a P/tNAV12e of 1.6x. The sector has decent returns, with a ROTE12e of
13.3%, in addition to ample capital and liquidity.
We generally revised our lending assumptions upwards slightly, following very strong
sector growth in H1 12A coming in at 10.0% y-t-d and 15.6% y/y, mainly driven by an
increase in private sector lending.
We see a significant amount of margin contraction in the sector as competition increases in
the retail space primarily. Al Rajhi is the most affected, while other banks, like Albilad and
Samba, are able to offset the margin compression by significantly increased net lending
(increasing the loan/deposit ratio).
We prefer to play the sector through SHB, which continues to trade at very attractive
multiples while performing very well this year. We continue to believe that a new potential
core shareholder would be a positive catalyst. Moreover, we remove RJHI from our core
portfolio, and include Samba as the latter’s NIM compression seems to have abated and
the bank is re-leveraging, putting it in a good position to grow further. We choose to
continue to avoid BJAZ as earnings have continued to disappoint and we expect a dilutive
capital hike.
Exhibit 13: KSA valuation summary
Source: Company Data, Arqaam Capital Research
We revise our EPS estimates for KSA banks following the Q2 results. We increase our FY 12e
EPS estimates for ARNB, RJHI, ALBI, BJAZ, and Alinma; while we cut our estimates for BSFR
and RIBL.
We maintain our recommendations for all banks except Albilad, which we upgrade from
Hold to Buy, and we have increased our EPS estimates reflecting the stronger fee
generation and higher loan growth.
Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
ANB BUY 6,403 SAR 24,012 28.1 38.5 37.0 10.1 8.7 7.3 10.0 18.6 0.5 1.3 1.2 1.1 12.8 13.6 14.8 3.9 4.4 5.0 8.0 7.0 6.0
Al Rajhi BUY 29,399 SAR 110,250 73.8 94.9 28.6 13.0 11.5 10.4 13.4 13.1 0.9 3.1 2.8 2.5 23.1 23.8 23.8 4.4 4.8 5.2 11.2 9.9 8.9
BSFR HOLD 7,666 SAR 28,748 31.9 37.1 16.1 9.6 8.9 8.4 9.8 7.3 1.2 1.2 1.1 1.0 13.3 12.3 11.7 2.2 2.5 2.8 8.4 7.6 7.1
Riyad BUY 9,280 SAR 34,800 23.2 32.4 39.8 10.1 9.5 8.3 11.6 13.2 0.7 1.1 1.1 1.0 10.9 11.1 12.0 5.8 6.3 6.7 8.4 7.9 7.0
Samba BUY 11,304 SAR 42,390 46.8 64.7 38.2 9.4 8.6 7.8 10.8 13.4 0.6 1.4 1.2 1.1 14.7 14.5 14.6 3.7 4.1 4.5 8.6 7.8 7.0
SABB HOLD 8,506 SAR 31,899 31.7 37.0 16.8 12.6 8.2 7.6 8.9 13.4 0.6 1.4 1.3 1.2 14.5 13.5 13.6 2.1 2.2 2.4 8.9 7.8 7.0
SHB BUY 2,858 SAR 10,716 26.9 37.3 38.5 9.4 8.9 7.9 10.9 11.2 0.8 1.2 1.1 1.0 13.7 12.7 13.2 3.7 4.1 4.5 8.0 7.2 6.4
Albilad BUY 2,376 SAR 8,910 29.5 36.0 21.9 9.0 11.3 9.8 12.0 2.7 4.2 2.0 1.7 1.5 24.5 16.0 15.8 -- 0.8 0.8 10.4 9.3 8.3
Aljazeera SELL 2,232 SAR 8,370 27.5 22.8 (17.3) 17.1 14.2 12.1 10.0 22.1 0.6 1.5 1.4 1.3 9.6 10.0 10.9 2.0 2.0 2.2 13.3 11.2 9.4
SIB BUY 2,398 SAR 8,993 16.3 19.6 20.6 11.5 9.7 8.4 10.2 18.2 0.5 1.0 0.9 0.9 8.6 9.6 10.3 3.4 3.7 4.0 8.4 8.1 7.3
Alinma HOLD 5,520 SAR 20,700 13.7 15.4 12.7 31.7 20.4 14.6 16.4 44.3 0.5 1.2 1.2 1.1 3.8 5.6 7.3 -- -- 2.9 24.9 16.6 12.0
KSA banks 87,940 329,788 27.2 12.0 10.8 9.6 13.7 1.6 1.5 1.3 13.3 13.5 13.9 2.6 2.8 3.0 9.8 8.7 7.7
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 14
Exhibit 14: KSA Banks EPS and TP changes
Source: Company Data, Arqaam Capital Research
The KSA banking sector growth exceeded our forecasts. All 11 KSA banks exhibited
continued growth with aggregate net profit growing 3.7% q/q and 10.9% y/y, slightly ahead
of our estimates (1.7% above). SHB, ANB, Samba and SIBC exceeded our forecasts, while
BJAZ, RJHI, SABB and BSFR came in below our forecasts. RJHI came in slightly below our
estimates (3.6%) due to lower than expected NII, though ahead of consensus, while SHB
surprised positively (13.6% ahead). ANB and SAMBA, both buys, came in above our
estimates, while RIBL was in line. Our core sell, BJAZ, came in at 11.7% below estimates.
Loans and deposits increased 4.3% q/q, more or less in line with our estimates. However,
lending growth outpaced deposits over the past year; 15.6% vs. 10.7% respectively, taking
the sector L/D ratio from 79% to 82%, reducing some of the excess liquidity and improving
the NIM outlook. On the other hand, Alinma’s growth in deposits was very impressive and
it has addressed part of its weak liquidity profile.
Exhibit 15: Earnings Summary
Source: Bloomberg, Arqaam Capital Research
Previous New ∆ Old New ∆ Old New ∆ Old New ∆
ARNB 39.04 38.50 (1.4%) 2.78 2.79 0.3% 3.31 3.24 (2.3%) 3.84 3.84 0.0% No significant changes
RJHI 100.49 94.85 (5.6%) 5.65 5.69 0.7% 6.52 6.43 (1.4%) 7.39 7.09 (4.0%) Lower margins on new retail book
BSFR 40.89 37.05 (9.4%) 3.43 3.32 (3.1%) 3.60 3.60 (0.0%) 3.79 3.78 (0.3%) Lower NII and fee generation, coupled with higher cost of equity
RIBL 33.09 32.43 (2.0%) 2.30 2.29 (0.2%) 2.49 2.45 (1.5%) 2.82 2.79 (0.9%) No significant changes
SAMBA 65.63 64.67 (1.5%) 5.09 4.99 (2.0%) 5.51 5.42 (1.6%) 6.16 6.01 (2.5%) Conservative loan loss charges, higher than expected
SABB 37.08 37.02 (0.2%) 2.51 2.51 0.0% 3.85 3.85 0.0% 4.19 4.18 (0.3%) Higher operating profits offset by higher provisioning
AAAL 38.31 37.26 (2.7%) 2.93 2.88 (1.9%) 3.12 3.03 (3.0%) 3.46 3.42 (1.1%) No significant changes
ALBI 30.94 35.97 16.3% 2.91 3.28 12.7% 2.15 2.60 21.1% 2.52 3.00 19.2% Earnings beat on the back of higher fee generation and margins
BJAZ 22.12 22.75 2.9% 1.60 1.61 0.3% 1.89 1.94 2.4% 2.22 2.28 2.6% Negative earnings surprise as a result of higher costs and provisioning charges
SIBC 19.77 19.59 (0.9%) 1.54 1.41 (8.6%) 1.71 1.67 (2.2%) 1.95 1.93 (1.2%) Higher loan loss charges
ALINMA 15.44 15.44 (0.0%) 0.43 0.43 0.6% 0.67 0.67 0.2% 0.94 0.94 (0.1%) No significant changes
Key reasonsEPS FY12eTP EPS FY13e EPS FY14e
NII (mn) Rev (mn) NP (mn) Loans (bn) Deposits (bn) NII Rev NP Loans Deposits NII Rev NP Loans Deposits NII Rev NP Loans DepositsSHB 343.8 554.9 332.3 41.9 49.6 6.8 2.8 14.6 4.3 4.3 12.2 12.1 26.2 16.6 11.9 3.3 2.5 13.6 1.2 0.3
ANB 843.0 1,255.0 718.0 80.7 94.8 9.1 5.0 9.4 6.8 6.8 4.7 8.4 3.0 16.9 12.2 8.6 5.9 13.4 4.7 1.9
SAMBA 1,099.0 1,745.0 1,158.0 96.0 142.0 3.3 (2.8) 1.2 3.5 3.5 (3.0) 6.8 5.1 16.6 2.3 0.4 1.6 5.1 1.3 (0.4)
RJHI 2,344.0 3,427.0 2,093.0 158.0 186.0 0.7 (0.0) 4.1 4.1 4.1 2.9 12.3 13.6 23.6 11.8 (3.2) (1.0) (3.6) 1.5 (2.5)
SABB 827.0 1,378.0 915.0 94.7 117.6 6.7 11.6 7.1 3.8 3.8 6.2 2.2 7.4 15.0 16.7 1.7 3.5 5.3 0.0 0.1
ALINMA 346.0 484.0 179.0 30.0 26.0 4.7 37.2 10.9 8.8 8.8 22.1 57.5 74.6 24.8 63.8 1.5 12.8 1.5 0.0 10.7
SIBC 306.0 419.0 222.0 29.8 38.1 5.3 (8.6) 4.6 6.5 6.5 (5.1) (1.4) 5.7 (2.2) 3.9 5.4 3.1 13.4 3.9 0.2
RIBL 1,095.0 1,826.0 914.4 115.1 137.1 2.5 9.3 1.4 1.2 1.2 2.7 16.3 9.4 2.6 3.6 (1.7) 7.6 (1.0) (1.0) (4.3)
BSFR 844.0 1,283.0 757.0 101.0 109.0 5.3 5.1 (4.0) 3.6 3.6 7.0 10.3 (2.1) 18.5 9.3 (0.6) 1.8 (5.2) 1.3 (4.4)
ALBI 205.6 444.5 153.5 16.2 23.6 6.0 5.9 11.0 7.6 7.6 15.2 31.5 87.9 24.5 31.5 0.0 13.1 11.1 (1.8) (2.2)
BJAZ 241.0 409.0 129.0 27.2 37.3 10.2 (4.2) (9.8) 8.6 8.6 25.7 32.7 98.8 25.0 21.8 4.9 1.9 (11.7) 5.5 5.6
Sector 8,494.4 13,225.4 7,571.2 790.7 961.0 4.0 3.8 3.7 4.3 4.3 4.4 12.1 10.9 15.6 10.7 0.3 3.1 1.7 1.3 (1.1)
q/q (%) y/y (%)Results (SAR) vs AC est (%)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 15
Exhibit 16: Net Interest Income: Margin pressure offset by lending increase for most banks
Source: Company Data, Arqaam Capital Research
Exhibit 17: Operating Income still strong on the back of strong brokerage activity
Source: Company Data, Arqaam Capital Research
Exhibit 18: Lending growth highest for Islamic banks
Source: Company Data, Arqaam Capital Research
Exhibit 19: Deposits growing in-line with loans
Source: Company Data, Arqaam Capital Research
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
ALI
NM
A
BJA
Z
ALB
I
RIBL
RJH
I
SHB
BSFR
AN
B
SAM
BA
SABB
SIBC
y/y q/q
-10%
-5%
0%
5%
10%
15%
ALB
I
ALI
NM
A
RIBL
AN
B
SABB
SHB
BJA
Z
BSFR
SAM
BA
RJH
I
SIBC
vs. AC est.
-5%
0%
5%
10%
15%
20%
25%
30%
35%
ALI
NM
A
ALB
I
RJH
I
BJA
Z
SHB
BSFR
SABB
SAM
BA
AN
B
RIBL
SIBC
y/y ytd q/q
-4%
-2%
0%
2%
4%
6%
8%
10%
AN
B
SIB
C
BJA
Z
SHB
SAB
B
ALI
NM
A
SAM
BA
ALB
I
BSF
R
RIB
L
RJH
I
vs. AC est.
-20%
0%
20%
40%
60%
80%
100%
120%
ALI
NM
A
ALB
I
BJA
Z
SHB
SABB
AN
B
RJH
I
BSFR
SAM
BA
SIBC
RIBL
y/y q/q
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
ALI
NM
A
BJA
Z
AN
B
SHB
SIBC
SABB
SAM
BA
ALB
I
RJH
I
RIBL
BSFR
vs. AC est.
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 16
Exhibit 20: Net profit growth highest for the Islamic Banks and our top picks
Source: Company Data, Arqaam Capital Research
Exhibit 21: SAMBA deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 22: RJHI deviation table
Source: Company Data, Arqaam Capital Research
-20%
0%
20%
40%
60%
80%
100%
BJA
Z
ALB
I
ALI
NM
A
SHB
RJH
I
RIBL
SABB
SIBC
SAM
BA AN
B
BSFR
y/y q/q
-15%
-10%
-5%
0%
5%
10%
15%
SHB
AN
B
SIBC
ALB
I
SAM
BA
ALI
NM
A
RIBL
RJH
I
BSFR
SABB
BJA
Z
vs. AC est.
Reported AC est
SARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 1,099.0 1,095.1 0.4 1,064.1 3.3 1,133.4 (3.0)
Total Revenues 1,745.0 1,716.9 1.6 1,796.2 (2.8) 1,634.5 6.8
Operating Costs 526.0 497.5 (5.4) 514.0 2.3 521.3 0.9
Pre-provision operating income 1,219.0 1,219.4 0.0 1,282.2 (4.9) 1,113.2 9.5
Loan Loss Provisions 60.9 98.1 61.2 137.5 (55.8) 11.0 451.1
Net Profit 1,158.0 1,101.9 5.1 1,144.5 1.2 1,102.2 5.1
Cost to Income 30% 29% 29% 32%
Net Interest Margin 4.66% 4.62% 4.70% 5.54%
Annualised charge % loans 0.25% 0.41% 0.59% 0.05%
Loan to Deposit 68% 66% 66% 59%
Net Loans 96.0 94.7 1.3 92.8 3.5 82.4
Deposits 142.0 142.6 (0.4) 139.9 1.5 138.8
Annualized ROE 15.9%
Annualized ROA 2.3%
EPS 1.29 1.22
Reported AC est
SARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 2,344.0 2,421.3 (3.2) 2,327.7 0.7 2,278.4 2.9
Total Revenues 3,427.0 3,462.8 (1.0) 3,427.4 (0.0) 3,050.6 12.3
Operating Costs 955.9 987.4 3.3 949.4 0.7 860.7 11.1
Pre-provision operating income 2,471.1 2,475.4 0.2 2,478.1 (0.3) 2,189.8 12.8
Loan Loss Provisions 378.3 303.7 (19.7) 466.7 (18.9) 346.8 9.1
Net Profit 2,093.0 2,171.7 (3.6) 2,011.3 4.1 1,843.1 13.6
Cost to Income 28% 29% 28% 28%
Net Interest Margin 6.05% 6.22% 6.37% 7.13%
Annualised charge % loans 0.96% 0.78% 1.23% 1.09%
Loan to Deposit 85% 82% 82% 77%
Net Loans 158.0 155.7 1.5 151.8 4.1 127.8
Deposits 186.0 190.7 (2.5) 186.1 (0.1) 166.4
Annualized ROE 6.2%
Annualized ROA 6.2%
EPS 1.40 1.45
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 17
Exhibit 23: SABB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 24: ALINMA deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 25: RIBL deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 26: ALBI deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 27: SHB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 28: ANB deviation table
Source: Company Data, Arqaam Capital Research
Reported AC est
SARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 827.0 812.8 1.7 775.0 6.7 778.9 6.2
Total Revenues 1,378.0 1,331.0 3.5 1,235.0 11.6 1,347.8 2.2
Operating Costs 390.3 408.4 4.6 385.0 1.4 405.5 (3.8)
Pre-provision operating income 987.7 922.6 (6.6) 850.1 16.2 942.3 4.8
Loan Loss Provisions 115.1 74.4 (35.3) 36.6 214.3 126.1 (8.7)
Net Profit 915.0 869.0 (5.3) 854.2 7.1 851.6 7.4
Cost to Income 28% 31% 31% 30%
Net Interest Margin 3.56% 3.43% 3.52% 3.84%
Annualised charge % loans 0.49% 0.31% 0.16% 0.61%
Loan to Deposit 81% 81% 82% 82%
Net Loans 94.7 94.7 -- 91.2 3.8 82.4
Deposits 117.6 117.5 0.1 111.6 5.4 100.8
Annualized ROE 20.3%
Annualized ROA 2.5%
EPS 0.92 0.87
Reported AC est
SARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 346.0 341.0 1.5 330.4 4.7 283.4 22.1
Total Revenues 484.0 428.9 12.8 352.9 37.2 307.2 57.5
Operating Costs 227.8 233.9 2.7 225.7 0.9 199.7 14.1
Pre-provision operating income 256.2 195.0 (23.9) 127.2 101.4 107.5 138.2
Loan Loss Provisions 67.4 18.7 (72.3) 16.9 299.5 5.0 1,238.9
Net Profit 179.0 176.3 1.5 161.4 10.9 102.5 74.6
Cost to Income 47% 55% 64% 65%
Net Interest Margin 4.80% 4.54% 5.00% 4.87%
Annualised charge % loans 0.90% 0.25% 0.24% 0.08%
Loan to Deposit 116% 128% 129% 152%
Net Loans 30.0 30.0 -- 27.6 8.8 24.1
Deposits 26.0 23.5 10.7 21.3 21.7 15.9
Annualized ROE 4.4%
Annualized ROA 2.4%
EPS 0.12 0.12
Reported AC est
SARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 1,095.0 1,113.9 (1.7) 1,068.5 2.5 1,066.6 2.7
Total Revenues 1,826.0 1,696.3 7.6 1,671.1 9.3 1,569.7 16.3
Operating Costs 615.5 651.0 5.8 616.7 (0.2) 646.2 (4.8)
Pre-provision operating income 1,210.5 1,045.3 (13.6) 1,054.3 14.8 923.4 31.1
Loan Loss Provisions 386.6 120.5 (68.8) 152.9 152.9 87.4 342.0
Net Profit 914.4 924.1 (1.0) 901.5 1.4 836.0 9.4
Cost to Income 34% 38% 37% 41%
Net Interest Margin 3.83% 3.83% 3.77% 3.83%
Annualised charge % loans 1.34% 0.41% 0.54% 0.31%
Loan to Deposit 84% 81% 81% 85%
Net Loans 115.1 116.3 (1.0) 113.7 1.2 112.1
Deposits 137.1 143.2 (4.3) 139.5 (1.8) 132.3
Annualized ROE 11.9%
Annualized ROA 2.0%
EPS 0.61 0.62
Reported AC est
SARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 205.6 205.5 -- 193.9 6.0 178.5 15.2
Total Revenues 444.5 393.1 13.1 419.8 5.9 338.0 31.5
Operating Costs 233.2 213.0 (8.7) 215.7 8.1 206.0 13.2
Pre-provision operating income 211.3 180.1 (14.8) 204.1 3.5 131.9 60.1
Loan Loss Provisions 57.8 41.9 (27.5) 65.7 (12.0) 50.3 15.1
Net Profit 153.5 138.1 11.0 138.3 11.0 81.7 87.9
Cost to Income 52% 54% 51% 61%
Net Interest Margin 5.26% 4.98% 5.38% 5.48%
Annualised charge % loans 1.43% 1.02% 1.75% 1.54%
Loan to Deposit 69% 68% 66% 72%
Net Loans 16.2 16.5 (1.8) 15.1 7.6 13.0
Deposits 23.6 24.1 (2.2) 22.9 3.1 18.0
Annualized ROE 15.3%
Annualized ROA 2.1%
EPS 0.51 0.46
Reported AC est
SAR Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII (mn) 343.8 332.8 3.3 322.0 6.8 306.5 12.2
Rev (mn) 554.9 541.4 2.5 539.9 2.8 495.2 12.1
NP (mn) 332.3 292.6 13.6 290.1 14.6 263.3 26.2
Net Interest Margin 3.35% 3.22% 3.31% 3.46%
Loans to deposits 84% 84% 84% 81%
Net Loans (bn) 41.9 41.4 1.2 40.2 4.3 35.9 16.6
Deposits (bn) 49.6 49.4 0.3 47.8 3.9 44.3 11.9
EPS 0.84 0.74
Reported AC est
SAR Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII (mn) 843.0 776.3 8.6 772.7 9.1 805.3 4.7
Rev (mn) 1,255.0 1,185.3 5.9 1,195.7 5.0 1,158.2 8.4
NP (mn) 718.0 633.3 13.4 656.1 9.4 696.9 3.0
Net Interest Margin 4.31% 4.03% 4.17% 4.66%
Loans to deposits 85% 83% 83% 82%
Net Loans (bn) 80.7 77.1 4.7 75.6 6.8 69.1 16.9
Deposits (bn) 94.8 93.1 1.9 90.7 4.5 84.5 12.2
EPS 0.84 0.74
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 18
Exhibit 29: SIB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 30: ALBI deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 31: BJAZ deviation table
Source: Company Data, Arqaam Capital Research
Reported AC est
SAR Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII (mn) 306.0 290.2 5.3 290.7 5.3 322.4 (5.1)
Rev (mn) 419.0 406.4 (8.6) 458.6 (8.6) 424.8 (1.4)
NP (mn) 222.0 195.8 13.0 212.2 4.6 210.0 5.7
Net Interest Margin 4.24% 4.05% 4.22% 4.22%
Loans to deposits 78% 75% 76% 83%
Net Loans (bn) 29.8 28.7 3.9 28.0 6.5 30.5 (2.2)
Deposits (bn) 38.1 38.0 0.2 36.9 3.1 36.6 3.9
EPS 0.40 0.36
Reported AC est
SAR Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII (mn) 844.0 849.1 (0.6) 801.8 5.3 788.7 7.0
Rev (mn) 1,283.0 1,260.1 1.8 1,220.2 5.1 1,162.7 10.3
NP (mn) 757.0 798.3 (5.1) 788.9 (4.0) 773.4 (2.1)
Net Interest Margin 3.40% 3.41% 3.38% 3.73%
Loans to deposits 93% 87% 87% 85%
Net Loans (bn) 101.0 99.7 1.3 97.5 3.6 85.2 18.5
Deposits (bn) 109.0 114.1 (4.4) 112.6 (3.2) 99.7 9.3
EPS 0.84 0.88
Reported AC est
SAR Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII (mn) 241.0 229.8 4.9 218.6 10.2 191.7 25.7
Rev (mn) 409.0 401.4 1.9 427.1 (4.2) 308.3 32.7
NP (mn) 129.0 146.2 (11.7) 143.0 (9.8) 64.9 98.8
Net Interest Margin 3.69% 3.56% 3.62% 3.50%
Loans to deposits 73% 73% 72% 71%
Net Loans (bn) 27.2 25.8 5.5 25.1 8.6 21.8 25.0
Deposits (bn) 37.3 35.3 5.6 34.6 7.7 30.6 21.8
EPS 0.43 0.49
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 19
UAE Banks: Be selective
We are positive on UAE despite a 4.4% YTD rally, as we still observe very
compelling valuations (P/E13e of 7.5x, P/tNAV13e of 0.9x, and P/PPP13e of 4.1x
and an average dividend yield of 5.6%). We see an average upside potential of
27.8% in the UAE banks under coverage.
In the UAE, we play FGB, UNB and CBD and we keep them in our core portfolio on
the back of attractive valuation, more than adequate capital positions and
attractive earnings outlook; Tamweel is our preferred play in Islamic banks.
Exhibit 32: UAE valuation summary
Source: Company Data, Arqaam Capital Research
We revise our EPS estimates for the UAE banks after Q2 12 results. ADCB, MASQ and Rakbank delivered impressive earnings on the back of improved margins driven by better asset yields, improved cost of funding, and lending growth; while CBD and UNB came in line with our expectations.
We increased our TP estimate for ADCB from AED 3.0 to AED 3.7 and its EPS on the back of impressive margins driven by improved asset yield accompanied with enhanced cost efficiency.
MASQ beats estimates on the back of improved margins driven by better cost of funding management and lower provisioning; we upgrade to stock from core sell to hold and increase its TP from AED 57.0 to AED 62.4 and EPS by an average of 10.1% for the period FY12-14e, helped by wider NIMs.
We are positive on Rakbank which has reported positive net profit as its net interest income has been less affected by retail regulation; very attractive stock but remains vulnerable for future regulatory changes.
We decrease our EPS estimates for ADIB in FY 14e driven by the banks plans to rebuild Tier 1 to over than 15% from its 13.4% level which in turn will lead to lower loan growth potential.
We maintain our recommendations for all the banks except for MASQ, which we upgrade
from core sell to hold.
Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
ADCB HOLD 5,134 AED 18,857 3.4 3.7 9.3 7.0 6.7 6.2 6.7 11.7 0.6 0.9 0.9 0.8 12.0 12.0 12.1 4.5 4.7 5.2 3.8 3.6 3.4
ADIB SELL 2,105 AED 7,733 3.3 2.9 (12.6) 6.9 7.1 6.4 5.6 9.7 0.7 1.1 1.0 1.0 15.0 13.6 14.0 5.2 5.2 5.6 3.9 3.9 3.8
CBD BUY 1,609 AED 5,911 2.9 4.2 45.3 7.6 7.1 6.1 8.8 15.0 0.5 0.8 0.8 0.7 16.2 16.5 18.2 7.3 7.7 8.3 4.4 4.1 3.9
DIB SELL 2,016 AED 7,404 2.0 1.8 (10.3) 8.7 8.0 6.6 6.0 21.7 0.4 0.8 0.7 0.7 9.2 9.5 10.8 6.5 6.0 5.9 3.5 3.1 3.1
ENBD HOLD 4,660 AED 17,118 3.0 3.4 11.2 9.0 9.4 7.6 8.4 38.4 0.2 0.7 0.6 0.6 6.4 5.8 7.2 4.8 4.5 4.7 2.6 2.7 2.5
FGB BUY 8,078 AED 29,670 9.8 13.9 41.2 7.4 6.7 6.0 8.4 13.6 0.5 1.2 1.1 1.0 15.5 15.7 16.4 7.6 8.5 9.6 5.3 5.0 4.6
NBAD BUY 9,325 AED 34,251 8.8 13.2 49.9 8.1 6.5 5.7 8.5 19.6 0.3 1.3 1.2 1.0 16.6 18.2 18.2 2.9 3.4 4.0 6.0 4.9 4.4
UNB BUY 2,133 AED 7,836 3.2 4.7 49.7 5.6 5.4 4.9 7.3 14.0 0.4 0.7 0.6 0.6 11.4 11.0 11.6 6.5 8.4 8.3 3.4 3.4 3.2
Tamweel BUY 362 AED 1,330 1.3 1.7 31.8 15.5 12.5 12.2 16.1 12.6 1.0 0.5 0.5 0.5 3.6 4.4 4.4 3.9 3.9 4.7 7.9 6.5 5.8
Mashreq HOLD 2,424 AED 8,902 52.7 62.4 18.6 10.1 8.9 7.8 9.2 23.3 0.4 0.7 0.6 0.6 6.9 7.4 8.1 4.3 4.1 4.0 4.6 4.3 4.0
Rakbank BUY 1,730 AED 6,354 1.5 6.4 333.6 1.9 1.9 2.0 8.5 2.3 0.8 0.4 0.4 0.3 23.7 20.4 17.9 24.1 23.7 23.0 1.4 1.4 1.5
UAE banks 39,578 145,367 42.0 8.3 7.5 6.6 10.7 1.0 0.9 0.8 11.8 12.0 12.6 5.2 5.6 6.0 4.3 4.1 3.8
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 20
Exhibit 33: UAE Banks EPS and TP changes
Source: Company Data, Arqaam Capital Research
The UAE banking sector have reported a decent net profit of AED 5,462mn, up by 2.3% q/q but down by -8.2% y/y. The main contributor for the q/q growth was DIB and FGB by 27.7% and 8.8% respectively.
Total revenues have increased by 1.6% q/q and 4.0% y/y mainly driven by ADCB and FGB’s growth of 11.7% and 6.3% q/q and 24.4% and 11.6% y/y respectively. The catalyst behind the aggregate revenue growth is the growth in NII of 2.5% q/q and 6.2% y/y.
Lending growth have surpassed that of deposits and the aggregate L/D stood at 99.9% in Q2 12A up from 94.8% in Q1 12A and 94.5% in Q2 11A. ADIB and FGB have gained lending market share from ADCB, NBAD and UNB. However, NBAD was the main contributor for the drop in deposits growth as the bank have lost more than expected government deposits which have temporarily parked with the bank in Q1 12A.
Margins results have come in mixed as NBAD has witnessed a margin compression on the back of government deposits while ADCB, DIB and MASQ have experienced margin improvements.
The provisioning cycle have narrowed down in the UAE banking sector as a whole as the LLP has dropped by -0.3% q/q and -18.4% y/y driven by some normalization in the cost of risk.
Efficiency have came in flat as C/I ratio stood at 33.8% with some improvement in DIB, MASQ and FGB but higher C/I for NBAD driven by the bank’s strategic domestic and international expansion.
Exhibit 34: UAE Results Summary
Source: Company Data, Arqaam Capital Research
Previous New ∆ Old New ∆ Old New ∆ Old New ∆
ADCB 2.98 3.69 23.7% 0.37 0.48 29.3% 0.44 0.51 14.4% 0.50 0.55 10.9% Impressive margins on the back of improved asset yields
ADIB 2.71 2.87 5.7% 0.42 0.47 13.1% 0.46 0.46 0.1% 0.52 0.51 (2.4%) Plans to build up capital implying lower loan growth
CBD 4.18 4.21 0.7% 0.39 0.38 (1.4%) 0.41 0.41 (1.0%) 0.48 0.48 (0.1%) No major surprises
DIB 1.76 1.75 (0.5%) 0.23 0.23 (1.8%) 0.25 0.24 (2.5%) 0.30 0.29 (3.2%) No significant changes
ENBD 3.21 3.37 4.9% 0.29 0.34 16.3% 0.32 0.32 (0.3%) 0.39 0.40 2.2% Higher capital gain and lower than expected provisioning
FGB 13.44 13.89 3.4% 1.30 1.32 1.5% 1.48 1.47 (0.7%) 1.67 1.65 (0.9%) No significant changes
NBAD 13.03 13.24 1.6% 1.05 1.09 3.2% 1.30 1.35 4.2% 1.51 1.56 2.8% Lower than expected provisioning
UNB 4.57 4.72 3.2% 0.55 0.56 1.7% 0.58 0.58 (0.8%) 0.63 0.64 1.4% No significant changes
TAMWEEL 1.67 1.67 0.2% 0.09 0.08 (3.9%) 0.10 0.10 1.1% 0.09 0.10 18.5% Dissapointing net interest income and F&Cs
MASQ 56.97 62.45 9.6% 4.61 5.21 13.1% 5.46 5.89 7.9% 6.21 6.78 9.1% Beat expectations on the back of improved cost of funding and lower provisioning
RAKBANK 6.08 6.37 4.8% 0.67 0.79 18.1% 0.70 0.77 11.1% 0.75 0.75 0.5% New retail regulation biting less hard than expected
Key reasonsEPS FY12eTP EPS FY13e EPS FY14e
NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits
ADCB UH 1,383 1,769 1,232 492 733 123,463 111,247 15.7 11.7 14.3 71.6 (8.6) (0.3) (2.8) 33.6 24.4 43.0 (47.4) (45.1) 5.1 4.6 14.6 14.0 21.5 (5.9) 39.8 (2.2) (3.3)
ADIB UH 724 887 509 187 323 53,508 60,546 0.2 1.8 3.2 0.3 5.0 7.8 5.2 0.2 (2.4) (7.6) (26.8) 2.3 11.2 13.8 1.7 3.4 3.7 (19.3) 21.6 8.0 3.1
CBD UH 341 470 331 105 226 27,918 29,074 3.3 0.7 (0.3) 18.1 (7.0) 1.3 2.6 0.7 (0.3) 0.7 54.2 (13.3) 6.9 3.3 5.3 1.2 1.8 1.9 1.7 0.3 (0.4)
DIB UH 659 923 566 241 323 53,237 68,289 0.9 2.2 5.0 (19.3) 27.7 1.3 0.2 4.8 2.1 5.0 14.5 (5.8) (4.2) (12.1) 1.1 (7.1) (7.3) (34.4) 27.6 1.5 (1.8)
Emirates UH 1,639 2,499 1,586 955 647 208,154 208,417 (7.7) (7.0) (8.0) (13.3) 1.0 2.0 (0.1) (5.3) (2.9) (8.1) (2.7) (13.0) 17.7 3.9 (6.4) 7.4 5.0 (13.9) 61.3 4.7 2.0
FGB UH 1,350 1,778 1,436 414 1,017 110,949 104,774 4.1 6.3 6.5 0.3 8.8 6.1 1.0 10.7 11.6 10.3 0.7 14.2 12.5 4.4 1.9 4.2 6.3 8.2 5.1 0.9 (2.9)
MASQ UH 468 958 508 177 325 39,611 43,677 6.4 2.2 5.6 0.6 8.3 6.6 (1.7) (2.0) (10.4) (16.8) (43.4) 10.3 4.0 (15.9) 5.3 4.4 8.9 (34.0) 67.6 4.4 (3.6)
NBAD UH 1,526 2,071 1,366 292 1,046 162,801 160,452 4.5 2.0 (1.3) (6.7) 0.6 (0.3) (14.5) 3.4 3.2 (1.4) (11.9) 2.0 6.4 9.0 (0.2) (1.5) (3.1) (19.3) 2.8 (5.0) (12.8)
UNB UH 625 780 586 120 460 57,302 60,004 1.2 (0.2) (1.8) 3.1 (3.2) (1.4) (5.3) 5.0 3.5 2.2 (20.5) 9.7 1.9 2.6 1.6 3.6 4.6 (43.0) 33.1 (4.3) (9.0)
Tamweel UH 48 56 32 14 19 9,399 0 (15.7) (24.9) (34.0) (55.8) 2.7 1.1 na (19.8) (16.6) (22.2) 0.0 (33.0) 28.5 na (23.4) (24.6) (33.2) (40.8) (26.3) (0.9) na
Rakbank UH 550 716 398 54 343 19,551 20,277 2.2 3.3 3.1 (10.5) 5.6 3.6 9.1 12.7 11.5 8.7 (22.3) 16.0 11.6 19.0 8.5 8.4 10.0 (41.9) 28.1 2.5 5.9
Sector 9,314 12,906 8,549 3,049 5,462 865,893 866,757 2.5 1.6 1.7 (0.7) 2.3 2.0 (3.1) 6.2 4.0 3.2 (18.4) (8.2) 8.9 3.1 2.0 4.0 4.9 (16.9) 21.8 0.4 (3.6)
vs AC est (%)Results (AED mn) q/q (%) y/y (%)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 21
Exhibit 35: Net interest income the main catalyst for profitability growth
Source: Company Data, Arqaam Capital Research
Exhibit 36: Operating Income still strong on interest income growth
Source: Company Data, Arqaam Capital Research
Exhibit 37: FGB increasing lending market share
Source: Company Data, Arqaam Capital Research
Exhibit 38: Deposits growing less than loans
Source: Company Data, Arqaam Capital Research
-30%
-20%
-10%
0%
10%
20%
30%
40%
AD
CB
MA
SQ
NB
AD
FGB
CB
D
Rak
ban
k
UN
B
DIB
AD
IB
EN
BD
Ta
mw
ee
l
q/q y/y
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
vs AC est
-30%
-20%
-10%
0%
10%
20%
30%
AD
CB
FG
B
Ra
kb
an
k
DIB
MA
SQ
NB
AD
AD
IB
CB
D
UN
B
EN
BD
Ta
mw
ee
l
q/q y/y
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
AD
CB
Ra
kb
an
k
EN
BD
MA
SQ
FG
B
UN
B
AD
IB
CB
D
NB
AD
DIB
Ta
mw
ee
l
vs AC est
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
AD
IB
MA
SQ
FG
B
Ra
kb
an
k
EN
BD
DIB
CB
D
Ta
mw
ee
l
NB
AD
AD
CB
UN
B
q/q y/y
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
AD
CB
Ra
kb
an
k
EN
BD
MA
SQ
FG
B
UN
B
AD
IB
CB
D
NB
AD
DIB
Ta
mw
ee
l
vs AC est
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Rak
ban
k
AD
IB
CB
D
FGB
DIB
ENB
D
MA
SQ
AD
CB
UN
B
NB
AD
q/q y/y
-15%
-10%
-5%
0%
5%
10%
Ra
kb
an
k
AD
IB
EN
BD
CB
D
DIB
FG
B
AD
CB
MA
SQ
UN
B
NB
AD
vs AC est
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 22
Exhibit 39: Net profit growth highest for DIB & FGB
Source: Company Data, Arqaam Capital Research
Exhibit 40: ADCB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 41: ADIB deviation table
Source: Company Data, Arqaam Capital Research
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
DIB
FGB
MA
SQ
Rak
ban
k
AD
IB
Tam
we
el
ENB
D
NB
AD
UN
B
CB
D
AD
CB
q/q y/y
-50%
0%
50%
100%
150%
200%
MA
SQ
ENB
D
AD
CB
UN
B
Rak
ban
k
DIB
AD
IB
FGB
NB
AD
CB
D
Tam
we
el
vs AC est
Reported AC est
AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 1383 1207 15% 1195 16% 1036 34%
Total Revenues 1769 1552 14% 1584 12% 1422 24%
Operating cost 537 537 (0%) 506 6% 560 (4%)
Pre-provision operating income 1232 1015 21% 1078 14% 862 43%
Loan loss provision 492 537 (8%) 287 72% 935 (47%)
Net Profit 733 524 40% 802 (9%) 1335 (45%)
Cost to Income 30% 35% 32% 39%
Net Interest Margin 3.28% 2.86% 2.79% 2.60%
Annualised charge % loans 1.59% 1.66% 0.93% 3.18%
Loan to Deposit 111% 110% 108% 110%
Net Loans 123,463 126,284 123,866 117,430
Deposits 111,247 115,034 114,462 106,351
Annualized ROE 12.8%
Annualized ROA 1.6%
EPS 0.13
Reported AC est
AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 724 712 2% 723 0% 723 0%
Total Revenues 887 857 3% 871 2% 908 (2%)
Operating cost 378 366 3% 377 0% 357 6%
Pre-provision operating income 509 491 4% 493 3% 551 (8%)
Loan loss provision 187 366 (49%) 186 0% 255 (27%)
Net Profit 323 265 22% 307 5% 315 2%
Cost to Income 43% 43% 43% 40%
Net Interest Margin 3.99% 3.93% 4.10% 4.31%
Annualised charge % loans 1.40% 1.87% 1.50% 1.69%
Loan to Deposit 88% 84% 86% 90%
Net Loans 53,508 49,542 49,615 48,128
Deposits 60,546 58,701 57,550 53,192
Annualized ROE 14.7%
Annualized ROA 1.7%
EPS 0.14
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 23
Exhibit 42: CBD deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 43: DIB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 44: ENBD deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 45: FGB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 46: MASQ deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 47: NBAD deviation table
Source: Company Data, Arqaam Capital Research
Reported AC est
AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 341 324 5% 331 3% 339 1%
Total Revenues 470 464 1% 466 1% 471 (0%)
Operating cost 139 139 (0%) 135 3% 143 (3%)
Pre-provision operating income 331 325 2% 331 (0%) 328 1%
Loan loss provision 105 139 (25%) 89 18% 68 54%
Net Profit 226 222 2% 242 (7%) 260 (13%)
Cost to Income 29% 30% 29% 30%
Net Interest Margin 3.69% 3.51% 3.64% 3.68%
Annualised charge % loans 1.51% 1.48% 1.29% 1.04%
Loan to Deposit 96% 95% 97% 93%
Net Loans 27,918 27,831 27,565 26,128
Deposits 29,074 29,193 28,343 28,153
Annualized ROE 14.3%
Annualized ROA 2.3%
EPS 0.11
Reported AC est
AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 659 652 1% 653 1% 629 5%
Total Revenues 923 994 (7%) 903 2% 904 2%
Operating cost 357 383 (7%) 364 (2%) 365 (2%)
Pre-provision operating income 566 611 (7%) 539 5% 539 5%
Loan loss provision 241 383 (37%) 299 (19%) 210 15%
Net Profit 323 253 28% 253 28% 343 (6%)
Cost to Income 39% 39% 40% 40%
Net Interest Margin 3.12% 3.08% 3.14% 2.73%
Annualised charge % loans 1.81% 2.80% 2.27% 1.52%
Loan to Deposit 78% 75% 77% 72%
Net Loans 53,237 52,435 52,532 55,571
Deposits 68,289 69,516 68,153 77,645
Annualized ROE 12.8%
Annualized ROA 1.4%
EPS 0.09
Reported AC est
AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 1639 1752 (6%) 1777 (8%) 1731 (5%)
Total Revenues 2499 2326 7% 2686 (7%) 2574 (3%)
Operating cost 913 816 12% 963 (5%) 849 8%
Pre-provision operating income 1586 1510 5% 1723 (8%) 1725 (8%)
Loan loss provision 955 816 17% 1101 (13%) 981 (3%)
Net Profit 647 401 61% 641 1% 744 (13%)
Cost to Income 37% 35% 36% 33%
Net Interest Margin 2.40% 2.57% 2.66% 2.57%
Annualised charge % loans 1.83% 2.23% 2.16% 2.22%
Loan to Deposit 100% 97% 98% 88%
Net Loans 208,154 198,794 204,130 176,882
Deposits 208,417 204,371 208,541 200,513
Annualized ROE 7.4%
Annualized ROA 0.9%
EPS 0.12
Reported AC est
AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 1350 1325 2% 1297 4% 1220 11%
Total Revenues 1778 1707 4% 1673 6% 1593 12%
Operating cost 343 357 (4%) 326 5% 292 18%
Pre-provision operating income 1436 1350 6% 1347 7% 1301 10%
Loan loss provision 414 357 16% 413 0% 411 1%
Net Profit 1017 967 5% 935 9% 890 14%
Cost to Income 19% 21% 19% 18%
Net Interest Margin 3.63% 3.56% 3.55% 3.64%
Annualised charge % loans 1.49% 1.39% 1.58% 1.67%
Loan to Deposit 106% 102% 101% 98%
Net Loans 110,949 109,923 104,580 98,598
Deposits 104,774 107,930 103,779 100,394
Annualized ROE 15.2%
Annualized ROA 2.5%
EPS 0.34
Reported AC est
AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 468 444 5% 440 6% 477 (2%)
Total Revenues 958 917 4% 937 2% 1069 (10%)
Operating cost 450 450 (0%) 456 (1%) 458 (2%)
Pre-provision operating income 508 467 9% 481 6% 611 (17%)
Loan loss provision 177 450 (61%) 176 1% 312 (43%)
Net Profit 325 194 68% 300 8% 295 10%
Cost to Income 47% 49% 49% 43%
Net Interest Margin 2.69% 2.56% 2.48% 2.45%
Annualised charge % loans 1.78% 2.82% 1.89% 3.28%
Loan to Deposit 91% 84% 84% 73%
Net Loans 39,611 37,930 37,159 38,095
Deposits 43,677 45,309 44,421 51,942
Annualized ROE 10.1%
Annualized ROA 1.7%
EPS 1.92
Reported AC est
AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 1526 1529 (0%) 1460 5% 1475 3%
Total Revenues 2071 2102 (1%) 2030 2% 2007 3%
Operating cost 705 692 2% 645 9% 622 13%
Pre-provision operating income 1366 1410 (3%) 1384 (1%) 1385 (1%)
Loan loss provision 292 692 (58%) 313 (7%) 331 (12%)
Net Profit 1046 1017 3% 1041 1% 1026 2%
Cost to Income 34% 33% 32% 31%
Net Interest Margin 2.28% 2.29% 2.24% 2.56%
Annualised charge % loans 0.72% 0.84% 0.77% 0.87%
Loan to Deposit 101% 93% 87% 104%
Net Loans 162,801 171,336 163,225 152,957
Deposits 160,452 183,945 187,699 147,196
Annualized ROE 15.1%
Annualized ROA 1.5%
EPS 0.27
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 24
Exhibit 48: UNB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 49: TAMWEEL deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 50: RAKBANK deviation table
Source: Company Data, Arqaam Capital Research
Reported AC est
AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 625 616 2% 618 1% 595 5%
Total Revenues 780 752 4% 782 (0%) 753 4%
Operating cost 194 192 1% 185 5% 180 8%
Pre-provision operating income 586 560 5% 597 (2%) 573 2%
Loan loss provision 120 192 (38%) 117 3% 151 (20%)
Net Profit 460 345 33% 475 (3%) 419 10%
Cost to Income 25% 26% 24% 24%
Net Interest Margin 3.11% 3.06% 3.07% 3.00%
Annualised charge % loans 0.84% 1.41% 0.80% 1.07%
Loan to Deposit 95% 91% 92% 96%
Net Loans 57,302 59,851 58,091 56,244
Deposits 60,004 65,929 63,393 58,463
Annualized ROE 13.8%
Annualized ROA 2.2%
EPS 0.18
Reported AC est
AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 48 63 (23%) 57 (16%) 60 (20%)
Total Revenues 56 74 (25%) 74 (25%) 67 (17%)
Operating cost 24 26 (9%) 26 (7%) 26 (8%)
Pre-provision operating income 32 48 (33%) 49 (34%) 41 (22%)
Loan loss provision 14 26 (48%) 31 (56%) 14 --
Net Profit 19 25 (26%) 18 3% 28 (33%)
Cost to Income 43% 35% 35% 38%
Net Interest Margin 1.90% 2.48% 2.31% 2.47%
Annualised charge % loans 0.57% 0.96% 1.31% 0.59%
Loan to Deposit #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Net Loans 9,399 9,488 9,299 7,317
Deposits - - - -
Annualized ROE 3.3%
Annualized ROA 0.7%
EPS 0.02
Reported AC est
AED mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 550 507 9% 538 2% 488 13%
Total Revenues 716 660 8% 693 3% 642 12%
Operating cost 318 299 6% 307 4% 276 15%
Pre-provision operating income 398 361 10% 386 3% 366 9%
Loan loss provision 54 299 (82%) 60 (10%) 70 (22%)
Net Profit 343 268 28% 325 6% 296 16%
Cost to Income 44% 45% 44% 43%
Net Interest Margin 9.10% 8.39% 9.58% 8.96%
Annualised charge % loans 1.11% 1.96% 1.28% 1.59%
Loan to Deposit 96% 100% 102% 103%
Net Loans 19,551 19,067 18,877 17,516
Deposits 20,277 19,147 18,589 17,045
Annualized ROE 27.5%
Annualized ROA 5.4%
EPS 0.23
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 25
Qatar Banks: Play QNB
We are positive on Qatar with an average upside of 26%. Qatar banks are trading at a
P/E13e of 10.4x and P/tNAV12e of 1.7x which do not fully cater in the country solid returns
(high ROTE of 15.1% in FY 12e), ample liquidity, strong double digit loan growth, and
relatively exceptional Basel 3 capital position. We think the potential inclusion in MSCI
Emerging market indices should be a positive catalyst. We expect continued loan growth of c15% pa, of which 10% stemming from projects, while
the public sector should keep outpacing the corporate loan demand. We see continued pressure on margins across the Qatari sector due upward pressure on
deposit rates. We see no asset quality issues raised and expect pressure on cost efficiency
due to investments in expansionary plans. We still prefer to play growth through QNB only, which is the cheapest Qatari bank that still
does not have its excellent capital, strong growth and high return fully priced in. QNB
should outpace the sector at the expense of the other banks (especially CBQ and Doha)
Exhibit 51: Qatar valuation summary
Source: Company Data, Arqaam Capital Research
We revise our EPS estimates for Qatari banks post mixed Q2 results. While QNB and QIB
generated much stronger loan growth than expected, capturing most of the growth in
Qatar, we were disappointed in the quality of earnings of CBQ, Doha, QIIB and Al Khaliji.
We decrease our EPS forecasts for the latter banks as substantial capital gains offsetting
NIM contraction and lack of core revenues, would not be sustainable for the long term. We
expect CBQ and Doha to lose market share as are both tightly capitalized under Basel III
and face capital shortfall by FY 13e. We also decreased our EPS forecasts for MARK mainly
due continued pressure on NIM, lower provisioning and non-recurring items in other
income.
We increase QNB EPS by 1% for FY 12e as higher loan growth was partly offset by pressure
on asset yield and slower growth in F&C, and increase QIB EPS by a substantial 31% for FY
12e mainly after removing the provisioning previously triggered on Arcapita exposure
which was swapped with Land collateral before the insolvency.
We reiterate our recommendations for all the banks except for QIIB, which we downgrade
from Buy to Hold, as the bank is severely impacted by lower net interest margins and an
anticipated improvement in net interest margins in Q2 12 failed to materialize.
Company Rating Mkt. Cap. Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
CBQ HOLD 4,893 18,163 72.0 80.1 11.2 9.2 8.9 8.1 9.0 7.8 1.1 1.2 1.2 1.1 13.1 13.1 13.8 8.3 8.3 6.0 9.3 8.5 7.8
Doha HOLD 3,190 11,616 56.0 61.7 10.1 9.9 10.2 9.4 10.3 3.1 3.3 1.5 1.5 1.4 16.0 14.0 15.0 8.9 8.9 5.2 8.3 8.5 7.7
QIB HOLD 5,062 18,431 78.0 85.7 9.9 12.5 10.8 10.1 11.1 8.9 1.2 1.6 1.6 1.5 12.8 14.2 14.4 5.1 6.9 7.3 10.1 9.0 8.2
QNB BUY 25,714 93,624 133.8 193.0 44.2 10.9 9.5 8.4 12.2 13.5 0.7 2.0 1.7 1.5 18.8 18.9 18.8 3.6 4.1 4.6 9.6 8.5 7.5
MARK HOLD 5,582 20,325 27.1 27.8 2.6 14.5 13.2 11.2 11.5 15.7 0.8 2.1 2.0 1.8 15.2 15.2 16.5 3.7 3.7 3.7 13.4 11.1 9.4
Khaliji SELL 1,732 6,307 17.5 13.9 (20.6) 13.2 16.5 14.5 11.5 2.8 6.0 1.2 1.2 1.2 9.0 7.1 8.1 5.7 5.7 5.7 11.9 13.1 10.8
QIIB HOLD 2,129 7,750 51.2 53.2 3.8 11.8 11.8 11.4 11.8 5.6 2.1 1.5 1.5 1.5 12.9 12.7 13.0 7.3 7.7 7.9 10.7 10.7 9.7
Qatar banks 48,303 176,216 26.1 11.4 10.4 9.3 13.1 1.7 1.6 1.5 15.1 15.4 15.8 5.0 5.4 5.5 9.9 8.9 7.9
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 26
Exhibit 52: Qatar Banks EPS and TP changes
Source: Company Data, Arqaam Capital
Qatar banks Q2 earnings results came in 12% ahead of our estimates (+3% q/q, +9% y/y).
The highest beat was from QIB due to much lower LLP (we accounted for Arcapita). Doha,
CBQ and Al Khaliji reported poor quality of earnings (unsustainable capital gains) while QIIB
and MARK were a bit disappointing on NIM (which can be lumpy for Islamic banks). QNB
reported the highest quality of earnings although earnings were 1% short.
Qatar Loan growth slow downed in June (+2.1% M/M vs. 5% in May and 13.8% Ytd). QNB
and QIB captured most of the growth leaving a much smaller share for the other banks. We
saw NIM contraction by an average 28bps from a year ago due to pressure on asset yield
and funding costs. Cost efficiency weakened across the sector with C/I up to 24% vs. 22%
last year, except for some improvement in QIIB and Al Khaliji.
Exhibit 53: Earnings Summary
Source: Company Data, Arqaam Capital Research
Previous New ∆ Old New ∆ Old New ∆ Old New ∆
CBQK 82.1 80.1 (2.5%) 7.55 7.85 3.9% 8.05 8.06 0.2% 8.94 8.85 (1.0%) Lower NII and fee generation offset by lower provisioning and unsustainable capital gains
DHBK 68.0 61.7 (9.3%) 5.70 5.68 (0.4%) 5.89 5.49 (6.9%) 6.51 5.96 (8.4%) Disappointing loan growth, pressure on NIM and F&C offset by unsustainable capital gains
QIBK 79.8 85.7 7.3% 4.75 6.23 31.0% 6.62 7.24 9.3% 7.31 7.71 5.4% Lower provisioning (after removing Arcapita exposure), higher loan growth, NII and F&C
QNBK 189.2 193.0 2.0% 12.21 12.32 0.9% 13.51 14.07 4.1% 15.32 15.86 3.6% Much stronger than expected loan growth
MARK 30.9 27.8 (10.1%) 1.97 1.87 (4.8%) 2.39 2.05 (14.1%) 2.78 2.42 (12.9%) Lower than expected NIM, lower costs, non-recurring items in Other income
KCBK 14.1 13.9 (1.5%) 1.01 1.33 31.7% 1.17 1.06 (9.5%) 1.29 1.22 (5.2%) Margin contraction, slower loan growth
QIIK 60.5 53.2 (12.2%) 4.79 4.33 (9.5%) 5.04 4.34 (13.9%) 5.22 4.50 (13.8%) NIM compression
Key reasonsEPS FY12eTP EPS FY13e EPS FY14e
NII Rev
Op.
Profit LLP NP Loans Deposits NII Rev
Op.
Profit LLP NP Loans Deposits NII Rev
Op.
Profit LLP NP Loans Deposits NII Rev
Op.
Profit LLP NP Loans Deposits
QNBK 2,240 2,794 2,312 272 2,112 234,653 245,902 (0%) 1% (0%) 3% 5% 17% 13% 28% 22% 20% 59% 17% 56% 25% (1%) (4%) (4%) (11%) (1%) 14% 10%
QIIK 129 212 176 12 165 11,425 18,481 (1%) (15%) (14%) (61%) (6%) 8% 1% (16%) (5%) 2% 17% 1% 13% 8% (19%) (11%) 1% (13%) 2% 4% (1%)
DHBK 410 609 398 47 350 29,667 30,339 (7%) (1%) (7%) 26% (10%) 0% (3%) (6%) 5% 3% (1%) 3% 7% 4% (9%) 3% (2%) (16%) 0% (3%) (7%)
CBQK 464 726 482 8 546 43,927 40,556 (3%) 7% 3% (84%) 16% 5% 7% (3%) (0%) (5%) (84%) 7% 10% 17% (5%) (0%) (2%) (86%) 17% 1% 2%
QIBK 374 644 447 102 349 35,771 33,445 (2%) (4%) (6%) 20% (10%) 12% 12% 23% 16% 19% (1,465%) (9%) 45% 28% 4% 3% 5% (71%) 388% 10% 6%
MARK 235 436 349 (15) 372 37,982 51,191 (2%) (5%) (8%) (164%) 5% 6% 5% 40% (19%) (23%) (121%) 2% 34% 26% (9%) (15%) (17%) (120%) 8% 1% (1%)
KCBK 136 243 150 4 140 11,321 12,752 (0%) 12% 16% 10% 15% (2%) 6% (13%) (9%) 1% (72%) 8% 34% 28% (4%) 20% 60% (80%) 97% (7%) 1%
Sector 3,988 5,663 4,315 429 4,033 404,747 432,666 (2%) 0% (2%) (13%) 3% 12% 9% 16% 9% 9% 19% 9% 40% 22% (3%) (2%) (2%) (51%) 12% 8% 6%
vs AC esty/yq/qResults (QAR mn)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 27
Exhibit 54: Net Interest Income: Pressure on asset yields and funding costs across the sector (especially for QIIB, DHB, CBQ and KCBK)
Source: Company Data, Arqaam Capital Research
Exhibit 55: Revenues: We are concerned about the low quality of earnings of CBQ, DHB, QIIK and KCBK
Source: Company Data, Arqaam Capital Research
Exhibit 56: QNB eating market share particularly at the expense of CBQ and DHB
Source: Company Data, Arqaam Capital Research
Exhibit 57: Deposit growth generally outpaced by loan growth pushing L/D up for most of Qatari Banks
Source: Company Data, Arqaam Capital Research
-20%
-10%
0%
10%
20%
30%
40%
50%
MARK QNBK QIBK CBQK DHBK KCBK QIIK
q/q y/y
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
QIBK QNBK KCBK CBQK DHBK MARK QIIK
vs AC est
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
QNBK QIBK DHBK CBQK QIIK KCBK MARK
q/q y/y
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
KCBK QIBK DHBK CBQK QNBK QIIK MARK
vs AC est
-10%
0%
10%
20%
30%
40%
50%
60%
QNBK QIBK MARK KCBK QIIK CBQK DHBK
q/q y/y
-10%
-5%
0%
5%
10%
15%
QNBK QIBK QIIK CBQK MARK DHBK KCBK
vs AC est
-5%
0%
5%
10%
15%
20%
25%
30%
35%
QIBK KCBK MARK QNBK CBQK QIIK DHBK
q/q y/y
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
QNBK QIBK CBQK KCBK MARK QIIK DHBK
vs AC est
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 28
Exhibit 58: Net Interest Income: QIB beat was due to premature provisioning for Arcapita
Source: Company Data, Arqaam Capital Research
Exhibit 59: NIM contraction across the sector
Source: Company Data, Arqaam Capital Research
Exhibit 60: QNB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 61: QIIB deviation table
Source: Company Data, Arqaam Capital Research
-15%
-10%
-5%
0%
5%
10%
15%
20%
QNBK KCBK CBQK DHBK MARK QIIK QIBK
q/q y/y
-50%
0%
50%
100%
150%
200%
250%
300%
350%
400%
QIBK KCBK CBQK MARK QIIK DHBK QNBK
vs AC est
-100
-80
-60
-40
-20
0
20
40
60
KCBK QIIK QNBK QIBK MARK DHBK CBQK
q/q (bps) y/y (bps)
-80
-70
-60
-50
-40
-30
-20
-10
0
10
QIBK QNBK KCBK CBQK MARK DHBK QIIK
vs. AC (bps)
Reported AC est
QARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 2240 2270 (1%) 2247 (0%) 1751 28%
Total Revenues 2794 2898 (4%) 2769 1% 2291 22%
Operating Costs 482 502 (4%) 450 7% 365 32%
Operating Income 2312 2396 (4%) 2319 (0%) 1926 20%
Loan Loss Provisions 272 307 (11%) 266 3% 172 59%
Net Profit 2112 2137 (1%) 2004 5% 1809 17%
Cost to Income 17% 17% 16% 16%
Net Interest Margin 3.11% 3.21% 3.35% 3.24%
Annualised charge % loans 0.46% 0.59% 0.52% 0.45%
Loan to Deposit 95% 92% 92% 77%
Net Loans 234,653 206,500 201,210 150,526
Deposits 245,902 223,477 218,393 196,279
Annualized ROE 20.2% 20.4%
Annualized ROA 2.8% 2.8%
EPS 12.07 12.21
Reported AC est
QARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 129 159 (19%) 129 (1%) 153 (16%)
Total Revenues 212 238 (11%) 249 (15%) 224 (5%)
Operating Costs 36 64 (44%) 43 (17%) 51 (29%)
Operating Income 176 175 1% 206 (14%) 173 2%
Loan Loss Provisions 12 13 (13%) 30 (61%) 10 17%
Net Profit 165 161 2% 176 (6%) 163 1%
Cost to Income 17% 27% 17% 23%
Net Interest Margin 2.91% 3.60% 3.13% 3.56%
Annualised charge % loans -- 0.49% 0.38% 0.40%
Loan to Deposit 62% 59% 58% 59%
Net Loans 11,425 10,990 10,531 10,122
Deposits 18,481 18,659 18,286 17,067
Annualized ROE 14.6% 14.7%
Annualized ROA 3.0% 2.9%
EPS 1.09 1.07
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 29
Exhibit 62: DHB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 63: CBQ deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 64: QIB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 65: MARK deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 66: Al Khaliji deviation table
Source: Company Data, Arqaam Capital Research
Reported AC est
QARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 410 449 (9%) 439 (7%) 435 (6%)
Total Revenues 609 593 3% 613 (1%) 580 5%
Operating Costs 211 189 12% 184 15% 192 10%
Operating Income 398 404 (2%) 429 (7%) 387 3%
Loan Loss Provisions 47 55 (16%) 37 26% 47 (1%)
Net Profit 350 349 0% 390 (10%) 339 3%
Cost to Income 35% 32% 30% 33%
Net Interest Margin 3.33% 3.59% 3.67% 3.80%
Annualised charge % loans 0.42% 0.64% 0.48% 0.55%
Loan to Deposit 98% 94% 94% 95%
Net Loans 29,667 30,601 29,543 27,714
Deposits 30,339 32,684 31,365 29,197
Annualized ROE 22.0% 21.9%
Annualized ROA 2.9% 2.9%
EPS 1.69 1.69
Reported AC est
QARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 464 489 (5%) 478 (3%) 477 (3%)
Total Revenues 726 727 (0%) 680 7% 726 (0%)
Operating Costs 243 233 4% 211 15% 217 12%
Operating Income 482 494 (2%) 469 3% 509 (5%)
Loan Loss Provisions 8 58 (86%) 51 (84%) 49 (84%)
Net Profit 546 467 17% 471 16% 509 7%
Cost to Income 34% 32% 31% 30%
Net Interest Margin 2.90% 3.13% 3.28% 3.38%
Annualised charge % loans (0.12%) -- 0.42% 0.35%
Loan to Deposit 108% 110% 111% 115%
Net Loans 43,927 43,427 42,011 39,788
Deposits 40,556 39,637 37,856 34,737
Annualized ROE 14.5% 13.6%
Annualized ROA 2.8% 2.6%
EPS 2.21 1.89
Reported AC est
QARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 374 359 4% 383 (2%) 305 23%
Total Revenues 644 626 3% 672 (4%) 556 16%
Operating Costs 196 200 (2%) 195 1% 180 9%
Operating Income 447 426 5% 477 (6%) 376 19%
Loan Loss Provisions 102 350 (71%) 85 20% (7) (1,465%)
Net Profit 349 72 388% 388 (10%) 382 (9%)
Cost to Income 31% 32% 29% 32%
Net Interest Margin 4.02% 4.00% 4.31% 3.55%
Annualised charge % loans 1.14% 4.30% 1.06% (0.12%)
Loan to Deposit 107% 104% 106% 95%
Net Loans 35,771 32,574 31,898 24,727
Deposits 33,445 31,457 29,982 26,031
Annualized ROE 13.7% 8.7%
Annualized ROA 2.6% 1.7%
EPS 1.48 0.30
Reported AC est
QARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 235 257 (9%) 239 (2%) 168 40%
Total Revenues 436 511 (15%) 460 (5%) 536 (19%)
Operating Costs 87 91 (4%) 82 6% 84 3%
Operating Income 349 421 (17%) 378 (8%) 452 (23%)
Loan Loss Provisions (15) 77 (120%) 24 (164%) 75 (121%)
Net Profit 372 344 8% 353 5% 363 2%
Cost to Income 20% 18% 18% 16%
Net Interest Margin 2.31% 2.55% 2.63% 2.20%
Annualised charge % loans (0.16%) 0.81% 0.27% 1.06%
Loan to Deposit 74% 73% 74% 70%
Net Loans 37,982 37,763 35,965 28,331
Deposits 51,191 51,466 48,744 40,626
Annualized ROE 17.4% 16.8%
Annualized ROA 2.6% 2.6%
EPS 0.50 0.46
Reported AC est
QARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 136 142 (4%) 137 (0%) 156 (13%)
Total Revenues 243 202 20% 216 12% 266 (9%)
Operating Costs 93 109 (15%) 87 7% 118 (21%)
Operating Income 150 94 60% 129 16% 148 1%
Loan Loss Provisions 4 20 (80%) 4 10% 15 (72%)
Net Profit 140 71 97% 122 15% 130 8%
Cost to Income 38% 54% 40% 44%
Net Interest Margin 2.19% 2.30% 2.32% 2.96%
Annualised charge % loans 0.14% 0.54% (0.04%) 0.69%
Loan to Deposit 89% 96% 96% 85%
Net Loans 11,321 12,112 11,557 8,456
Deposits 12,752 12,673 12,067 9,969
Annualized ROE 9.8% 7.3%
Annualized ROA 2.0% 1.5%
EPS 1.56 0.79
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 30
Egyptian Banks: Plenty of upside left in COMI & CIEB
We reiterate on positive stance on Egypt with an average upside of 16%, with even more
upside in COMI & CIEB, our Core Buys. The sector trades at a P/E13e of 8.7x with a
P/tNAV12e of 1.8x and a decent FY 12e ROTE of 18%. The Egyptian banking sector also
commands (along with Lebanon) the strongest liquidity positions. We have increased our
TPs on the back of lower macro risk and increased earnings estimates. We are just
beginning to see foreign interest in Egypt.
We generally revised our margin estimates upwards, following the sequential hike in asset
yields in H1 12A coming in at 4.25% vs. 3.55% in H1 11A driven by surging T-bill rates.
We reduced our loan growth estimates for CIB following stagnant activity in H1 and lower
forecasts on management guidance while we increased CAE’s loan and deposit estimates
following the bank’s strong commercial momentum in H1 12A.
We strongly prefer to play Egypt through COMI and CIEB, which are still at c20% earnings
discount to the sector post rally. COMI is our top pick in Egypt given its strong and
improving fundamentals (stronger margins, cost of risk under control, solid liquidity and
capital position and highest RORWA among coverage). We continue to see Credit Agricole
Egypt as an eligible take-over target, due to its parent’s high capital deficit and the bank’s
improved fundamentals. We think the M&A premium for EGB is too high, while we see
potential for EFG to close the gap to its sum of the parts of EGP16.6.
Exhibit 67: Egypt valuation summary
Source: Company data, Arqaam Capital Research
We revise our EPS estimates for Egyptian banks post Q2 results. We increase our FY 12e
EPS estimates for CAE, CIB and EGB while we lowered our EPS estimates for NSGB and
HDB as we continue to believe the bank is most vulnerable to a deterioration in asset
quality (exposure to lower & middle income consumer loans).
We reiterate our recommendations for all Egyptian banks, but revise our TP up by an
average of 15% on lower cost of capital (reflecting the reduced macro risk) and increase
EPS forecasts for some. We add a 10% take-over/control premium to our TP for NSGB as
the acquisition could unlock value for QNB and could position the bank for the strong
anticipated growth in the Egyptian financial services for the next few decades and ease
NSGB’s growth potentials given the tight capital position of parent company.
Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
CAE BUY 578 EGP 3,521 12.1 15.5 28.2 7.6 7.2 6.2 8.0 14.1 0.5 1.6 1.4 1.2 20.0 18.4 19.0 5.4 5.8 6.2 4.6 4.5 3.9
CIB BUY 3,293 EGP 20,067 32.9 44.2 34.4 8.7 7.2 6.4 8.6 18.5 0.4 1.8 1.6 1.3 23.7 23.3 22.5 3.3 3.7 3.8 5.7 5.1 4.5
HDB HOLD 285 EGP 1,737 14.3 14.2 (0.3) 11.7 8.0 6.4 6.4 33.6 0.2 0.7 0.6 0.6 5.8 8.1 9.6 3.4 5.0 6.2 6.7 4.9 3.9
NSGB HOLD 2,897 EGP 17,653 39.9 39.9 0.2 11.2 10.3 8.9 8.9 13.3 0.8 2.1 1.9 1.7 20.3 19.3 19.7 3.1 3.4 3.9 7.4 6.9 6.0
EGB SELL 338 USD 2,030 1.7 1.16 (31.8) 16.3 15.8 14.8 60.9 9.3 1.7 1.8 1.7 1.5 11.5 10.8 10.8 1.8 1.9 2.0 1.8 1.7 1.6
Egypt banks 7,391 45,008 16.2 10.0 8.7 7.6 10.1 1.8 1.6 1.4 18.2 18.3 18.4 3.3 3.6 4.0 6.4 5.8 5.1
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 31
Exhibit 68: Egypt Banks EPS and TP changes
Source: Company Data, Arqaam Capital Research
All banks beat our profit estimates with the exception of CIB, who fell 10% short on
substantially higher loan loss charges, however the H1 trends remain very satisfactory.
Both CAE and NSGB kicked off the quarter beating our estimates: NSGB Q2 profits rose
18% y/y, 25% q/q beating our estimates by 22% on improved cost efficiency and higher
trading income while CAE marked a staggering 67% rebound y/y and 13% ahead of our
estimates on higher trading and investment income but low quality of earnings.
CAE has already beaten our old full year estimates for loans and deposits, while NSGB
posts sluggish YTD figures falling short of our expectations. Provisioning came in lower
than estimates but remain conservative and on the rise with an annualized 82 bps and 105
bps for CAE and NSGB respectively vs. 53 bps and 86 bps in Q1 12A and our estimates of
88 bps and 124 bps. EGB also posted better than expected results.
Exhibit 69: Earnings summary
Source: Company Data, Arqaam Capital Research
Previous New ∆ Old New ∆ Old New ∆ Old New ∆
CIEB 11.99 15.46 28.9% 1.34 1.60 19.0% 1.54 1.66 8.0% 1.86 1.93 3.6% Earnings beat fuelled by investment income, decent commercial momentum and rising margins
COMI 35.57 44.21 24.3% 3.74 3.79 1.5% 4.29 4.55 6.0% 5.03 5.16 2.6% Revised loan estimates down for FY12e but compensated by spiking margins
HDBK 12.99 14.20 9.3% 1.26 1.22 (3.3%) 1.83 1.77 (2.8%) 2.28 2.21 (2.9%) Vulnerable to a deterioration in asset quality
NSGB 32.83 39.94 21.7% 3.57 3.56 (0.1%) 3.84 3.86 0.6% 4.45 4.48 0.6% Improved cost efficiency but provisions yet to increase
EGBE 1.09 1.16 6.1% 0.08 0.10 24.7% 0.09 0.11 17.1% 0.11 0.11 6.4% Higher margins and improved cost efficiency but remains significantly underprovisioned
HRHO 16.64 16.64 -- 0.87 0.87 -- 1.00 1.00 -- 1.11 1.11 -- Qinvest still uncertain, IB continues to be a drag
Key reasonsEPS FY12eTP EPS FY13e EPS FY14e
NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits
CAE 252 386 211 27 137 12,848 22,938 2.1 7.8 12.3 55.5 8.1 1.7 10.8 27.9 35.1 53.9 41.8 67.4 14.0 10.2 (8.2) 8.3 17.8 (6.4) 12.9 0.9 8.1
CIB 932 1,247 847 143 523 40,771 76,767 7.1 5.1 11.2 762.7 3.6 1.8 3.4 35.0 32.5 47.4 28.6 66.6 9.5 14.1 3.2 (0.9) 3.7 73.3 (9.8) (3.1) 1.9
NSGB 643 905 627 98 436 35,889 51,566 4.4 7.6 13.8 10.1 24.5 3.5 (1.6) 25.5 22.8 35.7 249.3 18.0 6.3 2.1 1.2 (0.1) 7.8 (15.5) 22.5 (0.3) (4.4)
EGB 69 91 55 7 43 3,242 5,968 20.7 20.2 67.7 (283.0) 29.2 4.1 7.4 38.1 32.5 57.9 (40.0) 84.4 (1.4) 29.5 18.5 19.5 49.0 (42.7) 153.0 1.1 6.9
Sector 1,827 2,538 1,741 275 1,096 89,508 151,271 5.9 6.8 13.5 131.5 12.2 2.5 2.9 30.8 29.3 44.0 61.4 44.4 8.4 9.8 1.3 1.2 7.8 14.6 6.1 (1.4) 0.7
vs AC est (%)Results (EGP mn) q/q (%) y/y (%)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 32
Exhibit 70: Net Interest Income: Margins on a sequential hike
Source: Company Data, Arqaam Capital Research
Exhibit 71: Strong revenue growth reverses earnings contraction
Source: Company Data, Arqaam Capital Research
Exhibit 72: CAE beats loan growth estimates while CIB falls short of expectations
Source: Company Data, Arqaam Capital Research
Exhibit 73: Deposits growth outpaces loan growth
Source: Company Data, Arqaam Capital Research
0%
5%
10%
15%
20%
25%
30%
35%
40%
EGB CIB CAE NSGB
y/y q/q
-10%
-5%
0%
5%
10%
15%
20%
EGB CIB NSGB CAE
vs AC est
0%
5%
10%
15%
20%
25%
30%
35%
40%
CAE CIB EGB NSGB
y/y q/q
-5%
0%
5%
10%
15%
20%
EGB CAE NSGB CIB
vs AC est
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
CAE CIB NSGB EGB
y/y q/q
-4%
-3%
-3%
-2%
-2%
-1%
-1%
0%
1%
1%
2%
EGB CAE NSGB CIB
vs AC est
-5%
0%
5%
10%
15%
20%
25%
30%
EGB CIB CAE NSGB
y/y q/q
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
CAE EGB CIB NSGB
vs AC est
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 33
Exhibit 74: CAE deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 75: NSGB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 76: CIB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 77: EGB deviation table
Source: Company Data, Arqaam Capital Research
Egypt Macro Overview
We think the risk of a devaluation has been mitigated by commitments of Qatar to invest
USD18bn in Egypt over the next 5 years, boosting GDP by 1.4% pa and reducing the
balance of payment deficit by c60%. We expect more banks to be interested in inorganic
expansion, and we see CAE and the BNP’s operations as attractive take-over targets
amongst others.
Egypt could further balance the balance of payments through:
o Normalization in tourism.
o A return in FDIs, helped by a favorable investment climate and influx of capital
inflows from the gulf.
o Return of portfolio investments (particularly when Egypt launches a credible fiscal
policy).
Reported AC est
EGP mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 252 275 (8.2%) 247 2.1% 197 27.9%
Total Revenues 386 356 8.3% 358 7.8% 285 35.1%
Operating Costs 174 177 (1.3%) 170 2.8% 148 17.6%
Pre-provision operating income 211 179 17.8% 188 12.3% 137 53.9%
Loan Loss Provisions 27 29 (6.4%) 17 55.5% 19 41.8%
Net Profit 137 122 12.9% 127 8.1% 82 67.4%
Cost to Income 45% 50% 47% 52%
Net Interest Margin 3.98% 4.33% 3.86% 3.44%
Annualised charge % loans 0.82% 0.88% 0.53% 1.77%
Loan to Deposit 56% 60% 61% 54%
Net Loans 12,848 12,738 12,636 11,274
Deposits 22,938 21,216 20,699 20,812
Annualized ROE 27.4% 24.3%
Annualized ROA 2.1% 1.9%
EPS 0.48 0.42
Reported AC est
EGP mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 643 635 1.2% 616 4.4% 512 25.5%
Total Revenues 905 906 (0.1%) 841 7.6% 737 22.8%
Operating Costs 278 324 (14.3%) 290 (4.1%) 275 1.0%
Pre-provision operating income 627 582 7.8% 551 13.8% 462 35.7%
Loan Loss Provisions 98 116 (15.5%) 89 10.1% 28 249.3%
Net Profit 436 356 22.5% 350 24.5% 369 18.0%
Cost to Income 31% 36% 34% 37%
Net Interest Margin 4.18% 4.13% 4.04% 3.40%
Annualised charge % loans 1.05% 1.24% 0.86% 0.50%
Loan to Deposit 70% 67% 66% 67%
Net Loans 35,889 36,006 34,683 33,752
Deposits 51,566 53,955 52,384 50,516
Annualized ROE 24.4% 19.9%
Annualized ROA 2.9% 2.4%
EPS 1.08 0.88
Reported AC est
EGP mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 932 903 3.2% 870 7.1% 690 35.0%
Total Revenues 1247 1259 (0.9%) 1187 5.1% 941 32.5%
Operating Costs 400 442 (9.4%) 426 (5.9%) 367 9.2%
Pre-provision operating income 847 817 3.7% 761 11.2% 574 47.4%
Loan Loss Provisions 143 82 73.3% 17 762.7% 111 28.6%
Net Profit 523 580 (9.8%) 505 3.6% 314 66.6%
Cost to Income 32% 35% 36% 39%
Net Interest Margin 4.63% 4.49% 4.37% 3.90%
Annualised charge % loans 1.33% 0.75% 0.16% 2.06%
Loan to Deposit 53% 56% 54% 55%
Net Loans 40,771 42,068 40,053 37,248
Deposits 76,767 75,333 74,220 67,288
Annualized ROE 24.5%
Annualized ROA 2.5%
Reported AC est
EGP mn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 69 59 18.5% 58 20.7% 50 38.1%
Total Revenues 91 76 19.5% 76 20.2% 69 32.5%
Operating Costs 36 39 (8.5%) 43 (16.4%) 34 6.0%
Pre-provision operating income 55 37 49.0% 33 67.7% 35 57.9%
Loan Loss Provisions 7 13 (42.7%) -4 (283.0%) 12 (40.0%)
Net Profit 43 17 153.0% 33 29.2% 23 84.4%
Cost to Income 39% 51% 56% 49%
Net Interest Margin 4.51% 3.80% 3.67% 3.70%
Annualised charge % loans 0.80% 1.40% (0.45%) 1.32%
Loan to Deposit 54% 57% 56% 71%
Net Loans 3,242 3,208 3,113 3,289
Deposits 5,968 5,582 5,554 4,606
Annualized ROE 15.9%
Annualized ROA 2.6%
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 34
Exhibit 78: Economic indicators
Source: IMF
We are not too concerned about the fiscal deficit, even though it hits 11% the fiscal year
2011/12. A deficit of 8-10% is already leading to a fall in net debt/GDP ratio if the nominal
GDP bounces back as expected. The fiscal deficit is absorbed by the very liquid domestic
banking system.
Exhibit 79: Egypt Balance of Payment
Source: Egypt Central Bank
The recent increases in net international reserves have been fueled by one-offs including;
o The first US$ 500 MM tranche of the US$ 2 bn Qatari aid
o The Central Bank’s sale of US$ 642 MM worth of EUR-denominated T-bills
At current levels, net reserves are enough to cover around 3 months of imports.
International reserves are expected to stabilize at current rates before increasing again by
the end of FY 12e.
Exhibit 80: Reserves have drastically fallen vs. FY 10A levels
Source: Egypt Central Bank
Macro Forecasts 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Primary deficit/GDP (3.8%) (4.7%) (5.3%) (4.5%) (4.3%) (5.8%) (5.1%) (2.3%) (1.0%) (0.2%) 0.3%
Total deficit/GDP (9.2%) (7.5%) (7.8%) (6.8%) (7.8%) (9.9%) (10.0%) (7.8%) (6.6%) (5.3%) (3.8%)
Deficit with stable net debt/GDP (10.5%) (13.3%) (11.2%) (9.6%) (9.5%) (8.8%) (8.1%) (10.8%) (10.4%) (10.0%) (9.1%)
Above/below sustainable deficit 1.3% 5.7% 3.5% 2.8% 1.6% (1.1%) (1.9%) 3.0% 3.8% 4.7% 5.3%
Nominal GDP growth (%) 14.7% 20.6% 20.2% 16.4% 15.8% 13.7% 11.8% 15.9% 15.7% 15.8% 15.2%
Real GDP growth (%) 6.8% 7.1% 7.2% 4.7% 5.1% 1.8% 1.5% 3.3% 5.0% 6.2% 6.5%
Net debt/GDP 71% 64% 56% 59% 60% 64% 68% 68% 67% 63% 60%
Q1 08A Q2 08A Q3 08A Q4 08A Q1 09A Q2 09A Q3 09A Q4 09A Q1 10A Q2 10A Q3 10A Q4 10A Q1 11A Q2 11A Q3 11A Q4 11A Q1 12A Potential delta Potential
Trade Balance (5,521) (6,626) (7,000) (7,628) (4,866) (5,680) (6,254) (5,675) (6,608) (6,583) (7,134) (6,692) (5,543) (5,369) (7,823) (7,775) (7,929) -- (7,929)
Services (net) 4,049 4,170 4,060 3,406 2,158 2,878 3,302 2,983 2,478 1,577 2,623 2,961 1,265 1,030 1,622 1,501 676 700 1,376
o/w Suez 1,235 1,409 1,456 1,260 960 1,045 1,107 1,155 1,104 1,151 1,254 1,254 1,230 1,316 1,360 1,323 1,246 -- 1,246
o/w Tourism (net) 1,981 1,868 2,490 1,732 1,525 2,002 2,516 2,175 2,254 2,319 3,021 2,694 1,400 1,361 2,075 1,669 1,429 700 2,129
Transfers 2,165 2,945 1,974 2,675 1,790 1,808 2,459 1,903 2,807 3,295 3,205 3,132 2,829 3,971 4,026 4,395 4,915 -- 4,915
Balance of Current Account 693 489 (966) (1,547) (918) (994) (493) (790) (1,323) (1,711) (1,306) (599) (999) (369) (2,175) (1,879) (2,339) 700 (1,639)
Capital Account (0.2) (0.1) 0.7 (0.9) 0.1 (2.5) (14.0) (2.4) (0.4) (19.4) (7.9) (11.5) (4.8) (8.1) (20.5) (11.8) (46.5) -- (46.5)
Financial Account 507 3,933 2,186 (159) (1,347) 704 2,851 452 1,877 3,182 1,040 1,797 (4,589) (3,039) 523 (2,902) (1,210) 2,465 1,255
o/w FDIs 3,482 1,985 1,655 2,373 1,211 2,875 1,731 895 1,706 2,426 1,597 656 (164) 99 440 (858) 636 -- 636
o/w Portfolio investments in Egypt 383 (23) (3,485) (3,902) (1,503) (321) 1,186 378 5,548 768 5,900 (1,329) (5,540) (1,582) (1,730) (1,579) (1,260) 2,000 740
o/w other investmensts (2,825) 2,702 4,847 1,818 (969) (1,463) 69 (590) (4,401) 145 (6,115) 2,615 1,469 (1,322) 1,955 (349) (505) 465 (40)
Overall Balance 1,828 506 459 (1,006) (1,796) (1,035) 2,052 600 455 250 15 557 (6,071) (4,255) (2,356) (5,649) (3,165) 3,165 (0)
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Dec 08A Jun 09A Dec 09A Jun 10A Dec 10A Jun 11A Dec 11A Jun 12A
Net International Reserves Growth (m/m)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 35
Lebanese Banks: Not investable now
We avoid Lebanese banks, despite very attractive valuations for Bank Audi and BLOM, as
the unrest in Syria could further spill over in Lebanon. Valuations generally remain low but
we believe are unlikely to move. We expect a lackluster FY 12e because of higher
provisioning. BLOM remains our favorite pick in Lebanon due to its conservative strategy,
strong management, cost efficiency, very cheap multiples and resilience under weak
economic conditions. We remain negative on BOB, mainly due to the very tight capital
base, as its Tier-1 is highly dependent on preference shares.
We maintain our recommendations for all banks but slightly decrease our TPs to reflect
the increased uncertainty.
Exhibit 81: Lebanon valuation summary
Source: Company Data, Arqaam Capital Research
We revise our estimates down for all Lebanese banks as macro levels remain contingent to
troubled Syria and due to unrest in the country. The sector trades at a P/E13e of 5.9x and
a P/tNAV12e of 0.61x with a ROTE of 15.8%.
We decreased EPS estimates for both BLOM and BYB, following lackluster results and flat
earnings. BOB has beaten our estimates on the back of lower loan loss charges, but we
now factor in the high amount of dividends on preference shares in our EPS forecasts.
Exhibit 82: Lebanon Banks EPS and TP changes
Source: Company Data, Arqaam Capital Research
Subdued profits across sector as the country remains contingent to troubled Syria:
Stagnant core profits came in line with our estimates for the sector, flat q/q but down
2.4% y/y pulled by the 17% earnings fall posted by Byblos Bank while BOB topped our
coverage exhibiting a 5% increase y/y, 7% ahead of our estimates.
Top line figures look better with 6.5% growth y/y: All banks posted revenue growth y/y
except Byblos Bank while BOB outcast q/q numbers being the only bank recording positive
growth. Margins came in 6 bps higher q/q but 8 bps down y/y falling short of our forecasts
by 9 bps. All banks substantially missed our net margin estimates except BLOM (+4 bps vs
AC estimates). No major surprises for Bank Audi as the sale of insurance inflated the
second quarter earnings.
Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
Audi BUY 1,917 USD 1,917 5.5 7.3 32.3 4.9 5.4 4.8 6.4 6.3 0.9 0.9 0.8 0.8 19.9 16.1 16.4 7.7 7.0 7.9 3.3 3.5 3.1
BLOM BUY 1,591 USD 1,591 7.4 10.5 41.4 5.0 4.9 4.3 6.0 12.7 0.4 0.8 0.8 0.7 17.8 16.3 16.7 6.0 6.8 8.2 3.4 3.3 2.9
Byblos HOLD 843 USD 843 1.5 1.4 (4.1) 6.0 5.7 5.0 4.8 12.2 0.5 0.6 0.6 0.6 11.1 10.7 11.4 6.6 6.8 7.8 3.2 3.0 2.6
BOB SELL 959 USD 959 19.0 10.5 (44.8) 13.3 11.7 10.0 5.5 16.9 0.7 1.8 1.7 1.5 14.3 15.1 16.1 3.0 3.9 4.5 7.0 6.1 5.3
Lebanon banks 5,309 5,309 15.3 5.8 5.9 5.2 6.8 0.6 0.6 0.5 15.8 14.2 14.7 6.1 6.3 7.3 2.5 2.4 2.1
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
Previous New ∆ Old New ∆ Old New ∆ Old New ∆
AUDI 7.28 7.28 0.0% 1.42 1.12 (21.1%) 1.00 1.01 0.7% 1.13 1.14 0.8% Overestimated gains from sale of insurance
BLOM 10.99 10.46 (4.8%) 1.55 1.47 (5.0%) 1.59 1.52 (4.6%) 1.81 1.74 (4.1%) Lacklustre Fy12e with continued conservative provisioning
BYB 1.53 1.44 (6.0%) 0.25 0.25 0.7% 0.27 0.26 (4.8%) 0.31 0.30 (4.1%) Flat earnings with lower loan growth estimates
BOB 10.53 10.49 (0.4%) 1.85 1.42 (23.1%) 2.04 1.63 (20.1%) 2.28 1.90 (16.9%) Massively underprovisioned with lower loan and deposit estimates
Key reasonsEPS FY12eTP EPS FY13e EPS FY14e
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 36
Stagnant loan and deposit growth in line with estimates: Loans increased 3.8% YTD, 2.8%
q/q, while deposits rose 1.8% YTD, 1.3% q/q vs 3.6% YTD and 1.3% q/q for the sector. L/D
flat and low at 34% giving room to take on more leverage. Both AUDI and BLOM exceeded
our loan loss charges forecasts with annualized charges of 158 bps and 71 bps respectively
vs our estimates of 108 bps and 64 bps, while BOB still stands far below industry peers
with an annualized 12 bps, but we expect charges to increase for BOB, particularly if
Lebanon is affected even more by Syria.
Exhibit 83: Earnings summary
Source: Company Data, Arqaam Capital Research
Exhibit 84: Net Interest Income: Loan growth partly offsets weak margins
Source: Company Data, Arqaam Capital Research
Exhibit 85: Operating Income: BOB beats our estimates and tops revenue growth
Source: Company Data, Arqaam Capital Research
NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits
AUDI 209 403 231 55 135 13,682 37,245 (5.6) (1.8) (1.1) 18.0 (4.8) 2.4 1.3 3.6 12.4 19.1 71.7 1.2 6.0 (2.2) (5.9) 2.6 9.4 47.7 (0.5) 1.6 0.3
BLOM 200 262 161 16 121 8,747 31,384 3.8 (21.4) (27.4) (75.3) (4.1) 2.2 0.9 7.4 3.3 9.1 343.8 0.0 5.0 2.5 1.7 (5.6) (1.9) 10.2 (4.4) (0.7) (1.6)
BYB 99 165 86 8 62 6,172 20,005 10.1 (7.7) (0.8) (45.4) 5.9 1.6 1.3 (5.7) (4.6) (2.4) 370.2 (17.1) 4.3 5.4 (9.3) (6.3) (0.7) (24.1) 4.2 (1.3) (2.6)
BOB 63 111 56 2 45 5,115 11,484 19.2 17.2 39.0 369.6 36.1 6.7 2.6 (12.5) 13.3 9.4 (78,050) 5.1 6.4 9.0 (5.5) 5.4 2.6 (71.4) 7.1 (0.3) (2.3)
Sector 570 941 533 82 363 33,717 100,118 2.5 (7.5) (8.4) (36.2) 0.9 2.8 1.3 1.1 6.5 11.1 116.3 (2.4) 5.5 1.9 (4.0) (1.1) 3.4 18.7 (0.2) 0.2 (1.2)
vs AC est (%)Results (LBP bn) q/q (%) y/y (%)
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
BLOM AUDI BYB BOB
y/y q/q
-10%
-8%
-6%
-4%
-2%
0%
2%
BLOM BOB AUDI BYB
vs AC est
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
BOB AUDI BLOM BYB
y/y q/q
-8%
-6%
-4%
-2%
0%
2%
4%
6%
BOB AUDI BLOM BYB
vs AC est
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 37
Exhibit 86: Loan growth positive but modest across sector
Source: Company Data, Arqaam Capital Research
Exhibit 87: Deposit growth outpaced by loan growth
Source: Company Data, Arqaam Capital Research
Exhibit 88: Profits beat expectations (except BLOM) but remain subdued
Source: Company Data, Arqaam Capital Research
0%
1%
2%
3%
4%
5%
6%
7%
8%
BOB AUDI BLOM BYB
y/y q/q
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
AUDI BOB BLOM BYB
vs AC est
-4%
-2%
0%
2%
4%
6%
8%
10%
BOB BYB BLOM AUDI
y/y q/q
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
AUDI BLOM BOB BYB
vs AC est
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
AUDI BOB BLOM BYB
y/y q/q
-10%
0%
10%
20%
30%
40%
50%
60%
AUDI BOB BYB BLOM
vs AC est
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 38
Exhibit 89: AUDI deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 90: BLOM deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 91: BYB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 92: BOB deviation table
Source: Company Data, Arqaam Capital Research
Reported AC est
LBPbn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 209 222 (5.9%) 221 (5.6%) 201 3.6%
Total Revenues 403 392 2.6% 410 (1.8%) 358 12.4%
Operating Costs 172 181 (5.3%) 176 (2.6%) 164 4.5%
Pre-provision operating income 231 211 9.4% 233 (1.1%) 194 19.1%
Loan Loss Provisions 55 38 47.7% 47 18.0% 32 71.7%
Net Profit 135 136 (0.5%) 142 (4.8%) 134 1.2%
Cost to Income 43% 46% 43% 46%
Net Interest Margin 2.38% 2.53% 2.56% 2.31%
Annualised charge % loans 1.58% 1.08% 1.36% 0.98%
Loan to Deposit 37% 36% 36% 34%
Net Loans 13,682 13,465 13,365 12,914
Deposits 37,245 37,133 36,766 38,091
Annualized ROE 25.5% 16.3%
Annualized ROA 1.9% 1.2%
EPS 0.58 0.39
Reported AC est
LBPbn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 200 196 1.7% 192 3.8% 186 7.4%
Total Revenues 262 278 (5.6%) 333 (21.4%) 254 3.3%
Operating Costs 101 113 (10.9%) 111 (9.2%) 106 (4.8%)
Pre-provision operating income 161 164 (1.9%) 222 (27.4%) 148 9.1%
Loan Loss Provisions 16 15 10.2% 65 (75.3%) 4 343.8%
Net Profit 121 127 (4.4%) 127 (4.1%) 121 0.0%
Cost to Income 38% 41% 33% 42%
Net Interest Margin 2.36% 2.32% 2.25% 2.34%
Annualised charge % loans 0.71% 0.64% 2.94% 0.17%
Loan to Deposit 28% 28% 28% 27%
Net Loans 8,747 8,810 8,558 8,329
Deposits 31,384 31,882 31,104 30,624
Annualized ROE 19.4% 17.6%
Annualized ROA 1.4% 1.3%
EPS 0.56 0.59
Reported AC est
LBPbn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 99 109 (9.3%) 90 10.1% 105 (5.7%)
Total Revenues 165 176 (6.3%) 179 (7.7%) 173 (4.6%)
Operating Costs 80 90 (11.6%) 93 (14.1%) 85 (6.9%)
Pre-provision operating income 86 86 (0.7%) 86 (0.8%) 88 (2.4%)
Loan Loss Provisions 8 11 (24.1%) 15 (45.4%) 2 370.2%
Net Profit 62 59 4.2% 58 5.9% 74 (17.1%)
Cost to Income 48% 51% 52% 49%
Net Interest Margin 1.65% 1.81% 1.50% 1.80%
Annualised charge % loans 0.51% 0.68% 1.68% 0.67%
Loan to Deposit 31% 30% 31% 31%
Net Loans 6,172 6,252 6,073 5,916
Deposits 20,005 20,539 19,749 18,987
Annualized ROE 15.2% 13.7%
Annualized ROA 1.0% 0.9%
EPS 0.11 0.10
Reported AC est
LBPbn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 63 67 (5.5%) 53 19.2% 72 (12.5%)
Total Revenues 111 105 5.4% 94 17.2% 98 13.3%
Operating Costs 55 51 8.3% 55 1.3% 47 17.6%
Pre-provision operating income 56 54 2.6% 40 39.0% 51 9.4%
Loan Loss Provisions 2 5 (71.4%) 0 369.6% 0 (78,050%)
Net Profit 45 42 7.1% 33 36.1% 43 5.1%
Cost to Income 50% 48% 58% 48%
Net Interest Margin 2.24% 2.37% 1.84% 3.05%
Annualised charge % loans 0.12% 0.42% 0.03% (0.00%)
Loan to Deposit 45% 44% 43% 46%
Net Loans 5,115 5,129 4,795 4,807
Deposits 11,484 11,753 11,193 10,531
Annualized ROE 23.4% 21.8%
Annualized ROA 1.6% 1.5%
EPS 0.89 0.83
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 39
Kuwaiti Banks: Avoid, with one exception: Burgan
We remain negative on Kuwait with an average downside of 2.6%, despite the country’s
support for high oil prices and government surplus, structural political gridlock continues to
slow down the Kuwaiti economy affecting the banking system in Q2.
All the Kuwaiti banks concerned about the slowdown in Kuwait were forced to take
additional provisions in Q2. The sector is trading at a P/E13e of 13.9x and a P/tNAV12e of
2.2x. The sector has decent returns, with ROTE12e and ROTE13e of 13.0% and 13.9
respectively.
We prefer to play the sector through Burgan, which continues to trade at attractive
multiples, and it offers a growth story as a result of its Tekfen acquisition. We continue to
believe that a new potential acquisition would add 3% to annual loan growth.
We maintain our lending assumptions as we don’t see much variation to our forecast,
coming in at 4.3% y-t-d and 7.0% y/y for all Kuwaiti banks under coverage.
Exhibit 93: Kuwait valuation summary
Source: Company Data, Arqaam Capital Research
We revise our EPS estimates for Kuwaiti banks following the Q2 results. We cut our FY 12e
EPS estimates for KFIN, GBK, and BOUBYAN; while leaving our estimates for NBK and BURG
more or less unchanged.
We maintain our recommendations for all banks.
Exhibit 94: Kuwait Banks EPS and TP changes
Source: Company Data, Arqaam Capital Research
Disappointing earnings for Kuwaiti banks driven by loan loss charges surprise in Q2 12, with
earnings falling by 25% q/q and 7.9% y/y. NBK was impacted as well by higher loan loss
charges, despite its low NPLs. Boubyan on the other hand looked better, despite sharply
higher provisioning, earnings grew by 10% y/y and 4% q/q. KFIN earnings beat our
expectation on the back of exceptionally high non recurring income despite higher loan loss
charges, leaving a growth of 68% q/q and 179%y/y.
Loans increased by 2% q/q with stagnant deposit growth q/q, more or less in line with our
estimates. Net loans growing in line with our forecast with deposits arriving only 2% below
our estimate.
Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
NBK HOLD 14,710 KWD 4,136 1.0 1.1 15.0 12.8 12.5 12.6 14.5 2.4 5.1 2.2 2.1 2.0 16.1 17.6 16.8 3.8 3.9 3.9 10.3 10.0 10.0
KFH SELL 7,024 KWD 1,975 0.7 0.59 (13.8) 18.2 14.0 8.7 7.5 34.3 0.4 1.6 1.5 1.2 9.1 11.0 14.6 1.4 1.3 2.9 6.4 6.2 5.0
Gulf Bank SELL 3,699 KWD 1,040 0.4 0.34 (14.1) 30.5 19.4 16.8 14.5 40.1 0.5 2.2 2.0 1.8 9.1 10.7 11.1 -- -- 1.3 8.8 8.3 7.8
Burgan BUY 2,857 KWD 803 0.5 0.60 14.7 13.6 11.0 9.6 11.0 20.7 0.5 2.4 2.1 1.9 19.5 20.5 20.8 1.8 1.8 3.8 6.9 6.2 5.5
Boubyan SELL 3,793 KWD 1,066 0.6 0.29 (52.3) 79.9 40.8 30.7 14.7 44.0 0.9 4.1 3.7 3.3 5.2 9.5 11.4 -- 0.3 0.3 37.3 27.7 22.5
Kuwait banks 32,084 9,021 (2.6) 16.6 13.9 11.8 13.6 2.2 1.9 1.7 13.0 13.9 14.7 2.2 2.3 2.8 9.3 8.6 7.7
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
Previous New ∆ Old New ∆ Old New ∆ Old New ∆
NBK 1.12 1.09 (2.8%) 0.07 0.07 (0.9%) 0.07 0.08 2.3% 0.08 0.08 (0.5%) Consolidating financials after 58.34% ownership in Boubyan.
KFIN 0.60 0.59 (0.3%) 0.04 0.04 (10.1%) 0.05 0.05 2.1% 0.08 0.08 1.5% Higher provisions and lower interest income on the back of slightly lower loan growth.
GBK 0.34 0.34 (0.9%) 0.02 0.01 (21.9%) 0.02 0.02 2.7% 0.02 0.02 1.1% Higher loan loss charges
BURG 0.60 0.60 (1.0%) 0.04 0.04 1.1% 0.05 0.05 (1.1%) 0.06 0.05 (1.1%) Despite higher LLPs in Q2, in line with our forecast.
BOUBYAN 0.28 0.29 2.0% 0.01 0.01 (15.7%) 0.02 0.01 (3.5%) 0.02 0.02 (7.8%) Loan loss provisioning higher than expected.
Key reasonsEPS FY12eTP EPS FY13e EPS FY14e
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 40
Exhibit 95: Earnings Summary Review
Source: Company Data, Arqaam Capital Research
Exhibit 96: KFIN beating BURG’s NII on the back of higher Margins
Source: Company Data, Arqaam Capital Research
Exhibit 97: KFIN highest Q/Q growth in revenue on the back of 190% q/q investment income growth
Source: Company Data, Arqaam Capital Research
NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit NP Loans Deposits
NBK KK 94 127 84 N/A 40 8,389 7,251 -1% -2% -8% N/A -51% 1% 1% 1% -2% -5% N/A -40% 7% 12% -4% -6% -11% -51% 1% 1%
KFIN KK 83 174 103 N/A 32 6,880 8,894 7% 32% 80% N/A 68% 2% -3% 11% 27% 54% N/A 179% 5% 6% -1% 17% 44% -11% -1% -4%
BOUBYAN KK 13 15 8 N/A 2 1,155 1,301 6% 9% 14% N/A 4% 6% 4% 27% 121% -3083% N/A 10% 26% 19% 4% 3% 11% -37% 5% 3%
GBK KK 30 41 29 N/A 5 3,428 3,252 3% -7% -3% N/A -26% 2% -1% 13% -6% -13% N/A -36% 4% 1% 5% 2% 2% -49% 0% -3%
BURG KK 30 48 29 N/A 16 2,592 3,164 7% 13% 10% N/A -7% 8% 4% 4% 13% 8% N/A 2% 20% 27% 1% 5% 5% 0% 6% 0%
Kuwait Sector 250 405 253 0 96 22,444 23,863 3% 12% 20% N/A -25% 2% 0% 7% 13% 6% N/A -8% 8% 10% -1% 5% 11% -35% 1% -2%
q/q (%) y/y (%) vs AC est (%)Results (LCmn)
-5%
0%
5%
10%
15%
20%
25%
30%
KFIN KK BURG KK BOUBYAN KK GBK KK NBK KK
q/q (%) y/y (%)
-6%
-4%
-2%
0%
2%
4%
6%
GBK KK BOUBYAN KK BURG KK KFIN KK NBK KK
vs AC est (%)
-20%
0%
20%
40%
60%
80%
100%
120%
140%
KFIN KK BURG KK BOUBYAN KK NBK KK GBK KK
q/q (%) y/y (%)
-10%
-5%
0%
5%
10%
15%
20%
KFIN KK BURG KK BOUBYAN KK GBK KK NBK KK
vs AC est (%)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 41
Exhibit 98: Higher LLPs this quarter affecting Net Profits, which fell substantially
Source: Company Data, Arqaam Capital Research
Exhibit 99: BURG highest q/q loan book growth beating our forecast
Source: Company Data, Arqaam Capital Research
Exhibit 100: BURG and NBK q/q deposit growth in line with our forecast
Source: Company Data, Arqaam Capital Research
Exhibit 101: Higher NIMs for all Kuwaiti Banks this quarter, KFIN witnessing highest NIM expansion
Source: Company Data, Arqaam Capital Research
-100%
-50%
0%
50%
100%
150%
200%
KFIN KK BOUBYAN KK BURG KK GBK KK NBK KK
q/q (%) y/y (%)
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
BURG KK KFIN KK BOUBYAN KK GBK KK NBK KK
vs AC est (%)
0%
5%
10%
15%
20%
25%
30%
BURG KK BOUBYAN KK GBK KK KFIN KK NBK KK
q/q (%) y/y (%)
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
BURG KK BOUBYAN KK NBK KK KFIN KK GBK KK
vs AC est (%)
-5%
0%
5%
10%
15%
20%
25%
30%
BOUBYAN KK BURG KK NBK KK GBK KK KFIN KK
q/q (%) y/y (%)
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
BOUBYAN KK NBK KK BURG KK GBK KK KFIN KK
vs AC est (%)
-30
-20
-10
0
10
20
30
40
50
KFIN KK BURG KK GBK KK BOUBYAN KK NBK KK
q/q (bps) y/y (bps)
-15
-10
-5
0
5
10
15
NBK KK KFIN KK BURG KK BOUBYAN KK GBK KK
AC (bps)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 42
Exhibit 102: NBK deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 103: KFIN deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 104: BOUBYAN deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 105: GBK deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 106: BURG deviation table
Source: Company Data, Arqaam Capital Research
Reported AC est
LCmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 94 99 (4%) 95 (1%) 93 1%
Total Revenues 127 135 (6%) 130 (2%) 129 (2%)
Operating Cost 43 42 4% 39 11% 41 6%
Pre-provision operating income 84 94 (11%) 91 (8%) 88 (5%)
Net Profit 40 82 (51%) 81 (51%) 66 (40%)
Cost to Income 34% 31% 32% 30%
Net Interest Margin 2.90% 3.04% 2.90% 3.07%
Annualised charge % loans 1.66% 0.48% 0.39% 0.86%
Loan to Deposit 116% 116% 115% 121%
Net Loans 8,389 8,346 8,271 7,866
Deposits 7,251 7,207 7,197 6,495
Annualized ROE 10.5% 14.2%
Annualized ROA 1.7% 2.3%
EPS 0.01 0.02
Reported AC est
LCmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 83 84 (1%) 78 7% 75 11%
Total Revenues 174 148 17% 132 32% 137 27%
Operating Cost 71 77 (8%) 75 (5%) 70 1%
Pre-provision operating income 103 72 44% 58 80% 67 54%
Net Profit 32 36 (11%) 19 68% 11 179%
Cost to Income 41% 52% 51% 56%
Net Interest Margin 3.29% 3.33% 3.07% 3.11%
Annualised charge % loans 3.17% 1.95% 2.26% 3.38%
Loan to Deposit 77% 75% 74% 78%
Net Loans 6,880 6,972 6,769 6,536
Deposits 8,894 9,274 9,182 8,360
Annualized ROE 8.4% 9.0%
Annualized ROA 0.8% 0.8%
EPS 0.01 0.01
Reported AC est
LCmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 13 12 4% 12 6% 10 27%
Total Revenues 15 14 3% 13 9% 7 121%
Operating Cost 7 7 (4%) 7 4% 7 3%
Pre-provision operating income 8 7 11% 7 14% 0 (3,083%)
Net Profit 2 4 (37%) 2 4% 2 10%
Cost to Income 48% 52% 104% 51%
Net Interest Margin 3.30% 3.18% 3.26% 2.91%
Annualised charge % loans 1.90% 1.04% 1.86% (0.78%)
Loan to Deposit 89% 87% 87% 84%
Net Loans 1,155 1,102 1,092 920
Deposits 1,301 1,261 1,249 1,091
Annualized ROE 3.8% 5.0%
Annualized ROA 0.6% 0.7%
EPS 0.00 0.00
Reported AC est
LCmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 30 28 5% 29 3% 26 13%
Total Revenues 41 40 2% 44 (7%) 44 (6%)
Operating Cost 12 12 1% 15 (14%) 11 13%
Pre-provision operating income 29 28 2% 30 (3%) 33 (13%)
Net Profit 5 11 (49%) 7 (26%) 9 (36%)
Cost to Income 30% 30% 25% 42%
Net Interest Margin 2.47% 2.34% 2.38% 2.28%
Annualised charge % loans 1.35% 2.44% 2.18% 2.94%
Loan to Deposit 105% 102% 103% 102%
Net Loans 3,428 3,429 3,365 3,288
Deposits 3,252 3,347 3,281 3,223
Annualized ROE 5.9% 8.2%
Annualized ROA 0.5% 0.7%
EPS 0.00 0.00
Reported AC est
LCmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 30 30 1% 28 7% 29 4%
Total Revenues 48 46 5% 43 13% 43 13%
Operating Cost 19 18 5% 16 17% 16 21%
Pre-provision operating income 29 28 5% 27 10% 27 8%
Net Profit 16 16 0% 18 (7%) 16 2%
Cost to Income 39% 39% 36% 48%
Net Interest Margin 2.83% 2.79% 2.73% 3.01%
Annualised charge % loans 1.30% 1.38% 0.83% 1.37%
Loan to Deposit 82% 77% 79% 86%
Net Loans 2,592 2,447 2,406 2,152
Deposits 3,164 3,161 3,040 2,500
Annualized ROE 14.6% 14.6%
Annualized ROA 1.4% 1.4%
EPS 0.01 0.01
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 43
Omani Banks: Play Bank Muscat
We remain positive on Oman with an average upside of 41.1%. The sector is trading at a
P/E13e of 7.9x and a P/tNAV12e of 1.0x. The sector has decent returns, with ROTE12e and
ROTE13e of 12.1% and 13.1 respectively.
We maintain our view on Oman, as we still view Bank Muscat as an attractive opportunity
in the Omani market. Despite slightly disappointing Q2 numbers we continue to believe
that our TP of Bank Muscat offers an attractive upside, especially given that the bank has
largely addressed its weak capital base.
HSBC Oman remains too expensive and already factors in all merger synergies.
Exhibit 107: Oman valuation summary
Source: Company Data, Arqaam Capital Research
We revise our EPS estimates for Omani banks following the Q2 results. We have reduced
our estimates for BKMB as we pencil in further NIM pressure. Nevertheless, we reiterate
our recommendations for all banks.
Exhibit 108: Oman Banks EPS and TP changes
Source: Company Data, Arqaam Capital Research
All banks posted revenue growth y/y, however with relatively stable q/q growth. Operating
profit dropped by 2% q/q on the back of 6% q/q drop in Bank Muscat’s operating profit.
Bank Sohar surprisingly reported the highest growth in NII, growing by 9% q/q vs. 2% for
banks under coverage. No surprises for HSBC Oman, operating profit came in 5% below our
forecast with 22% q/q growth and 26% y/y.
Despite disappointing NIMs earnings beat our estimate. Omani banks witnessed NIM
contraction over the past quarter except for Bank Sohar. Bank Muscat’s earnings increased
by 5% q/q and 19% y/y despite lower NIMs, beating our estimate by 10% on the back of
lower LLCs. Bank Sohar on the other hand reported a drop in earnings by 6% q/q.
Balance sheet expansion was inflated by HSBC merger. Loans and deposits increased 11%
and 14% q/q respectively, slightly above our estimates, 5% and 9% respectively. Net
lending only grew by 4% q/q for Bank Muscat and Bank Sohar, with HSBC achieving 72%
Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
Muscat BUY 2,929 OMR 1,127 0.55 0.80 46.0 7.8 7.4 6.5 9.5 14.6 0.5 1.2 1.0 0.9 15.6 14.8 15.1 3.8 4.1 4.5 5.9 5.2 4.7
Sohar HOLD 389 OMR 150 0.14 0.15 12.2 8.0 7.4 6.2 7.0 14.2 0.5 1.0 0.9 0.8 13.0 12.4 13.5 4.4 4.4 4.4 5.5 4.9 4.1
HBMO SELL 1,133 OMR 436 0.22 0.22 (1.1) 13.1 11.6 10.0 9.9 13.2 0.9 1.3 1.3 1.2 9.8 11.1 12.1 4.6 4.6 4.6 13.9 9.1 7.6
Oman banks 4,450 1,713 31.1 9.5 8.0 6.9 10.4 1.2 1.1 1.0 12.9 13.9 14.4 3.0 3.2 3.5 6.7 5.7 4.9
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
Previous New ∆ Old New ∆ Old New ∆ Old New ∆
BKMB 0.89 0.80 (9.5%) 0.07 0.07 1.5% 0.08 0.07 (6.3%) 0.09 0.08 (8.8%) Lower NIMs, higher number of shares
BKSB 0.15 0.15 1.7% 0.01 0.02 16.2% 0.02 0.02 2.3% 0.02 0.02 1.2% Higher interest income on the back of higher loan book growth and strong Q2 numbers.
OIBB 0.22 0.22 -- 0.02 0.02 -- 0.02 0.02 -- 0.02 0.02 -- No major surprises for HSBS Oman reporting below our estimate despite synergies with HSBC.
Key reasonsEPS FY12eTP EPS FY13e EPS FY14e
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 44
growth q/q. HSBC Oman net loans growth only 0.4% short our FY 12e and deposits were
2.8% short our FY 12e forecast.
Exhibit 109: Earnings Summary Review
Source: Company Data, Arqaam Capital Research
Exhibit 110: BKSB net interest income growth beating BKMB
Source: Company Data, Arqaam Capital Research
Exhibit 111: BKMB disappointing revenue growth
Source: Company Data, Arqaam Capital Research
NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit LLP NP Loans Deposits NII Rev Op. Profit NP Loans Deposits
BKMB OM 54 76 43 192 35 5,181 5,040 0% -4% -6% 3% 5% 4% 2% 4% 7% 5% -3% 19% 21% 20% -6% -7% -10% 10% 1% 0%
BKSB OM 10 13 7 24 5 1,101 1,309 9% 2% 5% 7% -6% 4% 10% 19% 19% 37% 26% 30% 12% 32% 4% 5% 17% 28% 2% 9%
HBMO OM 8 14 6 104 4 1,215 1,806 6% 33% 22% 18% 145% 72% 77% 8% 37% 40% 29% 8% 95% 128% -7% 10% -5% -7% 32% 48%
Oman Sector 73 103 55 320 44 7,497 8,156 2% 0% -2% 8% 9% 11% 14% 7% 12% 13% 8% 19% 28% 36% -5% -3% -7% 10% 5% 9%
Results (LCmn) q/q (%) y/y (%) vs AC est (%)
0%
5%
10%
15%
20%
25%
BKSB OM HBMO OM BKMB OM
q/q (%) y/y (%)
-8%
-6%
-4%
-2%
0%
2%
4%
6%
BKSB OM BKMB OM HBMO OM
vs AC est (%)
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
HBMO OM BKSB OM BKMB OM
q/q (%) y/y (%)
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
HBMO OM BKSB OM BKMB OM
vs AC est (%)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 45
Exhibit 112: BKMB looking better on the net level
Source: Company Data, Arqaam Capital Research
Exhibit 113: HBMO high loan growth on the back of merger, Net loans growth only 0.4% short our FY 12e
Source: Company Data, Arqaam Capital Research
Exhibit 114: Deposit growth for HBMO 2.8% short our FY 12e
Source: Company Data, Arqaam Capital Research
Exhibit 115: Lower NIMS across the Omani banks except for Sohar
Source: Company Data, Arqaam Capital Research
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
HBMO OM BKMB OM BKSB OM
q/q (%) y/y (%)
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
BKSB OM BKMB OM HBMO OM
vs AC est (%)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
HBMO OM BKSB OM BKMB OM
q/q (%) y/y (%)
0%
5%
10%
15%
20%
25%
30%
35%
HBMO OM BKSB OM BKMB OM
vs AC est (%)
0%
20%
40%
60%
80%
100%
120%
140%
HBMO OM BKSB OM BKMB OM
q/q (%) y/y (%)
-10%
0%
10%
20%
30%
40%
50%
60%
HBMO OM BKSB OM BKMB OM
vs AC est (%)
-100
-80
-60
-40
-20
0
20
BKSB OM BKMB OM HBMO OM
q/q (bps) y/y (bps)
-15
-10
-5
0
5
10
15
20
25
BKMB OM HBMO BKSB
AC (bps)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 46
Exhibit 116: BKMB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 117: BKSB deviation table
Source: Company Data, Arqaam Capital Research
Exhibit 118: HBMO deviation table
Source: Company Data, Arqaam Capital Research
Reported AC est
LCmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 54 58 (6%) 54 0% 52 4%
Total Revenues 76 81 (7%) 79 (4%) 71 7%
Operating Cost 33 33 (2%) 34 (2%) 30 10%
Pre-provision operating income 43 48 (10%) 45 (6%) 41 5%
Loan loss provisions 192 0 186 3% 198 (3%)
Net Profit 35 32 10% 33 5% 29 19%
Cost to Income 43% 41% 42% 57%
Net Interest Margin 3.35% 3.57% 3.49% 3.53%
Annualised charge % loans 0.27% 0.73% 0.55% 0.39%
Loan to Deposit 103% 102% 101% 102%
Net Loans 5,181 5,138 4,988 4,267
Deposits 5,040 5,058 4,959 4,200
Annualized ROE 15.2% 14.5%
Annualized ROA 8.0% 7.6%
EPS 0.02 0.02
Reported AC est
LCmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 10 10 4% 10 9% 9 19%
Total Revenues 13 12 5% 13 2% 11 19%
Operating Cost 6 6 (5%) 6 (0%) 6 4%
Pre-provision operating income 7 6 17% 7 5% 5 37%
Loan loss provisions 24 0 22 7% 19 26%
Net Profit 5 4 28% 5 (6%) 4 30%
Cost to Income 47% 52% 54% 33%
Net Interest Margin 2.90% 2.78% 2.85% 2.96%
Annualised charge % loans 0.41% 0.49% 0.21% 0.25%
Loan to Deposit 84% 90% 89% 99%
Net Loans 1,101 1,077 1,056 982
Deposits 1,309 1,203 1,191 995
Annualized ROE 15.8% 14.1%
Annualized ROA 1.2% 1.1%
EPS 0.00 0.00
Reported AC est
LCmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 8 9 (7%) 8 6% 8 8%
Total Revenues 14 13 10% 11 33% 10 37%
Operating Cost 8 7 23% 6 42% 6 36%
Pre-provision operating income 6 6 (5%) 5 22% 4 40%
Loan loss provisions 104 0 89 18% 81 29%
Net Profit 4 5 (7%) 2 145% 4 8%
Cost to Income 61% 54% 61% 38%
Net Interest Margin 2.14% 2.30% 2.80% 3.06%
Annualised charge % loans 0.22% 0.28% 1.47% (0.33%)
Loan to Deposit 67% 75% 69% 78%
Net Loans 1,215 920 708 623
Deposits 1,806 1,223 1,019 794
Annualized ROE 4.1% 4.3%
Annualized ROA 0.5% 0.5%
EPS 0.00 0.00
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 47
Bahrain Banks: Better value elsewhere
We continue to have a neutral view on Ahli United Bank, the country largest bank. AUB is
currently trading at P/E 13e of 8.0x and P/tNAV of 1.7x, which is fully factors the bank poor liquidity, tight capital and below sector average (RoRWA of 1.6%, 1.2% if adjusted for associates' interest). We prefer other value play banks in MENA such as UNB, FGB and CBD as they have much better capital positions and offer more attractive valuations.
Exhibit 119: Bahrain valuation summary
Source: Company Data, Arqaam Capital Research
We continue to expect loan growth to stand at a 7% for FY 12e and forecast a CAGR of 9%
over our forecasted period. We expect less than 10% structural loan growth for the country.
We expect NIM to remain stable and stand at 2.31% and earnings growth to remain decent at 13% CAGR helped by lower C/I and lower provisioning.
Exhibit 120: Bahrain Bank EPS and TP changes
Source: Company Data, Arqaam Capital Research
We believe the bank should address its poor liquidity and negative cash and interbank
position (-10% of assets) by issuing substantial issuance of wholesale debt.
We think AUB will be hit by Basel 3 capital regulation, due high investments in associates, and some reliance on preference shares. Its CET1 of 10% is below our minimum requirement we have set for the region of 12%. The bank might have to cut payout, limit loan growth or raise fresh equity.
AUB earnings results were almost in line with our estimates, with no major surprises. We
reiterate our Hold recommendation and TP of USD 0.63.
Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
Ahli United HOLD 3,066 BHD 3,066 0.5 0.63 17.4 7.9 7.1 6.3 8.4 12.3 0.6 1.5 1.3 1.1 19.6 19.4 19.3 5.6 5.6 5.6 5.1 4.7 4.3
Bahrain banks 3,066 3,066 17.4 8.6 7.7 6.9 9.1 4.7 4.2 3.7 19.6 19.4 19.3 1.7 1.7 1.7 5.1 4.7 4.3
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
Previous New ∆ Old New ∆ Old New ∆ Old New ∆
AUB 0.63 0.634 -- 0.07 0.07 -- 0.08 0.08 -- 0.09 0.09 -- In line with our estimates, no major surprises
Key reasonsEPS FY12eTP EPS FY13e EPS FY14e
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 48
Exhibit 121: Ahli United Bank deviation table
Source: Company Data, Arqaam Capital Research
AUB BI Reported AC
In QARm Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
NII 156 155 1% 151 4% 143 9%
Total Revenues 206 206 (0%) 195 6% 198 4%
Operating Costs 66 67 (1%) 63 5% 64 3%
Pre-provision operating income 139 139 0% 131 6% 134 4%
Total provisions 26 34 (24%) 46 (44%) 44 (41%)
Net income 88 89 (2%) 82 6% 84 4%
Cost to income 32.2% 32.5% 32.6% 32.4%
Net interest margin 2.36% 2.3% 2.24% 2.36%
Annualized Loan loss charges as % loans 0.64% 0.84% 1.16% 1.19%
Loans/Deposits 88.2% 88.1% 88.0% 85.5%
Net loans 16,182 16,233 15,946 14,877
Total deposits 18,341 18,424 18,127 17,405
Annualized ROE 15.0% 14.8%
Annualized ROA 1.3% 1.3%
EPS 0.02 0.02
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 49
Insurance: Very disappointing Q2, improvements still uncertain
The insurance sector performed far worse than anticipated, with claims rising
beyond expectations. The overall hike in net loss ratios has pushed combined ratios
close to 100% for FY 12e. We expect an improvement in underwriting profitability in
FY 13e and FY 14e, due to increased rates and lower catastrophe related claims.
Rising net loss ratios in Saudi medical segment: The Saudi medical insurance sector
witnessed a substantial surge in net claims, pushing combined ratios beyond 100% for
the companies under coverage. Although we expect an improvement in underwriting
profitability in H2, we expect combined ratios to remain north of 97%, diminishing
underwriting profitability compared to post FY 11A.
Non-motor reinsurance segment still affected by disasters in the Far East: Two of the
companies under coverage (QIC and Salama) have non-motor reinsurance operations
in the Far East and have been severely affected by the Thai floods, Japanese tsunami
and New Zeeland earthquakes in FY 11A and even further in FY 12e. Although net
claims caused a deterioration in earnings, both companies seem to have dealt with
the majority of claims as of H1 12A (though Salama expects further claims in Q3) and
are expected to report much better performance in FY 13e.
QIC still capable of achieving strong investment returns: We increased QIC’s return
on investment by 80bps from FY 13e moving forward. The company is proving capable
of maintaining strong investment yields despite poor market performance in Q2 12A.
Mixed top level results: Tawuniya reported a 10.7% y/y (28.1% q/q) increase in GWP
in Q2 12A. However NEPs did not see similar growth recording a 23.8% y/y growth
and 1.1% drop q/q. QIC reported 16.6% growth q/q with little change y/y, however
due to rising cession ratios q/q and higher changes in unearned premiums, NEPs fell
12% q/q (-1.8% y/y).
Surge in claims flows into Q2: MedGulf suffered the most from surging claims,
recording an increase of 18.1% y/y (27.3% q/q), along with an 18.5% rise in net loss
ratios y/y (14.2% q/q), and surprised the most. QIC’s net claims dropped 9.4% q/q
(27.5% increase y/y) while net loss ratios rose 2.2% q/q (17.4% y/y). Tawuniya’s claims
dropped 4.5% q/q while net loss ratios declined 3.0% q/q, though less than expected.
Sector-wide dive in net earnings: Amid soaring claims, MedGulf reported an SAR
11mn loss during Q2 12A. Tawuniya reported a 46.8% drop q/q (78.3% y/y). QIC net
earnings also dropped by 54% q/q (31% y/y) as the company took further provisioning
for unearned premiums, incurred higher claims, while recovered less from reinsurers.
The worst is almost over? The insurance sector has seen overall disappointing H1 12A
results, and 2012 may be the worst year yet. However we expect a better
performance in FY 13e and FY 14e amid better claims management in the medical
segment, higher reinsurance rates and lower claims from catastrophes in the Far East.
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 50
Exhibit 122: Despite recent performance, we still the majority of the stocks as undervalued based on anticipated earnings growth
Source: Company Data, Arqaam Capital Research
Salama severely affected by family Takaful and non-motor: Very poor performance
in the family Takaful segment due to tough competition resulted in a surprising drop
in GWP and rising claims. Adjusting for the latter has resulted in a substantial drop in
underwriting profits for that segment. Higher than anticipated claims from the Thai
floods have also contributed to the drop in EPS.
QIC still paying down claims from New Zeeland quakes: management is targeting
combined ratios ranging between 85% and 90% from FY 13e onwards. We increased
our net loss ratio forecast from FY 13e onwards accordingly, aiming for 87%-88%
combined ratio.
Tawuniya reported disappointing investment income and higher claims: Claims from
the medical segment were higher than anticipated in FY 12e and reported investment
income for Q2 12A fell. Adjusting for both resulted in a severe reduction in our
forecasts for FY 12e.
MedGulf severely affected by soaring net loss ratios in several segments: Although
an increase in net loss ratios in the medical segment was anticipated, the actually
increase YTD was much higher and was accompanied by a 10% increase in net loss
ratio for the motor segment. Both have resulted to sharply lowered EPS estimates.
Exhibit 123: We have seen disappointing results in the insurance sector as a whole mostly due to higher claims
Source: Company Data, Arqaam Capital Research
Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
Salama BUY 229 AED 841 0.7 0.8 20.1 16.2 7.7 8.3 9.3 28.9 0.3 0.6 0.5 0.5 3.5 6.9 6.0 -- -- --
Qatar Insurance BUY 1,722 QAR 6,270 70.2 85.3 21.6 11.2 9.7 9.4 11.8 6.7 1.4 1.8 1.7 1.7 15.7 17.9 17.9 8.5 8.8 9.0
Tawuniya BUY 870 SAR 3,263 43.5 52.8 21.3 11.2 9.4 7.0 11.4 21.8 0.4 1.6 1.4 1.3 14.8 16.2 19.4 3.1 3.7 5.0
MedGulf SELL 567 SAR 2,128 26.2 19.3 (26.4) 28.6 14.4 9.7 10.6 49.9 0.3 2.9 2.6 2.2 10.3 18.8 24.8 1.6 3.1 4.6
P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
Previous New ∆ Old New ∆ Old New ∆ Old New ∆
SALAMA 0.93 0.817 (12.2%) 0.05 0.04 (22.9%) 0.10 0.09 (16.1%) 0.11 0.08 (25.1%) Higher claims in family takaful and non-motor segment
QATI 94.90 85.330 (10.1%) 6.44 6.26 (2.8%) 8.07 7.26 (10.1%) 7.91 7.47 (5.5%) Rising claims from New Zeeland quake
TAWUNIYA 61.10 52.784 (13.6%) 4.70 3.88 (17.5%) 5.33 4.64 (12.9%) 6.50 6.23 (4.1%) higher than anticiapted net loss ratio in medical segment
MEDGULF 24.60 19.274 (21.7%) 2.23 0.91 (58.9%) 2.56 1.82 (28.9%) 3.35 2.71 (19.2%) Soaring net loss ratios in medical and motor segments
Key reasonsEPS FY12eTP EPS FY13e EPS FY14e
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 51
Exhibit 124: Tawuniya reported disappointing bottom line results
Source: Company Data, Arqaam Capital Research
Exhibit 125: MedGulf reported an SAR 11mn loss during Q2 12A due to high loss ratios
Source: Company Data, Arqaam Capital Research
Exhibit 126: Despite a surge in GWP, QIC reported a drop in net earnings
Source: Company Data, Arqaam Capital Research
Reported AC est
SARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
Gross written premiums 1,383 1,274 8.5% 1,079 28.1% 1,249 10.7%
Net earned premiums 917 883 3.9% 927 (1.1%) 741 23.8%
Net claims 749 669 12.0% 785 (4.5%) 559 34.1%
Claims ratio 81.7% 75.7% 6.0% 84.7% (3.0%) 75.5% 6.2%
Investment income 37 63 (40.8%) 79 (52.7%) 23 60.8%
Net income 28 104 (73.0%) 53 (46.8%) 129 (78.3%)
Reported AC est
SARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
Gross written premiums 734 761 (3.5%) 871 (15.7%) 604 21.4%
Net earned premiums 515 529 (2.7%) 477 7.9% 544 (5.4%)
Net claims 480 414 16.0% 377 27.3% 407 18.1%
Claims ratio 93.2% 78.2% 15.0% 79.1% 14.2% 74.7% 18.5%
Investment income 2 5 (66.6%) 0 386.4% 2 (4.8%)
Net income (11) 43 (125.5%) 50 (122.1%) 55 (119.9%)
Reported AC est
QARmn Q2 12A Q2 12e ∆ Q1 12A q/q Q2 11A y/y
Gross written premiums 791 635 24.5% 678 16.6% 793 (0.3%)
Net earned premiums 345 351 (1.9%) 392 (12.0%) 351 (1.8%)
Net claims 261 221 18.2% 289 (9.4%) 205 27.5%
Claims ratio 75.8% 62.9% 12.9% 73.6% 2.2% 58.4% 17.4%
Investment income 108 78 37.8% 178 (39.3%) 72 49.3%
Net income 95 298 (68.1%) 208 (54.2%) 138 (31.0%)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 52
Exhibit 127: Strong GWP growth for Tawuniya
Source: Company Data, Arqaam Capital Research
Exhibit 128: Lower NEP for QIC despite GWP growth
Source: Company Data, Arqaam Capital Research
Exhibit 129: Surge in claims in sector as a whole so far
Source: Company Data, Arqaam Capital Research
Exhibit 130: MedGulf hit the most by rising claims ratios
Source: Company Data, Arqaam Capital Research
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
QIC Tawuniya MedGulf
y/y (%) q/q (%)
-5%
0%
5%
10%
15%
20%
25%
30%
QIC Tawuniya MedGulf
AC (bps)
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
QIC Tawuniya MedGulf
y/y (%) q/q (%)
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
QIC Tawuniya MedGulf
AC (bps)
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
QIC Tawuniya MedGulf
y/y (%) q/q (%)
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
QIC Tawuniya MedGulf
AC (bps)
-5%
0%
5%
10%
15%
20%
QIC Tawuniya MedGulf
y/y (%) q/q (%)
0%
2%
4%
6%
8%
10%
12%
14%
16%
QIC Tawuniya MedGulf
AC (bps)
September 12 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 53
Exhibit 131: Mixed results in investment income – Meaningless for MedGulf
Source: Company Data, Arqaam Capital Research
Exhibit 132: Overall deterioration in net income throughout the sector due to rising claims ratios
Source: Company Data, Arqaam Capital Research
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
QIC Tawuniya MedGulf
y/y (%) q/q (%)
-80%
-60%
-40%
-20%
0%
20%
40%
60%
QIC Tawuniya MedGulf
AC (bps)
-140%
-120%
-100%
-80%
-60%
-40%
-20%
0%
QIC Tawuniya MedGulf
y/y (%) q/q (%)
-140%
-120%
-100%
-80%
-60%
-40%
-20%
0%
QIC Tawuniya MedGulf
AC (bps)
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 54
Exhibit 133: MENA banks valuation screen
Source: Bloomberg, Arqaam Capital Research
Ticker Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
ADCB UH ADCB HOLD 5,134 AED 18,857 3.4 3.7 9.3 7.0 6.7 6.2 6.7 11.7 0.6 0.9 0.9 0.8 12.0 12.0 12.1 4.5 4.7 5.2 3.8 3.6 3.4
ADIB UH ADIB SELL 2,105 AED 7,733 3.3 2.9 (12.6) 6.9 7.1 6.4 5.6 9.7 0.7 1.1 1.0 1.0 15.0 13.6 14.0 5.2 5.2 5.6 3.9 3.9 3.8
CBD UH CBD BUY 1,609 AED 5,911 2.9 4.2 45.3 7.6 7.1 6.1 8.8 15.0 0.5 0.8 0.8 0.7 16.2 16.5 18.2 7.3 7.7 8.3 4.4 4.1 3.9
DIB UH DIB SELL 2,016 AED 7,404 2.0 1.8 (10.3) 8.7 8.0 6.6 6.0 21.7 0.4 0.8 0.7 0.7 9.2 9.5 10.8 6.5 6.0 5.9 3.5 3.1 3.1
EMIRATES UHENBD HOLD 4,660 AED 17,118 3.0 3.4 11.2 9.0 9.4 7.6 8.4 38.4 0.2 0.7 0.6 0.6 6.4 5.8 7.2 4.8 4.5 4.7 2.6 2.7 2.5
FGB UH FGB BUY 8,078 AED 29,670 9.8 13.9 41.2 7.4 6.7 6.0 8.4 13.6 0.5 1.2 1.1 1.0 15.5 15.7 16.4 7.6 8.5 9.6 5.3 5.0 4.6
NBAD UH NBAD BUY 9,325 AED 34,251 8.8 13.2 49.9 8.1 6.5 5.7 8.5 19.6 0.3 1.3 1.2 1.0 16.6 18.2 18.2 2.9 3.4 4.0 6.0 4.9 4.4
UNB UH UNB BUY 2,133 AED 7,836 3.2 4.7 49.7 5.6 5.4 4.9 7.3 14.0 0.4 0.7 0.6 0.6 11.4 11.0 11.6 6.5 8.4 8.3 3.4 3.4 3.2
TAMWEEL UHTamweel BUY 362 AED 1,330 1.3 1.7 31.8 15.5 12.5 12.2 16.1 12.6 1.0 0.5 0.5 0.5 3.6 4.4 4.4 3.9 3.9 4.7 7.9 6.5 5.8
MASQ UH Mashreq HOLD 2,424 AED 8,902 52.7 62.4 18.6 10.1 8.9 7.8 9.2 23.3 0.4 0.7 0.6 0.6 6.9 7.4 8.1 4.3 4.1 4.0 4.6 4.3 4.0
RAKBANK UHRakbank BUY 1,730 AED 6,354 1.5 6.4 333.6 1.9 1.9 2.0 8.5 2.3 0.8 0.4 0.4 0.3 23.7 20.4 17.9 24.1 23.7 23.0 1.4 1.4 1.5
UAE banks 39,578 145,367 42.0 8.3 7.5 6.6 10.7 1.0 0.9 0.8 11.8 12.0 12.6 5.2 5.6 6.0 4.3 4.1 3.8
CBQK QD CBQ HOLD 5,002 QAR 18,212 72.8 80.1 10.0 9.3 9.0 8.2 9.0 7.9 1.1 1.2 1.2 1.1 13.1 13.1 13.8 8.2 8.2 5.9 9.4 8.6 7.9
DHBK QD Doha HOLD 3,190 QAR 11,616 56.0 61.7 10.1 9.9 10.2 9.4 10.3 3.2 3.2 1.5 1.5 1.4 16.0 14.0 15.0 8.9 8.9 5.2 8.3 8.5 7.7
QIBK QD QIB HOLD 5,062 QAR 18,431 77.5 85.7 10.6 12.4 10.7 10.1 11.1 9.0 1.2 1.6 1.5 1.5 12.8 14.2 14.4 5.1 6.9 7.4 10.0 8.9 8.1
QNBK QD QNB BUY 25,944 QAR 94,463 133.4 193.0 44.7 10.8 9.5 8.4 12.2 13.5 0.7 2.0 1.7 1.5 18.8 18.9 18.8 3.6 4.1 4.6 9.5 8.4 7.5
MARK QD MARK HOLD 5,613 QAR 20,438 27.2 27.8 2.4 14.5 13.2 11.2 11.5 15.7 0.8 2.1 2.0 1.8 15.2 15.2 16.5 3.7 3.7 3.7 13.4 11.2 9.4
KCBK QD Khaliji SELL 1,741 QAR 6,340 17.4 13.9 (20.1) 13.1 16.4 14.3 11.4 3.1 5.3 1.2 1.2 1.2 9.0 7.1 8.1 5.7 5.7 5.7 11.9 13.0 10.8
QIIK QD QIIB Hold 2,174 QAR 7,917 51.8 53.2 2.6 12.0 11.9 11.5 11.8 5.5 2.2 1.6 1.5 1.5 12.9 12.7 13.0 7.2 7.6 7.9 10.9 10.8 9.9
Qatar banks 48,727 177,417 26.2 11.5 10.5 9.4 13.2 1.7 1.6 1.5 15.1 15.3 15.8 4.8 5.3 5.1 9.9 9.0 8.0
CIEB EY CAE BUY 578 EGP 3,521 12.1 15.5 28.2 7.6 7.2 6.2 8.0 14.1 0.5 1.6 1.4 1.2 20.0 18.4 19.0 5.4 5.8 6.2 4.6 4.5 3.9
COMI EY CIB BUY 3,293 EGP 20,067 32.9 44.2 34.4 8.7 7.2 6.4 8.6 18.5 0.4 1.8 1.6 1.3 23.7 23.3 22.5 3.3 3.7 3.8 5.7 5.1 4.5
HDBK EY HDB HOLD 285 EGP 1,737 14.3 14.2 (0.3) 11.7 8.0 6.4 6.4 33.6 0.2 0.7 0.6 0.6 5.8 8.1 9.6 3.4 5.0 6.2 6.7 4.9 3.9
NSGB EY NSGB HOLD 2,897 EGP 17,653 39.9 39.9 0.2 11.2 10.3 8.9 8.9 13.3 0.8 2.1 1.9 1.7 20.3 19.3 19.7 3.1 3.4 3.9 7.4 6.9 6.0
EGBE EY EGB SELL 338 USD 2,030 1.7 1.16 (31.8) 16.3 15.8 14.8 60.9 9.3 1.7 1.8 1.7 1.5 11.5 10.8 10.8 1.8 1.9 2.0 1.8 1.7 1.6
Egypt banks 7,391 45,008 16.2 10.0 8.7 7.6 10.1 1.8 1.6 1.4 18.2 18.3 18.4 3.3 3.6 4.0 6.4 5.8 5.1
AUDI LB Audi BUY 1,917 USD 1,917 5.5 7.3 32.3 4.9 5.4 4.8 6.4 6.3 0.9 0.9 0.8 0.8 19.9 16.1 16.4 7.7 7.0 7.9 3.3 3.5 3.1
BLOM LB BLOM BUY 1,591 USD 1,591 7.4 10.5 41.4 5.0 4.9 4.3 6.0 12.7 0.4 0.8 0.8 0.7 17.8 16.3 16.7 6.0 6.8 8.2 3.4 3.3 2.9
BYB LB Byblos HOLD 843 USD 843 1.5 1.4 (4.1) 6.0 5.7 5.0 4.8 12.2 0.5 0.6 0.6 0.6 11.1 10.7 11.4 6.6 6.8 7.8 3.2 3.0 2.6
BOB LB BOB SELL 959 USD 959 19.0 10.5 (44.8) 13.3 11.7 10.0 5.5 16.9 0.7 1.8 1.7 1.5 14.3 15.1 16.1 3.0 3.9 4.5 7.0 6.1 5.3
Lebanon banks 5,309 5,309 15.3 5.8 5.9 5.2 6.8 0.6 0.6 0.5 15.8 14.2 14.7 6.1 6.3 7.3 2.5 2.4 2.1
ARNB AB ANB BUY 6,403 SAR 24,012 28.1 38.5 37.0 10.1 8.7 7.3 10.0 18.6 0.5 1.3 1.2 1.1 12.8 13.6 14.8 3.9 4.4 5.0 8.0 7.0 6.0
RJHI AB Al Rajhi BUY 29,399 SAR 110,250 73.8 94.9 28.6 13.0 11.5 10.4 13.4 13.1 0.9 3.1 2.8 2.5 23.1 23.8 23.8 4.4 4.8 5.2 11.2 9.9 8.9
BSFR AB BSFR HOLD 7,666 SAR 28,748 31.9 37.1 16.1 9.6 8.9 8.4 9.8 7.3 1.2 1.2 1.1 1.0 13.3 12.3 11.7 2.2 2.5 2.8 8.4 7.6 7.1
RIBL AB Riyad BUY 9,280 SAR 34,800 23.2 32.4 39.8 10.1 9.5 8.3 11.6 13.2 0.7 1.1 1.1 1.0 10.9 11.1 12.0 5.8 6.3 6.7 8.4 7.9 7.0
SAMBA AB Samba BUY 11,304 SAR 42,390 46.8 64.7 38.2 9.4 8.6 7.8 10.8 13.4 0.6 1.4 1.2 1.1 14.7 14.5 14.6 3.7 4.1 4.5 8.6 7.8 7.0
SABB AB SABB HOLD 8,506 SAR 31,899 31.7 37.0 16.8 12.6 8.2 7.6 8.9 13.4 0.6 1.4 1.3 1.2 14.5 13.5 13.6 2.1 2.2 2.4 8.9 7.8 7.0
AAAL AB SHB BUY 2,858 SAR 10,716 26.9 37.3 38.5 9.4 8.9 7.9 10.9 11.2 0.8 1.2 1.1 1.0 13.7 12.7 13.2 3.7 4.1 4.5 8.0 7.2 6.4
ALBI AB Albilad BUY 2,376 SAR 8,910 29.5 36.0 21.9 9.0 11.3 9.8 12.0 2.7 4.2 2.0 1.7 1.5 24.5 16.0 15.8 -- 0.8 0.8 10.4 9.3 8.3
BJAZ AB Aljazeera SELL 2,232 SAR 8,370 27.5 22.8 (17.3) 17.1 14.2 12.1 10.0 22.1 0.6 1.5 1.4 1.3 9.6 10.0 10.9 2.0 2.0 2.2 13.3 11.2 9.4
SIBC AB SIB BUY 2,398 SAR 8,993 16.3 19.6 20.6 11.5 9.7 8.4 10.2 18.2 0.5 1.0 0.9 0.9 8.6 9.6 10.3 3.4 3.7 4.0 8.4 8.1 7.3
ALINMA AB Alinma HOLD 5,520 SAR 20,700 13.7 15.4 12.7 31.7 20.4 14.6 16.4 44.3 0.5 1.2 1.2 1.1 3.8 5.6 7.3 -- -- 2.9 24.9 16.6 12.0
KSA banks 87,940 329,788 27.2 12.0 10.8 9.6 13.7 1.6 1.5 1.3 13.3 13.5 13.9 2.6 2.8 3.0 9.8 8.7 7.7
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 55
Exhibit 134: MENA banks valuation screen (continued)
Source: Bloomberg, Arqaam Capital Research
Exhibit 135: MENA diversified financials valuation screen
Source: Bloomberg, Arqaam Capital Research
Ticker Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
NBK KK NBK HOLD 14,710 KWD 4,136 1.0 1.1 15.0 12.8 12.5 12.6 14.5 2.4 5.1 2.2 2.1 2.0 16.1 17.6 16.8 3.8 3.9 3.9 10.3 10.0 10.0
KFIN KK KFH SELL 7,024 KWD 1,975 0.7 0.59 (13.8) 18.2 14.0 8.7 7.5 34.3 0.4 1.6 1.5 1.2 9.1 11.0 14.6 1.4 1.3 2.9 6.4 6.2 5.0
GBK KK Gulf Bank SELL 3,699 KWD 1,040 0.4 0.34 (14.1) 30.5 19.4 16.8 14.5 40.1 0.5 2.2 2.0 1.8 9.1 10.7 11.1 -- -- 1.3 8.8 8.3 7.8
BURG KK Burgan BUY 2,857 KWD 803 0.5 0.60 14.7 13.6 11.0 9.6 11.0 20.7 0.5 2.4 2.1 1.9 19.5 20.5 20.8 1.8 1.8 3.8 6.9 6.2 5.5
BOUBYAN KKBoubyan SELL 3,793 KWD 1,066 0.6 0.29 (52.3) 79.9 40.8 30.7 14.7 44.0 0.9 4.1 3.7 3.3 5.2 9.5 11.4 -- 0.3 0.3 37.3 27.7 22.5
Kuwait banks 32,084 9,021 (2.6) 16.6 13.9 11.8 13.6 2.2 1.9 1.7 13.0 13.9 14.7 2.2 2.3 2.8 9.3 8.6 7.7
BKMB OM Muscat BUY 2,929 OMR 1,127 0.55 0.80 46.0 7.8 7.4 6.5 9.5 14.6 0.5 1.2 1.0 0.9 15.6 14.8 15.1 3.8 4.1 4.5 5.9 5.2 4.7
BKSB OM Sohar HOLD 389 OMR 150 0.14 0.15 12.2 8.0 7.4 6.2 7.0 14.2 0.5 1.0 0.9 0.8 13.0 12.4 13.5 4.4 4.4 4.4 5.5 4.9 4.1
HBMO OM HBMO SELL 1,133 OMR 436 0.22 0.22 (1.1) 13.1 11.6 10.0 9.9 13.2 0.9 1.3 1.3 1.2 9.8 11.1 12.1 4.6 4.6 4.6 13.9 9.1 7.6
Oman banks 4,450 1,713 31.1 9.5 8.0 6.9 10.4 1.2 1.1 1.0 12.9 13.9 14.4 3.0 3.2 3.5 6.7 5.7 4.9
AUB BI Ahli United HOLD 3,066 BHD 3,066 0.5 0.63 17.4 7.9 7.1 6.3 8.4 12.3 0.6 1.5 1.3 1.1 19.6 19.4 19.3 5.6 5.6 5.6 5.1 4.7 4.3
Bahrain banks 3,066 3,066 17.4 8.6 7.7 6.9 9.1 4.7 4.2 3.7 19.6 19.4 19.3 1.7 1.7 1.7 5.1 4.7 4.3
MENA banks' avg. 228,544 24.7 10.7 9.6 8.5 12.0 1.4 1.3 1.2 14.1 14.4 15.0 3.5 3.8 4.0 8.2 7.6 6.9
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
Ticker Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
SHUAA UH Shuaa SELL 178 AED 655 0.6 0.63 (1.0) (21.7) (49.7) 228.2 (49.2) na na 0.6 0.6 0.6 (2.7) (1.2) 0.3 -- -- -- (27.5) (61.2) 889
HRHO EY EFG BUY 1,036 EGP 6,313 13.3 16.6 25.1 15.3 13.3 12.0 16.6 12.2 1.1 1.8 1.6 1.5 5.5 6.7 7.1 30.1 2.1 3.6 8.2 6.9 6.0
DFM UH DFM SELL 2,104 AED 7,728 1.0 0.74 (22.8) 161.0 44.7 33.5 34.5 83.1 0.5 3.6 3.4 3.1 0.6 2.2 2.9 -- -- -- 160.2 44.5 33.3
SALAMA UHSalama BUY 229 AED 841 0.7 0.8 20.1 16.2 7.7 8.3 9.3 28.9 0.3 0.6 0.5 0.5 3.5 6.9 6.0 -- -- -- na na na
QATI QD Qatar Insurance BUY 1,722 QAR 6,270 70.2 85.3 21.6 11.2 9.7 9.4 11.8 6.7 1.4 1.8 1.7 1.7 15.7 17.9 17.9 8.5 8.8 9.0 na na na
TAWUNIYA ABTawuniya BUY 870 SAR 3,263 43.5 52.8 21.3 11.2 9.4 7.0 11.4 21.8 0.4 1.6 1.4 1.3 14.8 16.2 19.4 3.1 3.7 5.0 na na na
MEDGULF ABMedGulf SELL 567 SAR 2,128 26.2 19.3 (26.4) 28.6 14.4 9.7 10.6 NA NA 2.9 2.6 2.2 10.3 18.8 24.8 1.6 3.1 4.6 na na na
MENA financials' avg. 235,251 24.3 11.0 9.9 8.7 12.2 1.5 1.4 1.2 13.9 14.2 14.8 3.5 4.0 4.0 8.5 7.8 7.1
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 56
Exhibit 136: MENA financials: Earnings estimates (LCY)
Source: Bloomberg, Arqaam Capital Research
Company Currency
FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
ADCB HOLD AED 0.54 0.48 0.51 0.55 3.21 3.67 3.97 4.31 0.20 0.15 0.16 0.18 0.35 0.46 0.51 53% 5% (1%) 9.6 7.3 6.6
ADIB SELL AED 0.49 0.47 0.46 0.51 2.78 2.88 3.12 3.42 0.24 0.17 0.17 0.18 0.49 0.56 0.62 1% (15%) (25%) 6.8 5.9 5.3
CBD BUY AED 0.42 0.38 0.41 0.48 3.26 3.44 3.64 3.89 0.20 0.21 0.22 0.24 0.52 0.56 na (19%) (32%) na 5.6 5.2 na
DIB SELL AED 0.27 0.23 0.24 0.29 2.41 2.51 2.62 2.80 0.13 0.13 0.12 0.12 0.28 0.33 0.41 (5%) (32%) (40%) 7.0 5.9 4.8
ENBD HOLD AED 0.46 0.34 0.32 0.40 4.52 4.62 4.77 5.00 0.20 0.15 0.14 0.14 0.43 0.57 0.80 7% (41%) (60%) 7.1 5.3 3.8
FGB BUY AED 1.24 1.32 1.47 1.65 7.55 8.54 9.18 9.92 0.50 0.75 0.83 0.94 1.23 1.43 1.78 0% (8%) (17%) 8.0 6.9 5.5
NBAD BUY AED 0.96 1.09 1.35 1.56 5.77 6.57 7.60 8.80 0.22 0.26 0.30 0.35 1.04 1.19 1.44 (8%) (9%) (6%) 8.5 7.4 6.1
UNB BUY AED 0.60 0.56 0.58 0.64 4.28 4.64 4.97 5.30 0.15 0.20 0.27 0.26 0.58 0.66 0.79 4% (15%) (27%) 5.4 4.8 4.0
Tamweel BUY AED 0.10 0.08 0.10 0.10 2.32 2.34 2.39 2.43 0.05 0.05 0.05 0.06 0.10 0.16 0.19 3% (49%) (46%) 12.7 7.9 6.7
Mashreq HOLD AED 4.85 5.21 5.89 6.78 72.53 77.74 81.38 86.02 2.00 2.25 2.14 2.08 na na na na na na na na na
Rakbank BUY AED 0.79 0.79 0.77 0.75 3.08 3.58 3.99 4.40 0.30 0.35 0.35 0.34 na na na na na na na na na
CBQ HOLD QAR 7.61 7.85 8.06 8.85 57.51 59.14 60.99 63.60 6.00 6.00 6.00 4.31 8.41 9.48 10.62 (9%) (15%) (17%) 8.7 7.7 6.9
Doha HOLD QAR 6.00 5.68 5.49 5.96 34.26 37.96 38.31 39.12 5.00 5.00 5.00 2.91 6.32 7.04 8.29 (5%) (22%) (28%) 8.9 8.0 6.8
QIB HOLD QAR 5.78 6.23 7.24 7.71 46.49 48.07 51.15 53.30 4.50 3.98 5.36 5.71 6.69 7.50 8.44 (14%) (3%) (9%) 11.6 10.3 9.2
QNB BUY QAR 10.73 12.32 14.07 15.86 59.85 68.23 77.14 87.12 3.64 4.80 5.49 6.19 12.60 14.24 16.26 (15%) (1%) (2%) 10.6 9.4 8.2
MARK HOLD QAR 1.88 1.87 2.05 2.42 11.34 12.66 13.67 15.03 0.00 1.00 1.00 1.00 1.93 2.18 2.22 (2%) (6%) 9% 14.1 12.5 12.3
Khaliji SELL QAR 1.35 1.33 1.06 1.22 14.22 14.52 14.55 14.74 1.00 1.00 1.00 1.00 na na na na na na na na na
QIIB Hold QAR 4.31 4.33 4.34 4.50 32.32 33.05 33.53 33.99 3.50 3.74 3.93 4.07 na na na na na na na na na
CAE BUY EGP 1.07 1.60 1.66 1.93 6.76 7.72 8.73 9.96 0.64 0.65 0.70 0.75 1.11 1.36 1.69 (4%) 22% 15% 10.9 8.9 7.2
CIB BUY EGP 2.72 3.79 4.55 5.16 14.00 18.00 21.07 24.70 1.00 1.10 1.20 1.25 3.15 3.70 4.33 (14%) 23% 19% 10.4 8.9 7.6
HDB HOLD EGP 1.30 1.22 1.77 2.21 20.65 21.37 22.44 23.76 0.52 0.49 0.71 0.88 1.58 2.33 2.64 (18%) (24%) (16%) 9.0 6.1 5.4
NSGB HOLD EGP 3.36 3.56 3.86 4.48 16.42 18.74 21.25 24.16 1.25 1.25 1.35 1.57 3.57 4.14 4.68 (6%) (7%) (4%) 11.2 9.6 8.5
EGB SELL EGP 0.04 0.10 0.11 0.11 0.86 0.96 1.03 1.10 0.03 0.03 0.03 0.03 na na na na na na na na na
Audi BUY USD 0.99 1.12 1.01 1.14 5.28 5.97 6.60 7.31 0.38 0.43 0.38 0.43 0.98 1.13 na 1% (11%) na 5.6 4.9 na
BLOM BUY USD 1.44 1.47 1.52 1.74 7.77 8.80 9.82 10.94 0.43 0.44 0.50 0.61 1.34 1.60 na 8% (5%) na 5.5 4.6 na
Byblos HOLD USD 0.26 0.25 0.26 0.30 2.12 2.36 2.53 2.72 0.10 0.10 0.10 0.12 0.24 0.27 0.27 8% (2%) 10% 6.2 5.6 5.5
BOB 1.49 1.42 1.63 1.90 9.51 10.37 11.26 12.31 0.59 0.57 0.73 0.85 na na na na na na na na na
ANB BUY SAR 2.55 2.79 3.24 3.84 19.52 21.12 23.03 25.35 1.00 1.10 1.25 1.40 2.84 3.30 3.88 (10%) (2%) (1%) 9.9 8.5 7.2
Al Rajhi BUY SAR 4.92 5.69 6.43 7.09 21.88 23.92 26.35 29.10 3.25 3.25 3.55 3.85 5.51 6.39 7.29 (11%) 1% (3%) 13.4 11.5 10.1
BSFR HOLD SAR 3.22 3.32 3.60 3.78 21.74 27.07 29.97 32.94 0.56 0.70 0.80 0.90 3.55 4.03 4.60 (9%) (11%) (18%) 9.0 7.9 6.9
Riyad BUY SAR 2.10 2.29 2.45 2.79 20.11 20.86 21.94 23.25 1.30 1.35 1.45 1.55 2.24 2.58 3.01 (6%) (5%) (7%) 10.4 9.0 7.7
Samba BUY SAR 4.78 4.99 5.42 6.01 31.23 34.35 37.93 41.97 1.65 1.75 1.90 2.10 5.26 5.99 6.84 (9%) (10%) (12%) 8.9 7.8 6.8
SABB HOLD SAR 2.71 2.51 3.85 4.18 17.17 21.93 24.41 27.22 0.56 0.65 0.70 0.75 3.12 3.59 4.07 (13%) 7% 3% 10.2 8.8 7.8
SHB BUY SAR 2.60 2.88 3.03 3.42 18.67 22.17 24.11 26.33 0.95 1.00 1.10 1.20 2.85 3.26 3.73 (9%) (7%) (8%) 9.4 8.2 7.2
Albilad BUY SAR 1.10 3.28 2.60 3.00 11.39 14.57 17.09 19.76 0.00 0.00 0.25 0.25 1.76 2.45 2.94 (37%) 6% 2% 16.8 12.0 10.1
Aljazeera SELL SAR 1.01 1.61 1.94 2.28 15.78 18.07 19.39 21.10 0.53 0.55 0.55 0.60 1.58 2.10 2.54 (36%) (8%) (10%) 17.4 13.1 10.8
SIB BUY SAR 1.29 1.41 1.67 1.93 15.56 16.36 17.44 18.72 0.59 0.55 0.60 0.65 1.51 1.72 1.92 (15%) (3%) 1% 10.8 9.5 8.5
Alinma HOLD SAR 0.29 0.43 0.67 0.94 10.60 11.01 11.64 12.74 0.00 0.00 0.00 0.40 0.46 0.70 1.16 (37%) (3%) (19%) 29.8 19.7 11.9
Rating BBG consensus PEEPS tNAV DPS BBG EPS consensus Deviation vs consensus
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 57
Exhibit 137: MENA financials: Earnings estimates (LCY)
Source: Bloomberg, Arqaam Capital Research
Exhibit 138: MENA diversified financials: Earnings estimates (LCY)
Source: Bloomberg, Arqaam Capital Research
Company Currency
FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
NBK HOLD KWD 0.07 0.07 0.08 0.08 0.49 0.44 0.46 0.47 0.04 0.04 0.04 0.04 0.07 0.09 0.10 (4%) (14%) (22%) 13.0 10.8 9.8
KFH SELL KWD 0.03 0.04 0.05 0.08 0.41 0.43 0.47 0.58 0.01 0.01 0.01 0.02 0.04 0.06 0.08 (33%) (22%) (0%) 16.4 11.0 8.7
Gulf Bank SELL KWD 0.01 0.01 0.02 0.02 0.17 0.18 0.20 0.22 0.00 0.00 0.00 0.01 na na na na na na na na na
Burgan BUY KWD 0.03 0.04 0.05 0.05 0.18 0.22 0.24 0.28 0.01 0.01 0.01 0.02 0.04 0.05 0.05 (16%) 3% 1% 13.3 11.3 9.6
Boubyan SELL KWD 0.00 0.01 0.01 0.02 0.14 0.15 0.16 0.18 0.00 0.00 0.00 0.00 na na na na na na na na na
Muscat BUY OMR 0.1 0.1 0.1 0.1 0.43 0.48 0.53 0.58 0.02 0.02 0.02 0.02 0.07 0.08 0.10 (11%) (12%) (12%) 7.4 6.5 5.7
Sohar HOLD OMR 0.0 0.0 0.0 0.0 0.13 0.14 0.15 0.17 0.01 0.01 0.01 0.01 0.02 0.02 na (19%) (3%) na 7.6 7.2 na
HBMO SELL OMR 0.0 0.0 0.0 0.0 0.18 0.17 0.17 0.19 0.01 0.01 0.01 0.01 0.02 0.02 0.02 (7%) (6%) 9% 10.9 10.9 10.9
AUB HOLD BHD 0.06 0.07 0.08 0.09 0.33 0.37 0.41 0.47 0.03 0.03 0.03 0.03 na na na na na na na na na
Rating BBG consensus PEEPS tNAV DPS BBG EPS consensus Deviation vs consensus
Company Currency
FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
Shuaa SELL AED (0.28) (0.03) (0.01) 0.00 1.07 1.04 1.03 1.03 -- -- -- -- (0.17) (0.01) na 63% 16% na (3.7) (57.6) na
EFG BUY EGP 0.28 0.87 1.00 1.11 8.60 7.57 8.29 8.93 1.00 4.00 0.29 0.48 0.38 0.74 0.96 (28%) 36% 16% 34.6 18.1 13.9
DFM SELL AED (0.00) 0.01 0.02 0.03 0.25 0.27 0.28 0.31 -- -- -- -- 0.02 0.03 0.04 (105%) (29%) (23%) 56.1 31.8 25.8
Salama BUY AED 0.05 0.04 0.09 0.08 1.19 1.23 1.33 1.41 -- -- -- -- na na na na na na na na na
Qatar InsuranceBUY QAR 6.64 6.26 7.26 7.47 39.57 40.01 41.23 42.49 5.66 5.95 6.17 6.35 na na na na na na na na na
Tawuniya BUY SAR 5.76 3.88 4.64 6.23 25.14 27.29 30.14 33.95 2.00 1.36 1.63 2.18 na na na na na na na na na
MedGulf SELL SAR 2.56 0.91 1.82 2.71 8.67 9.17 10.17 11.66 1.25 0.41 0.82 1.22 na na na na na na na na na
Rating BBG consensus PEEPS tNAV DPS BBG EPS consensus Deviation vs consensus
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 58
Exhibit 139: MENA banks: Assets and returns
Source: Bloomberg, Arqaam Capital Research
Company Arqaam Currency CET1
Rating FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 11A FY 12e FY 13e
ADCB HOLD AED 137.6 154.3 164.0 1.6% 12.1% 6.3% 2.0% 1.4% 1.4% 15.9% 14.5% 14.6% 11.5% 16.7% 12.0% 12.0%
ADIB SELL AED 60.6 69.5 72.8 (2.0%) 14.6% 4.8% 1.7% 1.4% 1.3% 14.2% 12.7% 12.9% 8.0% 16.3% 15.0% 13.6%
CBD BUY AED 35.2 36.6 38.4 1.1% 4.0% 4.8% 2.3% 2.0% 2.1% 16.6% 17.0% 17.1% 16.6% 18.8% 16.2% 16.5%
DIB SELL AED 75.3 97.2 99.4 (4.9%) 29.1% 2.3% 1.3% 0.9% 0.9% 13.6% 11.0% 10.3% 12.1% 11.0% 9.2% 9.5%
ENBD HOLD AED 222.1 238.9 246.2 0.7% 7.6% 3.1% 1.0% 0.7% 0.6% 13.0% 12.4% 12.3% 10.5% 9.3% 6.4% 5.8%
FGB BUY AED 136.0 157.8 172.5 12.7% 16.0% 9.3% 2.6% 2.4% 2.4% 18.5% 17.9% 17.5% 13.3% 16.6% 15.5% 15.7%
NBAD BUY AED 174.8 206.8 228.5 15.3% 18.3% 10.5% 2.0% 1.9% 2.2% 15.6% 14.7% 15.0% 11.9% 16.3% 16.6% 18.2%
UNB BUY AED 76.7 81.9 86.0 0.4% 6.9% 4.9% 1.8% 1.6% 1.5% 16.7% 18.0% 18.2% 13.1% 13.7% 11.4% 11.0%
Tamweel BUY AED 10.0 10.2 10.5 (7.5%) 1.4% 2.8% 1.0% 0.8% 1.0% 22.9% 23.0% 22.9% 22.4% 4.8% 3.6% 4.4%
MASQ HOLD AED 77.9 84.4 89.7 2.1% 8.4% 6.3% 1.1% 1.0% 1.1% 16.2% 16.1% 15.8% 15.5% 6.8% 6.9% 7.4%
RAKBANK BUY AED 15.8 19.1 20.7 9.1% 20.7% 8.1% 7.6% 6.3% 5.7% 22.0% 21.8% 23.3% 19.1% 28.6% 23.7% 20.4%
CBQ HOLD QAR 61.3 70.5 79.8 23.0% 15.1% 13.2% 3.0% 2.7% 2.4% 16.4% 14.6% 13.3% 12.5% 13.7% 13.1% 13.1%
Doha HOLD QAR 49.9 52.7 59.4 18.7% 5.5% 12.8% 2.4% 2.4% 2.0% 10.7% 12.6% 11.3% 10.1% 18.5% 16.0% 14.0%
QIB HOLD QAR 34.0 43.2 47.3 (9.4%) 27.1% 9.5% 3.9% 3.3% 3.5% 23.0% 19.9% 19.4% 21.8% 13.3% 12.8% 14.2%
QNB BUY QAR 156.4 179.8 205.3 39.6% 15.0% 14.2% 4.7% 4.7% 4.7% 22.0% 21.9% 22.2% 21.2% 22.3% 18.8% 18.9%
MAR HOLD QAR 35.2 46.4 54.0 5.2% 31.8% 16.4% 3.9% 3.0% 2.8% 21.8% 17.6% 16.2% 20.1% 17.6% 15.2% 15.2%
Khaliji SELL QAR 20.8 28.0 31.3 16.4% 34.7% 11.5% 2.3% 1.7% 1.2% 22.0% 17.7% 15.9% 16.3% 9.5% 9.0% 7.1%
QIIB Hold QAR 16.5 19.3 22.2 27.3% 17.2% 14.9% 3.9% 3.3% 2.9% 24.3% 22.0% 19.2% 22.6% 14.6% 12.9% 12.7%
CAE BUY EGP 14.6 18.0 20.5 9.9% 22.9% 13.8% 1.9% 2.3% 2.1% 11.6% 10.2% 10.3% 12.0% 13.6% 20.0% 18.4%
CIB BUY EGP 55.4 64.2 72.5 13.9% 15.9% 13.0% 2.6% 3.2% 3.4% 12.5% 13.5% 13.9% 13.4% 19.8% 23.7% 23.3%
HDB HOLD EGP 8.0 20.7 22.7 1.4% 157.2% 9.9% 1.9% 0.7% 0.9% 23.0% 9.2% 8.5% 20.8% 6.3% 5.8% 8.1%
NSGB HOLD EGP 42.7 51.2 58.2 11.6% 20.0% 13.6% 3.2% 2.8% 2.7% 12.8% 12.5% 12.7% 13.4% 21.6% 20.3% 19.3%
EGB SELL EGP 4.5 5.2 5.8 (6.2%) 17.0% 11.9% 1.2% 2.2% 2.0% 21.4% 19.1% 18.4% 17.4% 5.0% 11.5% 10.8%
Audi BUY USD trn 27.3 28.9 30.3 7.6% 5.7% 4.9% 1.9% 2.0% 1.7% 10.4% 11.2% 11.9% 8.5% 18.7% 19.9% 16.1%
BLOM BUY USD trn 20.1 23.6 25.7 12.9% 17.6% 8.6% 2.3% 2.0% 1.9% 12.8% 12.8% 13.0% 11.2% 18.9% 17.8% 16.3%
Byblos HOLD USD trn 16.2 16.9 18.7 11.7% 4.6% 10.6% 1.3% 1.2% 1.1% 13.3% 14.5% 13.9% 10.3% 12.3% 11.1% 10.7%
BOB SELL USD trn 9.4 10.7 11.4 15.8% 14.1% 6.8% 1.2% 1.0% 1.1% 14.5% 13.7% 13.4% 6.1% 14.5% 14.3% 15.1%
ANB BUY SAR 104.4 124.2 140.6 8.3% 19.0% 13.2% 1.7% 1.8% 1.8% 15.0% 13.8% 13.4% 14.0% 10.9% 12.8% 13.6%
Al Rajhi BUY SAR 173.0 206.0 235.1 11.9% 19.1% 14.1% 3.8% 3.9% 3.8% 14.7% 14.1% 14.2% 14.6% 21.0% 23.1% 23.8%
BSFR HOLD SAR 138.5 158.2 173.7 10.2% 14.2% 9.8% 2.1% 1.9% 1.8% 13.9% 13.7% 13.9% 13.0% 15.2% 13.3% 12.3%
Riyad BUY SAR 181.1 194.0 208.8 10.5% 7.2% 7.6% 1.7% 1.7% 1.7% 14.8% 14.6% 14.3% 15.3% 10.1% 10.9% 11.1%
Samba BUY SAR 156.1 196.4 217.6 8.8% 25.8% 10.8% 2.7% 2.2% 2.2% 18.1% 15.9% 15.8% 14.8% 15.5% 14.7% 14.5%
SABB HOLD SAR 120.0 138.5 162.1 10.0% 15.4% 17.0% 2.2% 2.0% 1.9% 11.8% 13.5% 12.8% 13.4% 16.2% 14.5% 13.5%
SHB BUY SAR 53.1 62.7 69.4 5.8% 18.1% 10.7% 1.6% 1.8% 1.7% 12.7% 12.4% 12.3% 12.9% 12.5% 13.7% 12.7%
Albilad BUY SAR 20.0 26.3 29.7 10.0% 31.5% 12.9% 1.6% 3.6% 2.6% 15.4% 13.2% 14.6% 15.6% 10.1% 24.5% 16.0%
Aljazeera SELL SAR 34.7 43.2 50.5 16.1% 24.5% 16.8% 0.8% 1.2% 1.2% 13.6% 13.8% 12.7% 11.7% 6.3% 9.6% 10.0%
SIB BUY SAR 42.5 48.0 54.1 (5.3%) 13.0% 12.6% 1.6% 1.6% 1.6% 17.2% 17.8% 16.7% 16.1% 8.2% 8.6% 9.6%
Alinma HOLD SAR 36.3 54.2 70.5 74.6% 49.3% 30.1% 0.7% 1.1% 1.4% 43.8% 30.5% 24.8% 39.0% 1.6% 3.8% 5.6%
RORWARWA GrowthRWA (bn) Tier I Ratio RotE
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 59
Exhibit 140: MENA banks: Assets and returns (continued)
Source: Bloomberg, Arqaam Capital Research
Company Arqaam Currency CET1
Rating FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 11A FY 12e FY 13e
NBK HOLD KWD 8.6 10.6 11.3 6.1% 23.6% 6.7% 3.5% 3.0% 3.1% 18.3% 16.5% 17.5% 15.9% 14.8% 16.1% 17.6%
KFH SELL KWD 10.4 12.4 13.6 4.0% 19.2% 9.3% 0.8% 0.9% 1.0% 13.5% 11.9% 11.7% 11.0% 6.8% 9.1% 11.0%
Gulf Bank SELL KWD 3.0 3.1 3.3 6.2% 5.0% 6.4% 1.0% 1.1% 1.6% 13.6% 14.1% 14.8% 13.6% 7.3% 9.1% 10.7%
Burgan BUY KWD 3.0 3.7 3.7 12.3% 23.4% 0.7% 1.7% 1.6% 2.0% 14.7% 14.6% 15.6% 14.3% 19.7% 19.5% 20.5%
Boubyan SELL KWD 0.9 1.0 1.3 12.2% 13.7% 24.3% 0.9% 1.3% 2.0% 25.5% 24.3% 21.5% 22.2% 3.3% 5.2% 9.5%
Muscat BUY OMR 6.6 8.0 9.2 16.6% 20.6% 14.9% 1.8% 1.7% 1.7% 11.9% 11.4% 12.7% 9.1% 15.9% 15.6% 14.8%
Sohar HOLD OMR 1.3 1.5 1.7 15.0% 16.2% 12.2% 1.1% 1.2% 1.2% 9.3% 9.6% 9.3% 9.3% 11.5% 13.0% 12.4%
HBMO SELL OMR 1.0 1.9 2.1 7.2% 101.4% 7.5% 1.9% 1.7% 1.8% 13.6% 13.4% 13.3% 12.1% 10.5% 9.8% 11.1%
AUB HOLD BHD 19.9 21.9 23.6 1.7% 9.9% 7.8% 1.5% 1.6% 1.7% 11.5% 11.2% 11.3% 10.3% 18.2% 19.6% 19.4%
RORWARWA GrowthRWA (bn) Tier I Ratio RotE
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 60
Exhibit 141: MENA banks: Key performance indicators
Source: Bloomberg, Arqaam Capital Research
Company Arqaam Currency
Rating FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 10A FY 11A
ADCB HOLD AED 9.6% 21.4% 10.8% 4.4% 7.1% 25.1% 6.3% 5.4% 2.5% (3.7%) 4.5% (1.0%) 33.0% 34.0% 32.6% 32.9% 80.3% 150.9% 110.6% 92.0%
ADIB SELL AED 21.2% 11.4% 1.9% 2.2% 31.0% 11.4% 3.3% 4.9% (9.8%) 0.0% (1.5%) (2.7%) 42.5% 42.5% 43.1% 44.3% 358.4% 216.7% 127.4% 102.3%
CBD BUY AED 6.9% (1.7%) 0.7% 4.9% 1.4% 4.0% 2.8% 3.9% 5.5% (5.7%) (2.1%) 1.0% 28.7% 30.4% 31.1% 30.8% 46.3% 100.0% 155.6% 101.7%
DIB SELL AED (3.1%) 10.5% (0.1%) 7.4% 2.0% 8.2% 0.0% 1.4% (5.0%) 2.4% (0.2%) 6.0% 42.3% 41.4% 41.4% 39.1% 201.8% 269.8% 108.7% 116.5%
ENBD HOLD AED (9.9%) 2.1% 0.5% (2.0%) (13.7%) 14.4% 0.3% (2.6%) 3.7% (12.3%) 0.2% 0.6% 32.4% 36.3% 36.2% 36.0% 100.3% 80.8% 91.6% 94.2%
FGB BUY AED 3.4% 2.3% 7.0% 8.5% 3.8% 9.1% 13.2% 13.8% (0.4%) (6.8%) (6.1%) (5.3%) 17.7% 18.9% 19.9% 20.9% 144.2% 134.5% 83.7% 87.2%
NBAD BUY AED 12.2% 9.8% 9.5% 18.3% 15.2% 17.3% 12.5% 13.3% (3.0%) (7.5%) (3.0%) 5.0% 30.5% 32.5% 33.4% 32.0% 76.8% 68.9% 74.5% 81.1%
UNB BUY AED 20.6% 11.1% 7.4% 2.5% 10.2% 1.9% 3.5% 7.6% 10.4% 9.2% 4.0% (5.0%) 28.0% 25.7% 24.7% 25.9% 139.2% 143.9% 91.8% 100.4%
Tamweel BUY AED (10.6%) (4.1%) (3.3%) 14.8% (23.4%) 2.6% 1.6% 3.8% 12.8% (6.7%) (4.9%) 11.0% 34.8% 37.3% 39.2% 35.4% na 29.4% 309.8% 100.5%
Mashreq HOLD AED (11.6%) (11.7%) (1.9%) 5.8% (0.4%) 1.7% 2.9% 5.3% (11.2%) (13.4%) (4.7%) 0.4% 40.2% 46.3% 48.6% 48.4% 218.1% 162.8% 127.4% 113.3%
Rakbank BUY AED 28.4% 19.2% 5.0% 1.7% 26.1% 20.4% 6.6% 4.2% 2.3% (1.2%) (1.6%) (2.6%) 42.5% 43.0% 43.6% 44.7% 79.9% 81.9% 210.8% 95.9%
CBQ HOLD QAR (7.8%) 11.8% 0.6% 9.8% 3.7% 11.2% 10.9% 10.2% (11.4%) 0.6% (10.3%) (0.4%) 30.7% 30.6% 33.7% 33.8% 191.1% 167.2% 93.9% 71.2%
Doha HOLD QAR 4.6% 9.1% 3.1% 2.4% 9.8% 10.0% 10.5% 11.4% (5.2%) (0.9%) (7.4%) (9.0%) 33.8% 34.1% 36.5% 39.7% 119.9% 123.2% 128.4% 91.6%
QIB HOLD QAR (4.3%) 19.7% 23.4% 11.4% 0.5% 57.1% 12.5% 9.0% (4.9%) (37.4%) 10.9% 2.4% 26.5% 34.8% 31.7% 31.0% 157.5% 187.1% 111.0% 74.4%
QNB BUY QAR 37.5% 35.5% 17.9% 13.6% 16.7% 24.1% 25.3% 17.7% 20.7% 11.4% (7.4%) (4.1%) 17.5% 16.0% 17.0% 17.6% 198.8% 162.5% 53.7% 88.7%
MAR HOLD QAR 21.0% 31.2% 3.8% 19.9% 15.3% 33.0% 10.9% 17.3% 5.7% (1.7%) (7.1%) 2.6% 17.3% 17.5% 18.7% 18.3% 129.7% 126.0% 131.2% 107.3%
Khaliji SELL QAR 45.6% 23.7% 0.6% (2.0%) 290.5% (1.0%) 7.0% 6.8% (244.9%) 24.6% (6.4%) (8.8%) 51.7% 41.4% 44.1% 48.0% 154.2% 159.1% 291.5% 66.7%
QIIB Hold QAR 8.1% 18.8% 6.3% 2.8% (12.1%) 39.3% 3.7% 10.0% 20.2% (20.4%) 2.5% (7.2%) 19.1% 22.4% 21.9% 23.4% 460.9% 965.9% 340.6% 137.7%
CAE BUY EGP 15.1% 8.5% 17.2% 4.5% 9.2% 17.6% 8.3% 7.0% 5.9% (9.1%) 8.9% (2.5%) 48.0% 52.0% 48.1% 49.2% 72.1% 117.2% 201.8% 127.0%
CIB BUY EGP 21.6% 1.2% 25.3% 11.6% 54.7% (0.1%) (3.9%) 10.5% (33.1%) 1.3% 29.2% 1.1% 42.6% 42.1% 32.3% 32.0% 47.2% 249.9% 104.6% 110.2%
HDB HOLD EGP 13.1% (5.4%) 3.5% 17.0% 24.1% 3.6% 5.8% 5.9% (11.0%) (9.0%) (2.3%) 11.1% 58.3% 63.8% 65.3% 59.1% 14.0% 84.1% 233.7% 126.7%
NSGB HOLD EGP 17.8% 7.8% 14.1% 7.8% 6.8% (18.2%) 8.9% 9.1% 11.0% 26.0% 5.2% (1.3%) 44.7% 33.9% 32.4% 32.8% 87.2% 135.4% 102.8% 113.3%
EGB SELL EGP 21.5% (20.8%) 51.2% 7.7% (0.8%) 6.4% 7.0% 8.0% 22.4% (27.1%) 44.2% (0.3%) 46.9% 63.0% 44.6% 44.7% 75.2% 97.2% 453.4% 94.4%
Audi BUY USD 20.1% 14.1% 5.4% (0.2%) 17.2% 9.8% 4.7% 7.3% 2.9% 4.2% 0.7% (7.5%) 47.4% 45.7% 45.3% 48.7% 440.6% 854.5% 245.3% 199.4%
BLOM BUY USD 19.6% 7.3% 5.1% 4.9% 12.8% 8.1% 7.1% 8.0% 6.8% (0.9%) (2.0%) (3.1%) 38.4% 38.7% 39.4% 40.6% 594.4% 426.0% 132.3% 168.6%
Byblos HOLD USD 19.6% 4.0% 1.4% 7.9% 20.4% (3.4%) 9.1% 8.6% (0.8%) 7.4% (7.8%) (0.7%) 46.6% 43.3% 46.6% 46.9% 321.5% na 104.8% na
BOB SELL USD 24.8% 11.5% 7.8% 11.1% 15.3% 21.0% 6.7% 7.6% 9.4% (9.5%) 1.1% 3.6% 46.3% 50.3% 49.7% 48.1% 346.7% na 64.5% na
ANB BUY SAR (0.4%) 0.8% 6.7% 11.6% 2.7% 7.9% 3.8% 7.2% (3.1%) (7.1%) 2.9% 4.3% 36.5% 39.1% 38.0% 36.5% 172.2% 169.2% 133.0% 130.1%
Al Rajhi BUY SAR 0.2% 7.2% 10.6% 11.9% 0.1% 16.7% 7.9% 8.7% 0.1% (9.5%) 2.6% 3.2% 25.9% 28.2% 27.5% 26.7% 202.6% 200.0% 88.2% 118.0%
BSFR HOLD SAR 2.3% 4.3% 9.0% 9.5% 8.7% 19.2% 5.7% 7.3% (6.3%) (14.8%) 3.3% 2.2% 28.6% 32.7% 31.7% 31.1% 177.2% 180.6% 100.3% 131.2%
Riyad BUY SAR 0.3% 5.7% 6.0% 7.1% 5.1% 8.9% 2.6% 6.5% (4.8%) (3.2%) 3.3% 0.6% 38.6% 39.7% 38.5% 38.2% 160.6% 139.2% 69.4% 119.2%
Samba BUY SAR (2.9%) (4.9%) 4.6% 8.8% (2.1%) 2.4% 1.4% 5.3% (0.8%) (7.3%) 3.2% 3.5% 27.7% 29.8% 28.9% 28.0% 242.2% 193.1% 142.6% 157.9%
SABB HOLD SAR (6.2%) 1.2% 6.2% 11.7% 4.6% (8.5%) 1.8% 8.1% (10.8%) 9.7% 4.3% 3.6% 36.2% 32.8% 31.4% 30.4% 221.8% 194.8% 108.7% 137.9%
SHB BUY SAR (9.0%) 2.6% 9.0% 8.8% (4.9%) 3.9% 5.3% 6.7% (4.0%) (1.2%) 3.8% 2.1% 39.5% 40.0% 38.6% 37.9% 224.9% 185.0% 157.1% 150.6%
Albilad BUY SAR 20.9% 25.0% 26.4% 10.0% (9.7%) 10.4% 11.4% 9.2% 30.6% 14.6% 15.1% 0.7% 65.3% 57.6% 50.8% 50.4% 280.8% 349.3% 253.8% 119.7%
Aljazeera SELL SAR (1.4%) 4.6% 33.1% 14.1% 5.3% 9.2% 11.0% 10.6% (6.6%) (4.6%) 22.1% 3.5% 66.2% 69.1% 57.6% 55.8% 309.2% 242.8% 153.7% 238.5%
SIB BUY SAR 15.3% (7.6%) 5.7% 5.8% 3.7% 11.6% 2.8% 8.7% 11.6% (19.2%) 2.9% (3.0%) 32.0% 38.6% 37.6% 38.6% 164.7% 89.7% 127.2% 132.1%
Alinma HOLD SAR (30.6%) 109.6% 27.3% 34.0% 0.9% 29.2% 13.2% 20.3% (31.5%) 80.4% 14.1% 13.7% 97.3% 59.9% 53.3% 47.9% 238.3% 136.1% 159.1% 109.7%
Rev Growth Cost Growth Jaws Cost / Income Ratio NSFRLCR
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 61
Exhibit 142: MENA banks: Key performance indicators (Continued)
Source: Bloomberg, Arqaam Capital Research
Company Ticker Arqaam Currency
Rating FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 10A FY 11ABanks
NBK NBK KK HOLD KWD (7.0%) 7.5% 14.4% 8.7% (11.6%) 1.8% 20.6% 5.7% 4.6% 5.6% (6.2%) 3.0% 32.7% 31.0% 32.7% 31.8% 83.7% 78.5% 347.1% 100.5%
KFH KFIN KK SELL KWD 6.9% 14.0% (8.4%) 4.0% 6.3% 20.4% 0.3% 4.0% 0.6% (6.5%) (8.7%) (0.1%) 43.3% 45.7% 50.1% 50.1% 104.6% 103.2% 365.3% 93.4%
Gulf Bank GBK KK SELL KWD 38.3% (16.1%) 8.7% 6.0% (1.6%) 10.0% (4.7%) 4.8% 39.8% (26.1%) 13.4% 1.3% 25.9% 34.0% 29.8% 29.5% 141.0% 126.9% 946.9% 89.9%
Burgan BURG KK BUY KWD 7.1% (0.9%) 13.6% 9.5% 49.9% (5.9%) 13.1% 5.5% (42.8%) 5.0% 0.5% 4.1% 39.6% 37.6% 37.4% 36.0% 131.7% 116.0% 1066.6% 114.2%
Boubyan BOUBYAN KK SELL KWD 498.1% 7.1% 33.5% 22.7% 13.0% 14.4% 11.7% 10.8% 485.1% (7.3%) 21.7% 11.9% 56.2% 60.0% 50.2% 45.3% 223.5% 242.6% 3828.0% 135.0%
Muscat BKMB OM BUY OMR (8.8%) 10.8% 12.9% 13.2% 25.3% 17.5% 10.5% 11.5% (34.1%) (6.7%) 2.3% 1.2% 38.8% 41.1% 40.2% 39.7% 315.3% 220.8% 631.0% 101.4%
Sohar BKSB OM HOLD OMR 20.9% 22.6% 18.0% 10.9% 13.8% 18.3% 6.5% 9.8% 7.2% 4.2% 11.4% 1.1% 55.6% 53.7% 48.5% 48.0% 145.5% 139.0% 2733.0% 104.8%
HBMO HBMO OM SELL OMR (6.9%) 5.1% 62.9% 36.8% 7.3% 18.5% 50.9% 23.2% (14.2%) (13.4%) 12.0% 13.6% 51.9% 58.5% 54.2% 48.8% 533.1% 172.2% 2511.8% 108.2%
AUB AUB BI HOLD BHD 7.2% 11.7% 5.0% 8.1% 7.6% 7.8% (1.7%) 6.3% (0.4%) 3.9% 6.8% 1.8% 36.0% 34.8% 32.5% 32.0% 76.1% 99.5% 66.9% 67.6%
NSFRLCRRev Growth Cost Growth Jaws Cost / Income Ratio
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 62
Exhibit 143: MENA banks: Key performance indicators (Continued)
Source: Bloomberg, Arqaam Capital Research
Company Arqaam Currency
Rating FY 09 FY 10 FY 11 FY 12e FY 13e FY 09 FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e
ADCB HOLD AED 2.4% 2.47% 2.91% 3.10% 3.03% 2.6% 2.3% 1.6% 1.5% 1.4% 11.1% 4.6% 5.9% 6.6% 44.1% 94.8% 86.0% 86.5%
ADIB SELL AED 4.0% 4.02% 4.08% 4.14% 4.08% 2.5% 0.9% 1.1% 1.2% 1.3% 7.1% 8.7% 8.8% 9.0% 63.6% 66.8% 78.3% 88.4%
CBD BUY AED 3.9% 3.91% 3.75% 3.69% 3.64% 1.3% 1.8% 1.6% 1.8% 1.8% 5.8% 13.1% 13.2% 13.3% 76.7% 47.4% 52.2% 53.4%
DIB SELL AED 3.2% 2.87% 3.33% 3.23% 3.21% 1.2% 1.1% 1.6% 2.0% 2.2% 8.3% 14.5% 15.0% 15.0% 59.0% 48.8% 48.4% 62.7%
ENBD HOLD AED 2.9% 2.62% 2.79% 2.65% 2.66% 1.4% 1.4% 2.2% 2.0% 2.0% 10.0% 13.8% 15.5% 16.5% 40.7% 43.4% 50.7% 58.5%
FGB BUY AED 3.6% 3.51% 3.71% 3.58% 3.57% 1.9% 1.7% 1.5% 1.4% 1.2% 4.6% 4.0% 4.5% 4.8% 72.1% 84.2% 65.1% 49.8%
NBAD BUY AED 2.6% 2.69% 2.70% 2.47% 2.54% 1.1% 0.8% 0.9% 0.8% 0.8% 2.6% 3.3% 3.6% 3.9% 101.6% 89.9% 84.0% 95.1%
UNB BUY AED 2.5% 2.60% 3.05% 3.16% 3.13% 0.5% 0.8% 1.0% 1.4% 1.3% 4.3% 3.7% 4.0% 4.3% 47.5% 74.7% 71.8% 66.9%
Tamweel BUY AED 2.4% 1.86% 2.41% 2.27% 2.53% 1.3% 1.1% 0.2% 0.4% 0.6% 6.7% 10.0% 11.0% 12.3% 51.7% 35.4% 33.6% 33.7%
Mashreq HOLD AED 2.5% 2.81% 2.63% 2.48% 2.53% 2.8% 3.2% 2.3% 2.3% 2.2% 11.9% 12.6% 12.8% 12.9% 61.0% 52.1% 59.9% 68.5%
Rakbank BUY AED 8.3% 8.75% 9.07% 8.90% 8.31% 2.0% 1.8% 1.7% 1.8% 1.8% 2.5% 2.5% 2.8% 3.2% 74.8% 71.3% 66.6% 61.7%
CBQ HOLD QAR 3.1% 3.32% 3.22% 2.80% 2.79% 1.4% 0.5% 0.6% 0.4% 0.7% 3.2% 1.2% 0.9% 1.4% 89.7% 107.8% 141.5% 119.7%
Doha HOLD QAR 3.0% 3.39% 3.63% 3.19% 3.10% 0.5% 1.1% 0.9% 0.6% 0.6% 4.9% 3.4% 3.5% 3.6% 73.8% 73.1% 104.4% 101.1%
QIB HOLD QAR 4.3% 3.21% 2.88% 3.48% 3.25% 0.1% 0.2% 0.0% 0.2% 0.7% 1.5% 1.2% 1.6% 1.9% 83.2% 97.7% 65.3% 83.9%
QNB BUY QAR 2.4% 2.95% 3.08% 2.95% 2.86% 0.3% 0.4% 0.6% 0.6% 0.5% 1.0% 1.1% 1.2% 1.3% 117.7% 118.9% 124.0% 128.7%
MAR HOLD QAR 3.4% 3.73% 1.64% 1.75% 1.87% 0.1% 0.0% 0.2% 0.3% 0.6% 0.0% 0.3% 0.5% 0.9% 100.5% 82.2% 159.1% 179.4%
Khaliji SELL QAR 2.5% 3.23% 2.70% 2.01% 2.14% 3.1% (0.9%) 0.4% 0.2% 0.6% 1.4% 0.5% 0.9% 1.3% 161.1% 296.5% 183.6% 154.0%
QIIB Hold QAR 4.5% 3.86% 3.72% 2.85% 2.88% 0.2% 0.1% 0.2% 0.2% 0.6% 3.9% 1.8% 2.0% 2.4% 30.6% 84.3% 68.6% 70.0%
CAE BUY EGP 3.1% 3.32% 3.54% 3.92% 3.77% 0.3% 0.3% 1.2% 1.1% 0.9% 2.6% 1.9% 3.0% 2.9% 107.6% 163.9% 110.4% 116.3%
CIB BUY EGP 3.5% 3.38% 3.48% 4.22% 4.02% 0.0% 0.0% 0.8% 0.8% 0.7% 2.8% 2.8% 3.1% 3.1% 125.4% 120.6% 121.0% 125.4%
HDB HOLD EGP 3.5% 3.48% 3.37% 3.48% 3.49% 0.3% 0.9% 0.7% 1.0% 1.0% 5.6% 6.0% 6.0% 5.0% 97.2% 91.1% 103.0% 131.2%
NSGB HOLD EGP 3.5% 3.43% 3.56% 4.02% 3.79% (1.0%) (0.2%) 0.4% 1.0% 0.8% 3.4% 3.0% 3.5% 3.3% 93.8% 101.3% 94.8% 100.6%
EGB SELL EGP 3.0% 3.41% 3.40% 3.89% 3.67% (0.6%) 0.5% 0.8% 0.8% 12.4% 11.2% 14.1% 14.1% 122.6% 126.3% 70.3% 70.7%
Audi BUY USD 1.9% 1.72% 1.94% 1.99% 2.03% 0.4% 0.4% 1.0% 1.3% 0.9% 3.3% 3.9% 3.8% 3.5% 55.0% 70.5% 83.3% 92.2%
BLOM BUY USD 2.2% 2.36% 2.33% 2.28% 2.29% (0.1%) 0.3% 0.7% 1.0% 0.9% 2.2% 2.2% 2.7% 3.3% 70.4% 73.5% 121.6% 138.9%
Byblos HOLD USD 2.2% 1.98% 1.85% 1.61% 1.73% 0.6% 0.5% 0.7% 0.8% 0.9% 3.2% 3.3% 3.8% 4.0% 142.6% 140.5% 151.7% 163.2%
BOB SELL USD 2.01% 1.47% 1.64% 1.62% (0.0%) 0.1% 0.5% 0.6% 0.6% 0.5% 0.8% 0.8% 160.8% 231.9% 191.6% 232.7%
ANB BUY SAR 3.1% 2.88% 2.81% 2.75% 2.72% 0.7% 1.4% 0.9% 0.8% 0.8% 3.0% 2.4% 2.4% 2.4% 108.1% 146.0% 150.0% 154.0%
Al Rajhi BUY SAR 5.8% 5.30% 4.61% 4.12% 4.00% 1.5% 1.5% 1.1% 0.9% 0.8% 2.2% 1.7% 1.8% 1.8% 135.8% 148.4% 150.3% 152.6%
BSFR HOLD SAR 2.6% 2.64% 2.50% 2.41% 2.43% 0.7% 0.4% 0.2% 0.4% 0.5% 1.2% 1.2% 1.3% 1.4% 147.0% 136.4% 131.3% 134.3%
Riyad BUY SAR 2.7% 2.45% 2.46% 2.44% 2.41% 0.6% 0.9% 0.6% 0.7% 0.6% 1.7% 1.6% 1.6% 1.5% 126.2% 106.3% 112.5% 123.9%
Samba BUY SAR 2.9% 2.53% 2.39% 2.29% 2.29% 0.6% 0.7% 0.3% 0.4% 0.5% 3.7% 3.0% 3.0% 3.1% 118.1% 124.4% 133.3% 129.0%
SABB HOLD SAR 2.7% 2.66% 2.37% 2.29% 2.25% 1.9% 1.6% 0.6% 0.6% 0.6% 3.4% 1.9% 2.1% 2.1% 100.0% 124.0% 120.7% 119.4%
SHB BUY SAR 2.7% 2.35% 2.39% 2.27% 2.20% 3.0% 1.0% 0.4% 0.5% 0.6% 2.6% 1.9% 2.0% 2.0% 124.4% 145.4% 150.0% 155.0%
Albilad BUY SAR 3.4% 3.37% 2.96% 2.88% 2.83% 3.1% 2.0% 1.8% 1.5% 0.8% 5.5% 4.7% 4.2% 4.2% 89.4% 129.0% 145.2% 151.2%
Aljazeera SELL SAR 2.4% 2.40% 2.27% 2.32% 2.23% 2.6% 2.0% 0.3% 0.6% 0.5% 9.1% 7.7% 7.5% 7.2% 62.0% 64.4% 96.0% 113.0%
SIB BUY SAR 2.1% 2.74% 2.52% 2.32% 2.26% 1.7% 2.3% 0.9% 1.1% 0.8% 5.4% 6.1% 5.8% 5.7% 110.4% 124.6% 129.8% 128.4%
Alinma HOLD SAR 5.8% 2.56% 3.78% 3.45% 3.43% --% 0.0% 0.6% 0.6% 0.6% --% 0.0% 0.4% 0.7% --% 1260.1% 125.0% 71.4%
Net Interest Margin CoverageNPL RatioLoan Loss Charge / Avg Loans
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 63
Exhibit 144: MENA banks: Key performance indicators (Continued)
Source: Bloomberg, Arqaam Capital Research
Company Ticker Arqaam Currency NPL Ratio
Rating FY 09 FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e FY 09a FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13eBanks
NBK NBK KK HOLD KWD 3.2% 3.00% 3.11% 3.16% 3.00% 0.1% 0.6% 0.5% 0.5% 1.8% 1.6% 1.5% 1.8% 1.5% 208.7% 243.0% 194.6% 257.6%
KFH KFIN KK SELL KWD 3.3% 3.41% 3.24% 3.05% 3.10% 2.0% 2.4% 2.0% 1.5% 11.0% 13.3% 10.0% 12.0% 12.0% 59.4% 77.3% 129.9% 135.7%
Gulf Bank GBK KK SELL KWD 1.9% 2.25% 2.30% 2.40% 2.41% 3.3% 1.9% 2.0% 1.7% 30.3% 18.7% 14.4% 14.0% 14.0% 36.1% 38.1% 51.2% 60.4%
Burgan BURG KK BUY KWD 2.7% 2.79% 2.59% 2.53% 2.52% 3.1% 1.3% 1.3% 1.1% 10.0% 6.1% 11.5% 11.0% 11.0% 72.9% 35.3% 42.5% 49.3%
Boubyan BOUBYAN KK SELL KWD 2.6% 2.81% 2.90% 2.96% 2.98% 1.4% 1.1% 1.3% 0.8% 11.7% 0.7% 0.5% 2.9% 3.1% 1257.4% 2286.6% 332.7% 317.0%
Muscat BKMB OM BUY OMR 3.1% 3.36% 3.42% 3.23% 3.16% 0.8% 0.6% 0.7% 0.7% 5.2% 4.2% 3.0% 4.0% 4.0% 105.9% 118.4% 75.6% 74.5%
Sohar BKSB OM HOLD OMR 2.5% 2.74% 2.64% 2.86% 2.92% 0.4% 0.3% 0.4% 0.5% 0.2% 0.9% 1.5% 1.9% 2.3% 212.5% 133.6% 131.8% 131.8%
HBMO HBMO OM SELL OMR 3.3% 3.02% 2.79% 2.78% 2.78% (0.1%) (0.4%) 0.3% 0.4% 10.5% 10.8% 10.9% 10.7% 10.6% 42.7% 38.8% 48.1% 47.4%
AUB AUB BI HOLD BHD --% 2.24% 2.26% 2.31% 2.35% 1.1% 0.8% 0.8% 0.8% --% 2.4% 2.5% 3.0% 3.2% 119.5% 135.3% 130.7% 135.7%
CoverageNPL RatioLoan Loss Charge / Avg LoansNet Interest Margin
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 64
Exhibit 145: MENA financials: Share price performance
Source: Bloomberg, Arqaam Capital Research
Company Arqaam Currency Share Peformance
Rating Price High Low High Low 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d since initiation
ADCB HOLD AED 3.2 3.4 2.6 6% 20% (0.6) (2.5) 7.5 8.6 10.5 13.3 0.1 (1.1) 5.2 0.0 10.1 7.0 (0.2) (0.7) 7.8 8.9 17.7 10.6 9.7
ADIB SELL AED 3.1 3.7 2.9 16% 6% (1.6) (2.2) (8.8) (1.9) 0.6 (1.9) (0.8) (0.9) (11.1) (10.5) 0.2 (8.2) (1.2) (0.4) (8.6) (1.7) 7.9 (4.6) 3.8
CBD BUY AED 2.8 3.4 2.7 18% 5% -- 1.8 (5.1) (5.4) (8.2) (3.4) 2.2 10.7 5.7 1.4 6.1 5.2 2.6 12.0 (2.4) (12.4) (1.0) (12.5) 3.6
DIB SELL AED 1.9 2.3 1.8 18% 3% (3.6) (4.5) (12.1) (6.0) (12.9) (2.6) (1.4) 4.3 (1.3) 0.9 1.3 6.1 (1.0) 5.6 (9.4) (13.0) (5.7) (11.6) 2.6
ENBD HOLD AED 2.7 4.6 2.7 41% 3% (2.9) (5.2) (4.9) (16.3) (28.2) (7.5) (0.7) 3.7 5.8 (9.5) (14.0) 1.2 (0.3) 4.9 (2.2) (23.3) (21.1) (16.5) 11.8
FGB BUY AED 8.8 11.0 6.9 20% 26% (1.0) (4.8) (1.6) 16.8 (5.8) 13.4 (0.2) (3.4) (3.9) 8.2 (6.3) 7.1 (0.6) (3.0) (1.3) 17.0 1.4 10.7 10.4
NBAD BUY AED 8.8 9.2 7.4 4% 19% (0.6) 2.1 10.5 13.7 4.2 8.5 0.2 3.4 8.2 5.1 3.8 2.2 (0.1) 3.9 10.8 13.9 11.4 5.8 1.4
UNB BUY AED 2.9 4.0 2.8 26% 4% (1.0) (1.7) (2.3) (0.3) (17.8) 0.7 (0.2) (0.3) (4.7) (8.9) (18.2) (5.6) (0.6) 0.1 (2.1) (0.1) (10.6) (2.0) 8.6
Tamweel BUY AED 1.2 1.6 0.5 29% 119% 3.3 (4.5) 2.7 0.5 (31.9) 36.2 4.1 (3.1) 0.4 (8.1) (32.4) 29.9 3.7 (2.7) 3.0 0.8 (24.7) 33.5 9.5
Mashreq HOLD AED 1.0 1.3 0.7 28% 41% (1.7) (7.3) 41.5 60.8 22.3 90.7 (0.9) (5.9) 39.1 52.2 21.9 84.4 (1.3) (5.5) 41.7 61.1 29.6 88.0 (21.4)
Rakbank BUY AED 0.6 1.0 0.5 39% 29% (5.0) (15.9) 14.0 (1.2) (23.3) 14.2 (4.3) (14.5) 11.7 (9.8) (23.7) 7.8 (4.6) (14.1) 14.3 (1.0) (16.1) 11.4 (64.7)
UAE
CBQ HOLD QAR 70.0 87.2 67.6 20% 4% (2.8) (6.8) (12.7) (14.7) (4.4) (16.7) (2.6) (5.5) (10.0) (9.6) (6.8) (10.2) (1.7) (3.8) (11.7) (11.4) (2.5) (13.0) 2.7
Doha HOLD QAR 58.0 67.2 49.9 14% 16% 1.0 (3.2) (6.5) (7.9) 7.8 (9.5) 1.2 (1.9) (3.8) (2.8) 5.4 (3.1) 2.1 (0.2) (5.4) (4.6) 9.7 (5.8) (2.8)
QIB HOLD QAR 77.3 86.1 71.3 10% 8% (0.6) (0.3) (3.6) (6.0) (3.6) (8.3) (0.5) 1.1 (0.9) (0.9) (6.0) (1.9) 0.4 2.7 (2.6) (2.7) (1.7) (4.6) (0.8)
QNB BUY QAR 133.6 142.7 121.8 6% 10% 0.4 (0.4) -- (3.3) 1.4 (3.3) 0.6 0.9 2.7 1.9 (1.0) 3.1 1.5 2.6 1.0 0.0 3.3 0.4 --
MAR HOLD QAR 26.7 28.6 22.1 6% 21% (0.7) (0.6) 1.9 0.8 14.6 (4.1) (0.6) 0.8 4.6 5.9 12.3 2.3 0.3 2.4 2.9 4.1 16.5 (0.4) 1.1
Khaliji SELL QAR 17.0 18.3 16.0 7% 6% 4.2 3.4 0.3 (2.0) (5.2) (1.0) 4.3 4.7 3.0 3.1 (7.6) 5.4 5.3 6.4 1.3 1.3 (3.3) 2.7 1.0
QIIB Hold QAR 50.0 56.5 45.0 12% 11% (1.5) (2.1) (7.3) (10.2) 6.3 (7.5) (1.3) (0.7) (4.6) (5.1) 3.9 (1.1) (0.4) 0.9 (6.3) (6.9) 8.1 (3.8) 3.6
Qatar
CAE BUY EGP 9.1 12.0 7.7 24% 18% 1.9 3.0 (3.5) 7.8 (23.5) 14.2 2.1 4.3 (0.8) 13.0 (25.8) 20.7 4.4 (1.7) (2.0) (10.7) (17.7) (20.8) 34.1
CIB BUY EGP 25.5 32.3 18.5 21% 38% (2.0) 5.0 9.4 7.6 (12.8) 36.6 (1.8) 6.3 12.1 12.7 (15.2) 43.0 0.5 0.4 11.0 (11.0) (7.1) 1.6 28.5
HDB HOLD EGP 11.9 20.0 10.5 41% 13% (5.2) (8.6) (5.6) (8.2) (36.3) 7.7 (5.0) (7.2) (3.0) (3.1) (38.7) 14.1 (2.7) (13.2) (4.1) (26.8) (30.5) (27.3) 26.8
NSGB HOLD EGP 30.0 35.2 18.4 15% 63% 0.8 8.3 9.0 38.9 (6.9) 47.8 1.0 9.6 11.7 44.0 (9.3) 54.2 3.3 3.6 10.6 20.3 (1.2) 12.8 28.6
EGB SELL EGP 1.5 2.0 1.3 27% 15% 2.8 5.7 (8.6) (8.6) (23.7) (2.6) 3.0 7.0 (6.0) (3.5) (26.1) 3.8 5.3 1.1 (7.1) (27.2) (18.0) (37.6) 13.3
Egypt
Audi BUY USD 6.0 7.1 5.6 15% 7% (0.8) -- (0.2) 0.3 (14.3) 3.3 0.2 1.3 2.7 5.1 (2.4) 6.4 (0.5) 0.9 0.7 0.4 0.8 3.4 (7.1)
BLOM BUY USD 7.8 8.9 7.0 12% 11% (0.1) 0.5 5.0 5.0 (12.0) 5.0 (0.7) 1.3 2.5 5.4 (16.7) 9.7 0.2 1.4 5.8 5.0 3.1 5.2 (5.0)
Byblos HOLD USD 1.6 1.8 1.6 12% 2% (1.3) (1.3) (3.7) (1.3) (12.2) (3.1) 0.0 1.8 7.7 10.1 (14.4) 11.4 (0.9) (0.3) (2.8) (1.2) 2.9 (2.9) (5.7)
BOB SELL USD 19.3 20.0 18.9 4% 2% -- (0.1) (0.1) (0.8) 1.5 (0.6) (1.1) 0.1 (1.0) 3.9 (14.6) 3.4 0.4 0.9 0.8 (0.8) 16.7 (0.4) --
Lebanon
ANB BUY SAR 29.4 34.1 26.2 14% 12% (1.7) (5.8) -- 5.4 (9.8) 6.9 0.3 1.9 (3.9) (5.7) (9.4) (3.6) 0.0 (0.3) (4.2) (8.8) (16.6) (3.7) (2.8)
Al Rajhi BUY SAR 74.0 83.3 65.0 11% 14% (2.0) (5.1) 1.0 7.6 (1.7) 6.5 0.0 2.5 (2.9) (3.5) (1.2) (4.0) (0.3) 0.4 (3.2) (6.5) (8.4) (4.2) 0.7
BSFR HOLD SAR 36.8 40.6 29.7 9% 24% (0.5) (5.4) 6.2 10.6 (5.7) 9.3 1.5 2.2 2.3 (0.5) (5.3) (1.2) 1.1 0.1 2.0 (3.6) (12.5) (1.4) (10.9)
Riyad BUY SAR 24.0 27.2 22.2 12% 8% (1.6) (4.4) (1.4) 1.9 (6.3) 3.0 0.4 3.2 (5.3) (9.2) (5.8) (7.5) 0.0 1.1 (5.7) (12.2) (13.0) (7.6) (1.7)
Samba BUY SAR 48.2 57.0 42.1 15% 14% (1.4) (10.3) (0.2) 1.7 (12.0) 3.4 0.6 (2.7) (4.1) (9.4) (11.5) (7.0) 0.3 (4.8) (4.4) (12.5) (18.7) (7.2) (1.9)
SABB HOLD SAR 34.5 37.2 27.8 7% 24% (1.4) (6.0) 6.7 15.0 2.4 13.0 0.6 1.6 2.8 3.9 2.9 2.6 0.3 (0.5) 2.5 0.8 (4.3) 2.4 (9.4)
SHB BUY SAR 27.0 29.7 21.0 9% 29% (2.9) (6.9) 4.5 17.0 6.9 8.7 (0.9) 0.7 0.6 5.8 7.4 (1.7) (1.2) (1.4) 0.3 2.8 0.2 (1.9) (1.1)
Albilad BUY SAR 27.0 35.4 16.5 24% 64% (1.5) (14.6) 11.1 45.6 40.3 36.0 0.5 (6.9) 7.2 34.4 40.7 25.6 0.2 (9.1) 6.9 31.4 33.5 25.4 9.7
Aljazeera SELL SAR 25.5 33.9 15.1 25% 69% (2.3) (13.6) 25.3 54.1 29.4 50.4 (0.3) (5.9) 21.4 43.0 29.9 40.0 (0.6) (8.1) 21.1 39.9 22.7 39.8 10.0
SIB BUY SAR 17.0 21.4 15.5 21% 10% (3.1) (10.5) (2.3) 4.9 (10.5) 5.3 (1.1) (2.9) (6.2) (6.2) (10.1) (5.2) (1.5) (5.0) (6.5) (9.2) (17.3) (5.4) (6.3)
Alinma HOLD SAR 13.3 16.9 8.8 21% 51% (5.4) (12.8) 25.6 43.2 30.5 41.7 (3.4) (5.2) 21.7 32.1 31.0 31.2 (3.7) (7.3) 21.4 29.1 23.8 31.1 5.0
KSA
Relative Performance (vs. market) %Relative Performance (vs. sector) %Absolute Performance %% to 52 week52 Week
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 65
Exhibit 146: MENA financials: Share price performance (Continued)
Source: Bloomberg, Arqaam Capital Research
Exhibit 147: MENA diversified financials: Share price performance
Source: Bloomberg, Arqaam Capital Research
Company Arqaam Currency Share Peformance
Rating Price High Low High Low 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d since initiation
NBK HOLD KWD 1040.0 1127.3 900.0 8% 16% (3.7) (1.9) (1.4) (1.4) (6.2) 2.1 (3.7) (1.6) (2.9) (0.0) 2.0 1.4 (1.4) (0.0) (2.2) (0.3) 3.3 1.2 (10.4)
KFH SELL KWD 690.0 963.0 680.0 28% 1% (2.8) (9.2) (11.3) (17.2) (26.9) (17.2) (2.8) (8.9) (12.8) (15.9) (18.7) (18.0) (0.5) (7.4) (12.1) (16.1) (17.4) (18.1) (5.5)
Gulf Bank SELL KWD 420.0 542.9 410.0 23% 2% (1.2) (2.3) (9.1) (15.2) (22.6) (13.5) (1.2) (2.0) (10.6) (13.9) (14.4) (14.3) 1.2 (0.5) (9.9) (14.1) (13.1) (14.5) (3.7)
Burgan BUY KWD 415.0 514.3 405.0 19% 2% (3.5) (2.4) (5.3) (7.3) (17.8) (8.3) (3.5) (2.0) (6.8) (6.0) (9.6) (9.0) (1.2) (0.5) (6.1) (6.2) (8.2) (9.2) 25.3
Boubyan SELL KWD 610.0 610.0 530.0 0% 15% 1.7 1.7 7.0 -- 1.7 3.4 1.7 2.0 5.5 1.3 9.9 2.6 4.0 3.5 6.2 1.1 11.2 2.4 (1.6)
Kuwait
Muscat BUY OMR 0.6 0.7 0.6 13% 4% (1.2) (7.9) (5.8) (5.3) (6.2) (12.3) (1.2) (7.6) (7.4) (3.9) 2.0 (13.1) 0.4 (2.0) (5.9) (7.7) 0.0 (11.7) (4.2)
Sohar HOLD OMR 0.2 0.2 0.1 9% 13% (2.0) (6.2) (2.6) (3.2) (1.3) (5.1) (2.0) (5.9) (4.2) (1.9) 6.9 (5.8) (0.4) (0.4) (2.7) (5.7) 4.9 (4.4) (10.5)
HBMO SELL OMR 0.2 0.3 0.2 17% 8% -- (2.8) (9.7) (15.2) (6.1) (12.5) (150.0) 13.9 (109.7) (915.2) (906.1) (55.3) 1.6 3.0 (9.8) (17.7) 0.1 (11.8) (6.4)
Oman
AUB HOLD BHD 0.6 0.7 0.6 14% 3% -- -- (4.4) (12.3) (12.9) (3.7) -- (0.3) 1.6 (1.3) (8.2) 0.8 0.7 (0.1) 0.9 0.1 8.1 0.1 (10.0)
Bahrain
Relative Performance (vs. market) %Relative Performance (vs. sector) %Absolute Performance %% to 52 week52 Week
Company Arqaam Currency Share Peformance
Rating Price High Low High Low 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d since initiation
Shuaa SELL AED 0.7 1.1 0.4 33% 74% 3.3 (4.5) 2.7 0.5 (31.9) 36.2 5.5 15.0 (5.0) 0.2 (10.5) 22.4 5.9 5.7 5.4 (6.5) (24.7) 27.2 (9.4)
EFG BUY EGP 11.7 18.6 9.3 37% 27% (12.0) 2.9 (5.6) (3.9) (24.6) 17.2 (4.8) 0.1 0.5 (7.7) (3.5) (0.4) (9.5) (1.8) (4.0) (22.5) (18.8) (17.8) 19.1
DFM SELL AED 1.0 1.3 0.7 28% 41% (5.0) (15.9) 14.0 (1.2) (23.3) 14.2 (2.8) 3.6 6.3 (1.6) (1.9) 0.4 (2.4) (5.7) 16.7 (8.2) (16.1) 5.1 (2.3)
Salama BUY AED 0.6 1.0 0.5 39% 29% (8.5) (17.9) (5.3) 0.7 (18.1) 7.2 (6.0) (12.8) (5.8) (1.3) (13.4) 3.4 (5.9) (7.7) (2.6) (6.3) (10.9) (1.8) (0.3)
Qatar InsuranceBUY QAR 74.9 78.3 63.3 4% 18% 0.4 (2.1) 4.4 16.0 7.6 15.8 (0.0) 0.0 (0.1) (0.1) (0.1) (0.1) 1.5 0.9 5.4 19.3 9.5 19.5 (5.3)
Tawuniya BUY SAR 49.4 66.8 46.4 26% 6% 0.8 (9.4) (16.6) 1.2 (24.3) (4.5) na na na na na na 2.5 (3.9) (20.9) (12.9) (31.0) (15.2) (11.2)
MedGulf SELL SAR 29.2 37.5 23.9 22% 22% (3.6) (13.4) (13.4) 12.7 (0.7) 4.3 na na na na na na (1.9) (7.9) (17.6) (1.4) (7.4) (6.3) (11.5)
Relative Performance (vs. market) %Relative Performance (vs. sector) %Absolute Performance %% to 52 week52 Week
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 66
Exhibit 148: Interest rates
Source: Arqaam Capital Research
FY 11A FY 14e Change FY 11A FY 14e ChangeLoan
margins
Impact increased
liquidity
T-bill rate
impact
T-bill
investment
Retail
caps
Credit
card caps
Retail vs
Corporate Loans
Public vs
Private Loans
(bps)
Local vs
USDFY 11A FY 14e Change
Deposit
margins
Deposit
mix
Net wholesale
debt issuance
ADCB 2.91% 2.95% 0.03% 4.79% 4.50% (0.29%) (0.18%) (0.11%) (0.00%) 2.07% 1.71% (0.36%) (0.32%) 0.02% (0.05%)
ADIB 4.08% 4.07% (0.01%) 5.36% 5.33% (0.03%) 0.01% (0.03%) (0.01%) 1.37% 1.35% (0.02%) (0.08%) 0.06% (0.01%)
CBD 3.75% 3.60% (0.15%) 4.94% 4.64% (0.30%) (0.25%) (0.05%) (0.01%) 1.39% 1.20% (0.19%) (0.25%) 0.09% (0.03%)
DIB 3.33% 3.16% (0.17%) 5.06% 4.79% (0.27%) (0.22%) (0.05%) (0.00%) 1.82% 1.72% (0.10%) (0.14%) 0.05% (0.00%)
ENBD 2.79% 2.66% (0.13%) 4.45% 4.08% (0.37%) (0.26%) (0.08%) (0.03%) 1.80% 1.55% (0.25%) (0.47%) 0.02% 0.20%
FGB 3.71% 3.55% (0.16%) 5.17% 4.90% (0.27%) (0.16%) (0.03%) (0.07%) (0.01%) 1.62% 1.50% (0.12%) 0.13% (0.17%) (0.07%)
NBAD 2.70% 2.51% (0.19%) 3.73% 3.50% (0.23%) 0.38% (0.57%) (0.04%) 1.11% 1.10% (0.01%) 0.06% (0.01%) (0.06%)
UNB 3.05% 3.10% 0.05% 4.91% 4.84% (0.07%) (0.16%) 0.11% (0.03%) 2.10% 1.93% (0.17%) (0.06%) (0.09%) (0.02%)
TAMWEEL 2.41% 2.50% 0.09% 5.82% 5.60% (0.22%) (0.22%) 0.01% --% 4.35% 4.00% (0.35%) (0.73%) 0.09% 0.28%
MASQ 2.63% 2.54% (0.09%) 4.58% 4.10% (0.48%) (0.37%) (0.09%) (0.02%) 2.40% 1.90% (0.50%) (0.50%) 0.00%
RAKBANK 9.07% 7.77% (1.30%) 10.81% 9.15% (1.66%) (1.64%) (0.03%) --% 2.09% 1.70% (0.39%) (0.17%) (0.20%) (0.02%)
UAE banks
CBQK 3.22% 2.73% (0.49%) 4.78% 4.17% (0.61%) (0.46%) 0.07% (0.02%) (0.03%) (0.05%) 1.83% 1.58% (0.25%) (0.23%) (0.05%) 0.03%
DHBK 3.63% 3.07% (0.55%) 4.76% 4.20% (0.56%) (0.14%) (0.21%) (0.03%) (0.01%) (0.05%) 1.29% 1.30% 0.01% 0.03% (0.00%) (0.01%)
QIBK 2.88% 3.22% 0.34% 4.13% 4.45% 0.32% 0.42% 0.13% (0.04%) (0.01%) (0.05%) 1.21% 1.02% (0.19%) (0.30%) (0.10%) 0.21%
QNBK 3.08% 2.80% (0.28%) 4.23% 3.95% (0.28%) (0.15%) 0.15% (0.02%) (0.09%) (0.05%) 1.31% 1.30% (0.01%) (0.04%) 0.04% (0.01%)
MARK 1.64% 2.02% 0.37% 2.98% 3.18% 0.20% 0.43% 0.01% --% (0.06%) (0.05%) 1.58% 1.28% (0.30%) (0.10%) (0.30%) 0.10%
KCBK 2.70% 2.17% (0.52%) 3.70% 3.25% (0.45%) (0.04%) (0.11%) (0.11%) (0.02%) (0.05%) 1.28% 1.26% (0.02%) 0.13% (0.26%) 0.11%
QIIK 3.72% 2.82% (0.90%) 5.35% 4.19% (1.16%) (1.22%) 0.27% (0.02%) (0.01%) (0.05%) 1.64% 1.28% (0.36%) (0.48%) 0.07% 0.05%
Qatar banks
CIEB 3.54% 3.64% 0.10% 7.51% 7.66% 0.15% (0.09%) (0.10%) 0.24% 0.01% 0.06% --% 0.04% 4.36% 4.35% (0.01%) (0.20%) 0.19% (0.00%)
COMI 3.48% 3.80% 0.32% 7.07% 7.62% 0.55% 0.39% (0.32%) 0.42% (0.02%) 0.04% --% 0.04% 3.98% 4.30% 0.32% 0.06% 0.26% 0.00%
HDBK 3.37% 3.47% 0.10% 8.98% 8.66% (0.32%) (2.13%) (0.02%) 1.86% (0.07%) --% --% 0.04% 6.40% 7.81% 1.41% 1.23% 0.32% (0.15%)
NSGB 3.56% 3.72% 0.16% 7.39% 7.53% 0.14% (0.04%) (0.12%) 0.19% 0.01% 0.06% --% 0.04% 4.38% 4.39% 0.01% (0.01%) 0.04% (0.01%)
EGBE 3.40% 3.39% (0.01%) 7.39% 7.55% 0.16% (0.23%) (0.13%) 0.41% 0.01% 0.06% --% 0.04% 4.70% 4.70% (0.00%) (0.10%) 0.10% (0.00%)
Egypt banks
AUDI 1.94% 2.03% 0.10% 4.98% 5.10% 0.12% 0.46% (0.40%) 0.06% (0.00%) 3.27% 3.22% (0.05%) 0.14% (0.19%) (0.01%)
BLOM 2.33% 2.32% (0.01%) 5.53% 5.32% (0.21%) 0.02% (0.29%) 0.06% --% 3.50% 3.24% (0.26%) (0.38%) 0.13% (0.01%)
BYB 1.85% 1.72% (0.13%) 5.51% 5.32% (0.19%) 0.06% (0.31%) 0.06% --% 3.95% 3.98% 0.03% 0.24% (0.17%) (0.04%)
BOB 1.47% 1.61% 0.14% 5.06% 5.35% 0.29% 0.60% (0.37%) 0.06% --% 3.82% 3.85% 0.03% 0.29% (0.19%) (0.07%)
Lebanon banks
ARNB 2.81% 2.71% (0.10%) 3.06% 2.98% (0.08%) (0.13%) 0.04% 0.01% (0.00%) 0.29% 0.30% 0.01% (0.14%) 0.17% (0.01%)
RJHI 4.61% 3.88% (0.73%) 4.74% 3.99% (0.75%) (0.80%) 0.01% 0.04% --% 0.15% 0.13% (0.02%) (0.19%) 0.17% --%
BSFR 2.50% 2.38% (0.12%) 2.89% 2.77% (0.12%) (0.24%) 0.11% 0.01% (0.00%) 0.46% 0.43% (0.03%) 0.05% 0.11% (0.18%)
RIBL 2.46% 2.41% (0.05%) 2.88% 2.79% (0.09%) 0.14% (0.24%) 0.01% (0.00%) 0.50% 0.46% (0.04%) (0.13%) 0.06% 0.03%
SAMBA 2.39% 2.24% (0.15%) 2.65% 2.42% (0.23%) (0.24%) 0.00% 0.01% (0.01%) 0.31% 0.21% (0.10%) (0.37%) 0.24% 0.03%
SABB 2.37% 2.22% (0.15%) 2.76% 2.62% (0.14%) (0.32%) 0.18% 0.01% (0.00%) 0.45% 0.45% 0.00% (0.16%) 0.14% 0.02%
AAAL 2.39% 2.20% (0.19%) 2.90% 2.71% (0.19%) (0.18%) (0.02%) 0.01% (0.00%) 0.59% 0.58% (0.01%) (0.65%) 0.59% 0.06%
ALBI 2.96% 2.79% (0.17%) 3.07% 2.86% (0.21%) (0.78%) 0.56% 0.01% --% 0.12% 0.08% (0.04%) (0.63%) 0.55% 0.04%
BJAZ 2.27% 2.18% (0.09%) 2.81% 2.65% (0.16%) (0.38%) 0.21% 0.01% --% 0.61% 0.50% (0.11%) (0.01%) (0.06%) (0.03%)
SIBC 2.52% 2.18% (0.34%) 3.18% 2.87% (0.31%) (0.28%) (0.04%) 0.01% (0.00%) 0.76% 0.87% 0.11% (0.45%) 0.57% (0.02%)
ALINMA 3.78% 3.40% (0.38%) 4.03% 3.63% (0.40%) (0.57%) 0.17% 0.01% (0.01%) 0.47% 0.29% (0.18%) (0.36%) 0.18% --%
KSA banks 0.43% 0.39%
NBK 3.11% 2.95% (0.16%) 4.00% 4.00% 0.00% 0.11% (0.14%) 0.04% --% 1.01% 1.20% 0.19% (0.31%) 0.49%
KFIN 3.24% 3.06% (0.18%) 5.34% 4.58% (0.76%) (0.51%) (0.30%) 0.04% --% 2.01% 1.47% (0.54%) (0.54%) --%
GBK 2.30% 2.42% 0.12% 3.74% 3.65% (0.09%) 0.02% (0.15%) 0.04% --% 1.59% 1.38% (0.21%) (0.09%) (0.11%) (0.01%)
BURG 2.59% 2.52% (0.07%) 4.13% 4.00% (0.13%) (0.02%) (0.14%) 0.04% --% 1.69% 1.62% (0.07%) (0.05%) (0.02%)
BOUBYAN 2.90% 2.98% 0.08% 3.88% 3.77% (0.11%) 0.14% (0.28%) 0.04% --% 1.14% 0.90% (0.24%) (0.24%) --%
Kuwait banks
BKMB 3.42% 3.09% (0.33%) 4.63% 4.32% (0.31%) (0.39%) 0.04% 0.04% (0.00%) 1.41% 1.42% 0.01% (0.50%) 0.60% (0.09%)
BKSB 2.64% 3.00% 0.36% 4.62% 4.67% 0.05% (0.09%) 0.10% 0.04% (0.00%) 2.20% 1.81% (0.39%) (0.33%) (0.06%) 0.01%
OIBB 2.79% 2.78% (0.01%) 3.38% 3.35% (0.03%) (0.00%) (0.07%) 0.04% (0.00%) 0.68% 0.65% (0.03%) (0.39%) 0.36% --%
Oman banks
AUB 2.26% 2.38% 0.12% 3.89% 4.04% 0.15% 0.15% 0.08% (0.00%) 1.70% 1.76% 0.06% (0.01%) (0.09%) 0.16%
Bahrain banks
NIM Asset yield Of Which Funding costs Of which
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 67
Exhibit 149: TP and EPS revision
Source: Bloomberg, Arqaam Capital Research
Previous New ∆ Old New ∆ Old New ∆ Old New ∆
ADCB 2.98 3.69 23.7% 0.37 0.48 29.3% 0.44 0.51 14.4% 0.50 0.55 10.9% Impressive margins on the back of improved asset yields
ADIB 2.71 2.87 5.7% 0.42 0.47 13.1% 0.46 0.46 0.1% 0.52 0.51 (2.4%) Plans to build up capital implying lower loan growth
CBD 4.18 4.21 0.7% 0.39 0.38 (1.4%) 0.41 0.41 (1.0%) 0.48 0.48 (0.1%) No major surprises
DIB 1.76 1.75 (0.5%) 0.23 0.23 (1.8%) 0.25 0.24 (2.5%) 0.30 0.29 (3.2%) No significant changes
ENBD 3.21 3.37 4.9% 0.29 0.34 16.3% 0.32 0.32 (0.3%) 0.39 0.40 2.2% Higher capital gain and lower than expected provisioning
FGB 13.44 13.89 3.4% 1.30 1.32 1.5% 1.48 1.47 (0.7%) 1.67 1.65 (0.9%) No significant changes
NBAD 13.03 13.24 1.6% 1.05 1.09 3.2% 1.30 1.35 4.2% 1.51 1.56 2.8% Lower than expected provisioning
UNB 4.57 4.72 3.2% 0.55 0.56 1.7% 0.58 0.58 (0.8%) 0.63 0.64 1.4% No significant changes
TAMWEEL 1.67 1.67 0.2% 0.09 0.08 (3.9%) 0.10 0.10 1.1% 0.09 0.10 18.5% Dissapointing net interest income and F&Cs
MASQ 56.97 62.45 9.6% 4.61 5.21 13.1% 5.46 5.89 7.9% 6.21 6.78 9.1% Beat expectations on the back of improved cost of funding and lower provisioning
RAKBANK 6.08 6.37 4.8% 0.67 0.79 18.1% 0.70 0.77 11.1% 0.75 0.75 0.5% New retail regulation biting less hard than expected
CBQK 82.1 80.1 (2.5%) 7.55 7.85 3.9% 8.05 8.06 0.2% 8.94 8.85 (1.0%) Lower NII and fee generation offset by lower provisioning and unsustainable capital gains
DHBK 68.0 61.7 (9.3%) 5.70 5.68 (0.4%) 5.89 5.49 (6.9%) 6.51 5.96 (8.4%) Disappointing loan growth, pressure on NIM and F&C offset by unsustainable capital gains
QIBK 79.8 85.7 7.3% 4.75 6.23 31.0% 6.62 7.24 9.3% 7.31 7.71 5.4% Lower provisioning (after removing Arcapita exposure), higher loan growth, NII and F&C
QNBK 189.2 193.0 2.0% 12.21 12.32 0.9% 13.51 14.07 4.1% 15.32 15.86 3.6% Much stronger than expected loan growth
MARK 30.9 27.8 (10.1%) 1.97 1.87 (4.8%) 2.39 2.05 (14.1%) 2.78 2.42 (12.9%) Lower than expected NIM, lower costs, non-recurring items in Other income
KCBK 14.1 13.9 (1.5%) 1.01 1.33 31.7% 1.17 1.06 (9.5%) 1.29 1.22 (5.2%) Margin contraction, slower loan growth
QIIK 60.5 53.2 (12.2%) 4.79 4.33 (9.5%) 5.04 4.34 (13.9%) 5.22 4.50 (13.8%) NIM compression
CIEB 11.99 15.46 28.9% 1.34 1.60 19.0% 1.54 1.66 8.0% 1.86 1.93 3.6% Earnings beat fuelled by investment income, decent commercial momentum and rising margins
COMI 35.57 44.21 24.3% 3.74 3.79 1.5% 4.29 4.55 6.0% 5.03 5.16 2.6% Revised loan estimates down for FY12e but compensated by spiking margins
HDBK 12.99 14.20 9.3% 1.26 1.22 (3.3%) 1.83 1.77 (2.8%) 2.28 2.21 (2.9%) Vulnerable to a deterioration in asset quality
NSGB 32.83 39.94 21.7% 3.57 3.56 (0.1%) 3.84 3.86 0.6% 4.45 4.48 0.6% Improved cost efficiency but provisions yet to increase
EGBE 1.09 1.16 6.1% 0.08 0.10 24.7% 0.09 0.11 17.1% 0.11 0.11 6.4% Higher margins and improved cost efficiency but remains significantly underprovisioned
HRHO 16.64 16.64 -- 0.87 0.87 -- 1.00 1.00 -- 1.11 1.11 -- Qinvest still uncertain, IB continues to be a drag
AUDI 7.28 7.28 0.0% 1.42 1.12 (21.1%) 1.00 1.01 0.7% 1.13 1.14 0.8% Overestimated gains from sale of insurance
BLOM 10.99 10.46 (4.8%) 1.55 1.47 (5.0%) 1.59 1.52 (4.6%) 1.81 1.74 (4.1%) Lacklustre Fy12e with continued conservative provisioning
BYB 1.53 1.44 (6.0%) 0.25 0.25 0.7% 0.27 0.26 (4.8%) 0.31 0.30 (4.1%) Flat earnings with lower loan growth estimates
BOB 10.53 10.49 (0.4%) 1.85 1.42 (23.1%) 2.04 1.63 (20.1%) 2.28 1.90 (16.9%) Massively underprovisioned with lower loan and deposit estimates
ARNB 39.04 38.50 (1.4%) 2.78 2.79 0.3% 3.31 3.24 (2.3%) 3.84 3.84 0.0% No significant changes
RJHI 100.49 94.85 (5.6%) 5.65 5.69 0.7% 6.52 6.43 (1.4%) 7.39 7.09 (4.0%) Lower margins on new retail book
BSFR 40.89 37.05 (9.4%) 3.43 3.32 (3.1%) 3.60 3.60 (0.0%) 3.79 3.78 (0.3%) Lower NII and fee generation, coupled with higher cost of equity
RIBL 33.09 32.43 (2.0%) 2.30 2.29 (0.2%) 2.49 2.45 (1.5%) 2.82 2.79 (0.9%) No significant changes
SAMBA 65.63 64.67 (1.5%) 5.09 4.99 (2.0%) 5.51 5.42 (1.6%) 6.16 6.01 (2.5%) Conservative loan loss charges, higher than expected
SABB 37.08 37.02 (0.2%) 2.51 2.51 0.0% 3.85 3.85 0.0% 4.19 4.18 (0.3%) Higher operating profits offset by higher provisioning
AAAL 38.31 37.26 (2.7%) 2.93 2.88 (1.9%) 3.12 3.03 (3.0%) 3.46 3.42 (1.1%) No significant changes
ALBI 30.94 35.97 16.3% 2.91 3.28 12.7% 2.15 2.60 21.1% 2.52 3.00 19.2% Earnings beat on the back of higher fee generation and margins
BJAZ 22.12 22.75 2.9% 1.60 1.61 0.3% 1.89 1.94 2.4% 2.22 2.28 2.6% Negative earnings surprise as a result of higher costs and provisioning charges
SIBC 19.77 19.59 (0.9%) 1.54 1.41 (8.6%) 1.71 1.67 (2.2%) 1.95 1.93 (1.2%) Higher loan loss charges
ALINMA 15.44 15.44 (0.0%) 0.43 0.43 0.6% 0.67 0.67 0.2% 0.94 0.94 (0.1%) No significant changes
Key reasonsEPS FY12eTP EPS FY13e EPS FY14e
July 4 2012
Region – Banks
July 9 2012
Banks
Banks © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 68
Exhibit 150: TP and EPS revision (Continued)
Source: Bloomberg, Arqaam Capital Research
Previous New ∆ Old New ∆ Old New ∆ Old New ∆
NBK 1.12 1.09 (2.8%) 0.07 0.07 (0.9%) 0.07 0.08 2.3% 0.08 0.08 (0.5%) Consolidating financials after 58.34% ownership in Boubyan.
KFIN 0.60 0.59 (0.3%) 0.04 0.04 (10.1%) 0.05 0.05 2.1% 0.08 0.08 1.5% Higher provisions and lower interest income on the back of slightly lower loan growth.
GBK 0.34 0.34 (0.9%) 0.02 0.01 (21.9%) 0.02 0.02 2.7% 0.02 0.02 1.1% Higher loan loss charges
BURG 0.60 0.60 (1.0%) 0.04 0.04 1.1% 0.05 0.05 (1.1%) 0.06 0.05 (1.1%) Despite higher LLPs in Q2, in line with our forecast.
BOUBYAN 0.28 0.29 2.0% 0.01 0.01 (15.7%) 0.02 0.01 (3.5%) 0.02 0.02 (7.8%) Loan loss provisioning higher than expected.
BKMB 0.89 0.80 (9.0%) 0.07 0.07 1.0% 0.08 0.07 (6.6%) 0.09 0.08 (8.6%) Lower NIMs, higher number of shares
BKSB 0.15 0.15 1.7% 0.01 0.02 16.2% 0.02 0.02 2.3% 0.02 0.02 1.2% Higher interest income on the back of higher loan book growth and strong Q2 numbers.
OIBB 0.22 0.22 -- 0.02 0.02 -- 0.02 0.02 -- 0.02 0.02 -- No major surprises for HSBS Oman reporting below our estimate despite synergies with HSBC.
AUB 0.63 0.634 -- 0.07 0.07 -- 0.08 0.08 -- 0.09 0.09 -- In line with our estimates, no major surprises
SHUAA 0.63 0.628 -- (0.03) -0.03 -- (0.01) -0.01 -- 0.00 0.00 -- No major surprises
DFM 0.74 0.736 -- 0.01 0.01 -- 0.02 0.02 -- 0.03 0.03 -- No major surprises
SALAMA 0.93 0.817 (12.3%) 0.05 0.04 (22.9%) 0.10 0.09 (16.1%) 0.11 0.08 (25.1%) Drop in GWP and higher claims in family takaful and non-motor segment
QATI 94.90 85.330 (10.1%) 6.44 6.26 (2.8%) 8.07 7.26 (10.1%) 7.91 7.47 (5.5%) Rising claims from New Zeeland quake
TAWUNIYA 61.10 52.784 (14.6%) 4.70 3.88 2.1% 5.33 4.85 (9.0%) 6.50 6.23 (1.7%) higher than anticiapted net loss ratio in medical segment
MEDGULF 24.60 19.274 (21.7%) 2.23 0.91 (58.9%) 2.56 1.82 (28.9%) 3.35 2.71 (19.2%) Soaring net loss ratios in medical and motor segments
Key reasonsEPS FY12eTP EPS FY13e EPS FY14e
July 4 2012
Banks
Banks © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 69
Exhibit 151: RORWA FY 12e vs. FY 12-15e Loan CAGR
Source: Company Data, Arqaam Capital Research
Exhibit 152: P/E FY 15e vs. P/tNAV FY 12e
Source: Company Data, Arqaam Capital Research
ADCBADIB
CBD
DIBEMIRATES
FGBNBAD
UNB
TAMWEEL
MASQ
RAKBANK
CBQK
DHBK
QIBK
QNBK
MARK
KCBK
QIIKCIEB
COMI
HDBK
NSGB
EGBEAUDI
BLOM
BYB BOB
ARNB
RJHI
BSFR
RIBL
SAMBA
SABB
AAAL
ALBI
BJAZ
SIBCALINMA
NBK
KFIN
GBK BURGBOUBYAN
BKMB
BKSB
HBMO
AUB
0%
1%
2%
3%
4%
5%
6%
0% 5% 10% 15% 20% 25% 30% 35%
High returns, low growth
Low returns, high growth
Low returns, low growth
Sweet SpotHigh returns, low growth
Low returns, high growth
Low returns, low growth
ADCB ADIB
CBD
DIB
EMIRATES
FGB
NBAD
UNB
TAMWEEL
MASQ
CBQK
DHBK
QIBK
QNBK
MARK
KCBK
QIIK
CIEBCOMI
HDBK
NSGB
EGBE
AUDI
BLOM
BYB
BOB
ARNB
RJHI
BSFR
RIBL
SAMBA
SABB
AAAL
ALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG
BKMB
BKSB
OIBB
AUB
HRHO
SALAMA
QATI
TAWUNIYA
MEDGULF
3.0x
5.0x
7.0x
9.0x
11.0x
13.0x
15.0x
0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x 3.5x
Expensive
Cheap
July 4 2012
Banks
Banks © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 70
Exhibit 153: P/tNAV12e vs. RoRWA12e
Source: Company Data, Arqaam Capital Research
ADCBADIB
CBD
DIB
EMIRATES
FGB
NBAD
UNB
TAMWEEL
MASQ
CBQK
DHBK
QIBK
QNBK
MARK
KCBK
QIIK
CIEB COMI
HDBK
NSGB
EGBE
AUDI
BLOM
BYB
BOB
ARNB
RJHI
BSFRRIBL
SAMBA
SABB
AAAL
ALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG
BOUBYAN
BKMB
BKSB
OIBB
AUB
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
0% 1% 2% 3% 4% 5% 6%
Expensive
Cheap
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Christine Kalindjian Arqaam Capital Research Offshore s.a.l.
Commercial International Bank Our top pick in Egypt
Price Performance
60
72
84
96
108
120
Sep/11 Dec/11 Mar/12 Jun/12
COMI EY EGX
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
BUY
Banks / EGYPT Bloomberg code COMI EY
Market index EGX
Price target (local) 44.2
Upside (%) 34.4
Market data 11/09/2012
Last closing price 32.9
52 Week range 18.5-34.8
Market cap (EGP mn) 19,637
Market cap (USD mn) 3,223
Average daily volume (EGP mn) 28.9
Average daily volume (USD mn) 4.8
Year-end (local mn) 2011 2012e 2013e 2014e
Revenues 4,035 5,056 5,642 6,412
Pre-provision Operating Profit
2,337 3,424 3,840 4,369
EPS 2.72 3.79 4.55 5.16
P/E (x) (mkt price) 12.1 8.7 7.2 6.4
BVPS 14.73 18.18 21.22 24.81
Tangible BVPS 14.00 18.00 21.07 24.70
P/B (x) (mkt price) 2.2 1.8 1.5 1.3
P/TBVPS (x) ((mkt price) 2.3 1.8 1.6 1.3
DPS 1.00 1.10 1.20 1.25
Div. yield (%) 3.0 3.3 3.7 3.8
RoAA (%) 2.0 2.5 2.6 2.5
RoRWA (%) 2.6 3.2 3.4 3.3
RoAE (%) 19.6 23.3 23.3 22.5
Loan/ Deposit ratio (%) 57.5 59.6 61.9 66.7
Risk weighted assets (bn) 55 64 72 86
Core Equity Tier 1 ratio (%)
13.4 15.2 15.8 15.9
Tier 1 capital ratio (%) 12.5 13.5 13.9 13.8
Total capital ratio (%) 14 15 15 15
NPL ratio (%) 2.8 3.1 3.1 3.0
Coverage ratio (%) 120.6 121.0 125.4 127.8
TP upped to EGP 44.2 from 35.6, 34% upside,
despite rally, due to lower macro risk, higher NIMs,
and an expected upturn in corporate loan demand,
controlled provisioning and improved efficiency:
24% FY11-15 CAGR in net profits.
Best positioned to capture corporate loan growth
and still at significant discount to sector despite
fully justified re-rating.
We have increased our EPS estimates for FY12e by 1.5% and by 3.6%
for FY13e-FY15e on the back of an improvement in cost efficiency and
higher margin forecasts (an addition of 29bps for FY 12e), partly offset
by lower loan growth estimates for FY 12e.
Spike in margins covers for stagnant lending activity: Sluggish loan
growth in H1 12A, slightly down YTD (mainly due to interbank lending),
while deposits rose 7% YTD. We have lowered our loan growth
estimates and forecast 5%-7% growth for FY 12e, mainly on the back
of a pickup in corporate demand in Q4 12e. CIB maintained the
highest loan market share of all private-sector banks at 8.45% as of
Jun 12A.
No asset quality concerns: We increase our loan loss charge estimates
by 5bps to 75bps for FY 12e but we are not concerned about the
bank’s credit quality as it remains well covered due to its prudent risk
management. Annualized loan loss charges in Q2 12A amounted to
133bps vs. only 16bps in Q1 12A, 206bps in Q2 11A. With impaired
loans ratio almost flat y/y, coverage climbed even higher to 159% from
147% in Q2 11A.
We reiterate CIB as a Core Buy: The bank is trading at a P/E13e of
7.2x, P/tNAV12e of 1.8x with an annualized ROAE of 24.5%, already up
c23% post initiation, but still trading at a 16% earnings discount to the
sector. We strongly reiterate COMI as a Core Buy and our top pick in
Egypt given its strong and improving fundamentals (stronger margins,
still strong y/y loan growth, cost of risk remaining under control, solid
liquidity, solid capital position with CT1 13e at 14.3% (Basel 3), highest
RORWA among coverage forecasted at 3.2% for FY 12e and cheap
multiples (strong discount to the sector). We are just beginning to see
foreign interest in the Egyptian markets.
EGP 44.2
September 12 2012
Commercial Internation Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 72
Abacus Arqaam Capital Fundamental Data
Profitability
NIM
Credit Quality
Capital Ratios
Growth
4.71%
4.22%
5.34% 5.30% 5.10% 5.24%
0.01%0.58% 0.54% 0.50% 0.50%
0.54%
3.68%
2.57%3.19% 3.39%
3.33% 3.40%
0%
1%
2%
3%
4%
5%
6%
FY10 FY11 FY12e FY13e FY14e FY15e
PPP/RWA Cost of risk/RWA RORWA
3.38% 3.48%
4.22% 4.02% 3.80% 3.77%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
FY10 FY11 FY12e FY13e FY14e FY15e
Net interest margin
2.8%
2.9%
3.0%
3.1%
3.2%
110%
115%
120%
125%
130%
135%
140%
FY12e FY13e FY14e FY15e
NPL Cov ratio (%) NPL as % of tot loans
15.7%
12.5%13.5% 13.9%
13.8% 13.9%
16.9%
13.8%14.8% 15.1% 15.1% 15.1%
10%
12%
14%
16%
18%
FY10 FY11 FY12e FY13e FY14e FY15e
Core Tier 1 (Base III) Tier 1 CAR
28%
17%
7%
13%18%
18%16% 13%
3%9% 10%
18%
0%
20%
40%
FY10 FY11 FY12e FY13e FY14e FY15e
Loan growth Deposit growth
Commercial Internation Bank
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Net Interest Margin (%) 3.38 3.48 4.22 4.02 3.80 3.77
Cost/Income (%) 42.6 42.1 32.3 32.0 31.9 30.7
Net Interest Income/ total income (%) 56.6 66.7 73.3 71.8 70.5 70.5
Fees and commissions / Operating income (%) 21.4 20.9 17.5 18.2 19.1 19.2
Trading gains / Operating income (%) 13.6 5.7 4.3 5.0 5.0 4.9
RoAE (%) 27.8 19.6 23.3 23.3 22.5 22.9
Pre Prov.ROE (%) 26.0 22.4 26.6 26.2 25.5 26.2
RoAA (%) 2.9 2.0 2.5 2.6 2.5 2.5
Revenue / RWA (%) 8.21 7.29 7.88 7.78 7.49 7.56
Costs / RWA (%) 3.50 3.07 2.54 2.49 2.39 2.32
PPP / RWA (%) 4.71 4.22 5.34 5.30 5.10 5.24
Cost of risk / RWA (%) 0.01 0.58 0.54 0.50 0.50 0.54
RoRWA (%) 3.68 2.57 3.19 3.39 3.33 3.40
RoRWA (%) (adjusted for gross-up of associate) 3.59 2.51 3.12 3.31 3.25 3.32
Year-end 2010 2011 2012e 2013e 2014e 2015e
Asset Quality
Charge offs / Avg gross loans (%) — 0.8 0.8 0.7 0.7 0.7
NPL/Gross Loans (%) 2.8 2.8 3.1 3.1 3.0 2.9
Provision coverage (%) 125.4 120.6 121.0 125.4 127.8 134.4
Provision/Avg gross loans (%) 3.6 3.0 3.2 3.3 3.3 3.2
Loan Loss Charge/Operating Income (%) 0.3 13.7 10.1 9.5 9.8 10.3
Year-end 2010 2011 2012e 2013e 2014e 2015e
Funding and Liquidity
Net loans/Deposits (%) 55.5 57.5 59.6 61.9 66.7 66.7
Cash and Interbank / assets (%) 15.1 14.8 15.5 11.7 5.4 5.9
Deposits/Liabilities (%) 94.8 93.1 86.5 80.3 73.8 73.1
Year-end 2010 2011 2012e 2013e 2014e 2015e
Capital and leverage ratios
Core Tier 1 ratio (Basel III) (%) 17.3 13.4 15.2 15.8 15.9 16.2
Tier 1 ratio (%) 15.7 12.5 13.5 13.9 13.8 13.9
Total capital ratio (%) 16.9 13.8 14.8 15.1 15.1 15.1
Tangible equity / assets (%) 11.4 10.3 11.3 11.3 11.1 11.0
RWA / assets (%) 64.4 64.7 67.0 64.7 64.2 63.3
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Asset growth (%) 17.4 13.4 12.0 17.0 19.0 19.0
Net loan growth (%) 28.2 16.7 6.7 12.9 18.0 18.0
Deposit growth (%) 15.9 12.8 2.8 8.7 9.6 18.0
Net income growth (%) 13.4 (20.1) 39.5 19.9 13.4 19.9
September 12 2012
Commercial Internation Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 73
Abacus Arqaam Capital Fundamental Data
Company Profile
Established in 1975, Commercial International Bank is the largest privately owned bank in Egypt with EGP 86.5bn in total assets, 9% lending market share and 7% deposit market share. The bank operates a network of 110 branches employing over 4,495 employees and provides commercial and investment banking services with c90% in corporate lending. CIB is 62% held by the public with the bank of New York Mellon and Actis CIB Mauritius Limited owning 9.5% and 9.2% stakes respectively.
Loan Breakdown by Sector
Loan Breakdown by Country
13%
87%
Retail
Corporate
100%
Egypt
Commercial International Bank
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (EGPmn)
Interest income 4,525 5,471 7,549 8,066 9,085 10,433
Interest expense 2,268 2,781 3,845 4,017 4,561 5,079
Net interest income 2,258 2,690 3,705 4,049 4,523 5,354
Fee income 854 843 885 1,027 1,222 1,454
Net Investment income 375 167 150 167 198 228
Other operating income 501 335 316 399 469 556
Total Operating Income 3,988 4,035 5,056 5,642 6,412 7,592
Total Operating expenses 1,700 1,698 1,631 1,803 2,043 2,328
Pre-provision operating profit 2,288 2,337 3,424 3,840 4,369 5,264
Net provisions 6 321 345 363 429 540
Other provisions/Impairment (106) (48) 39 — — —
Operating profit 2,388 2,064 3,041 3,476 3,940 4,724
Associates (4) (8) 5 10 13 17
Pre-tax profit 2,384 2,056 3,046 3,486 3,953 4,741
Taxation 362 442 792 784 889 1,067
Net profit 2,022 1,614 2,254 2,702 3,064 3,674
Minorities 1 (1) 2 2 3 3
Tier 1 Coupon — — — — — —
Attributable net profit 2,021 1,615 2,252 2,699 3,061 3,671
Diluted EPS 3.03 2.40 3.45 4.14 4.80 5.75
DPS 1.00 1.00 1.10 1.20 1.25 1.30
BVPS 14.52 14.73 18.18 21.22 24.81 29.31
Tangible BVPS 13.61 14.00 18.00 21.07 24.70 29.23
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (EGPmn)
Gross loans and advances 36,432 42,523 45,515 51,437 60,708 71,657
Less: Loan loss provisions 1,258 1,457 1,707 1,981 2,327 2,793
Net loans and advances 35,175 41,065 43,808 49,456 58,381 68,864
Cash and central bank 14,496 16,753 23,206 31,298 39,178 48,952
Due from banks 7,055 8,528 8,622 8,967 9,337 11,111
Investment, net 15,624 16,255 17,360 19,175 22,806 25,543
Fixed assets 708 631 777 857 941 1,029
Other assets 2,367 2,302 2,026 2,331 2,737 3,224
Total assets 75,425 85,534 95,798 112,084 133,380 158,722
Customer deposits 63,364 71,468 73,502 79,862 87,506 103,257
Due to banks 1,322 3,341 8,380 16,468 27,944 34,821
Debt 129 99 142 174 206 238
Other liabilities 1,996 1,840 2,937 2,937 2,937 2,937
Total liabilities 66,812 76,748 84,960 99,441 118,593 141,254
Total Equity 8,614 8,786 10,838 12,643 14,787 17,468
Risk weighted assets (bn) 49 55 64 72 86 100
Average interest-earning assets 66,751 77,353 87,681 100,827 119,173 141,946
Average interest-paying liabilities 60,008 69,862 78,466 89,264 106,080 126,987
Common shareholder’s equity 8,030 8,310 10,680 12,503 14,657 17,347
Core Equity Tier 1 (Basel III) 8,486 7,442 9,743 11,468 13,629 16,261
Tier 1 capital 7,613 6,938 8,673 10,050 11,852 13,944
Jaap Meijer, MBA, CFA Christine Kalindjian [email protected] Arqaam Capital Research Offshore s.a.l.
+97145071744
September 12 2012
Commercial Internation Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 74
Commercial International Bank valuation (EGPmn)
Year-end 2010 2011 2012e 2013e 2014e 2015e perp subtotal % of total
1. DCF
Net profit 2,021 1,615 2,252 2,699 3,061 3,671 3,671
Other adjustments (comprehensive income and GW amortization) 93 51 168 214 192 241 241
Minus: excess return excess capital 133 80 185 247 290 361 361
Risk free rate 10.4% 10.4% 10.4% 10.4% 10.4% 10.4% 10.4%
Tax shelter 16.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0%
Adjusted net profit 1,795 1,484 1,899 2,238 2,578 3,069 3,069
Capital requirements 5,969 6,791 7,818 8,839 10,438 12,250 12,250
RoEcC 30.1% 21.9% 24.3% 25.3% 24.7% 25.0% 25.0%
Cost of capital 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0%
Capital charge 955 1,087 1,251 1,414 1,670 1,960 1,960
Economic profit 840 397 648 824 908 1,109 1,109
Discount factor -- -- -- 0.93 0.80 0.69 0.69
NPV of Economic Profit -- -- -- 765 727 765 765
DCF EVA Forecast period
2,257 8.6%
Perpetual growth rate (nominal GDP)
10.0%
Terminal Value
18,477
Terminal value discounted
12,749 48.6%
Required Capital
7,818 29.8%
Value of the bank operations
22,824 87.0%
2. Capital surplus/deficit
Available capital:
Shareholders’ equity 8,614 8,786 10,838 12,643 14,787 17,468
Less Goodwill & intangibles (537) (430) (110) (90) (70) (50)
Less non equity elements reported shareholders equity
Less Dividends (if included in reported equity) (590) (593) (653) (713) (744) (771)
Tangible equity 7,487 7,763 10,075 11,841 13,973 16,648
Capital needs
RWAs (Basel I in FY 11A, Basel II/III starting FY 12e) 48,599 55,367 64,152 72,495 85,593 100,437
RWAs (Basel III) 48,935 55,703 64,152 72,495 85,593 100,437
Equity as % RWA 0 0 0 0 0 0
Financial stakes 97 107 119 140 166 198
Capital Requirements 5,969 6,791 7,818 8,839 10,438 12,250
Surplus capital 1,518 972 2,258 3,001 3,536 4,397
2,258 8.6%
3. Other adjustments
Real estate losses
Corporate bond fair value losses
Equity investment losses
Under/overprovisioning not covered in forecast period
500
Level 3 assets
Total adjustments
500 1.9%
4. Dividends
653 2.5%
Total Fair Value
26,235 100.0%
Fully diluted number of shares
593
Fair value per share
44.2
Current share price
32.9
Upside
34.4%
Implied P/E (x)
12.8 10.7
Implied P/tNAV (x)
2.46 2.10
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Christine Kalindjian Arqaam Capital Research Offshore s.a.l.
National Societe Generale Bank QNB has other options
HOLD
Banks / EGYPT Bloomberg code NSGB EY
Market index EGX
Price target (local) 39.9
Upside (%) 0.2
Market data 11/09/2012
Last closing price 39.9
52 Week range 16.8-42.1
Market cap (EGP mn) 17,653
Market cap (USD mn) 2,897
Average daily volume (EGP mn) 3.1
Average daily volume (USD mn) 0.5
Year-end (local mn) 2011 2012e 2013e 2014e
Revenues 3,096 3,534 3,811 4,303
Pre-provision Operating Profit
2,046 2,390 2,562 2,935
EPS 3.36 3.56 3.86 4.48
P/E (x) (mkt price) 11.9 11.2 10.3 8.9
BVPS 16.63 18.95 21.46 24.37
Tangible BVPS 16.42 18.74 21.25 24.16
P/B (x) (mkt price) 2.4 2.1 1.9 1.6
P/TBVPS (x) ((mkt price) 2.4 2.1 1.9 1.7
DPS 1.25 1.25 1.35 1.57
Div. yield (%) 3.1 3.1 3.4 3.9
RoAA (%) 2.4 2.4 2.3 2.3
RoRWA (%) 3.2 2.8 2.7 2.7
RoTE (%) 21.6 20.3 19.3 19.7
Loan/ Deposit ratio (%) 67.9 68.6 69.7 67.5
Risk weighted assets (bn) 43 51 58 68
Core Equity Tier 1 ratio (%)
13.4 14.0 14.1 13.9
Tier 1 capital ratio (%) 12.8 12.5 12.7 12.5
Total capital ratio (%) 15 13 13 13
NPL ratio (%) 3.0 3.5 3.3 3.1
Coverage ratio (%) 101.3 94.8 100.6 97.7
TP upped to EGP 39.9 from EGP 36.5, including a
large take-over/control premium
We forecast a 12% FY11e-15e net profit CAGR.
The acquisition of NSGB should lead to attractive
ROI and EPS accretion for QNB, but NSGB is already
at large M&A premium.
The acquisition of NSGB should lead to attractive ROI of c10% and EPS accretion for QNB of c5-6%: We continue to see other French banks potentially willing to sell local assets, the likes of BNP’s Egyptian franchise and CAE which we view as an easier and preferred target given its smaller size, improving fundamentals and parent Credit Agricole’s larger capital hole. Profitability bound by higher provisions: NSGB's profitability is not recovering as much as its Egyptian peers as it took very light provisions in FY 11A (only 40bps) compared to other local banks and its parent company. Unlike CIB and CAE, our EPS estimates for NSGB edged down for FY 12e on the back of lower margins vs. a slight increase of c1% for FY13e-FY15e. Commercial momentum to improve: We forecast a 10% loan growth for FY12e, after a mere 2.7% YTD loan growth (driven by credit card and personal loans rising 10%, while corporate loans were up only 1%) vs. 3.5% for the sector while deposits slipped 0.3% YTD. We forecast L/D at c69%, among highest in our coverage but still providing room for growth. NSGB currently has a 7.4% lending market share. Loan loss charges spike as expected: We expect 100bps in provision charges for FY 12e vs. 40bps in FY11A. Provisions were up in H1 12A by an annualized 140bps vs. only 25bps in H1 11A, covering for the rise in NPL to 3.34% from 3.04% YE 11A and the very low provision costs in FY 11A. QNB could pay less than the current share price: We think the shares are fully valued (note that NSGB recently issued 10% bonus shares) at a P/E13e of 10.3x, a P/tNAV12e of 2.13x and a FY 12e ROATE of 20.3%. The stock is up c33% since initiation and 26% post announcement of QNB’s interest on Aug 30, and SocGen and QNB could agree on a price below the current market capitalization. NSGB’s acquisition could unlock value for QNB’s surplus capital base and ease NSGB’s growth potentials given the tight capital position of parent company SocGen.
EGP 39.9
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Price Performance
64
83
102
121
140
159
178
Sep/11 Dec/11 Mar/12 Jun/12
NSGB EY EGX
September 12 2012
National Societe Generale Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 76
Abacus Arqaam Capital Fundamental Data
Profitability
NIM
Credit Quality
Capital Ratios
Growth
4.15% 4.79% 4.67% 4.40%4.35% 4.37%
0.01%0.62% 0.78% 0.63% 0.57% 0.67%
3.18% 3.17% 2.84% 2.71% 2.71% 2.66%
0%
1%
2%
3%
4%
5%
6%
FY10 FY11 FY12e FY13e FY14e FY15e
PPP/RWA Cost of risk/RWA RORWA
3.43%3.56%
4.02%
3.79%3.72% 3.70%
3.0%
3.2%
3.4%
3.6%
3.8%
4.0%
4.2%
FY10 FY11 FY12e FY13e FY14e FY15e
Net interest margin
2.6%
2.8%
3.0%
3.2%
3.4%
3.6%
90%
92%
94%
96%
98%
100%
102%
FY12e FY13e FY14e FY15e
NPL Cov ratio (%) NPL as % of tot loans
12.7% 12.8% 12.5% 12.7% 12.5% 12.1%
15.4% 14.8%12.9% 13.0% 12.8% 12.3%
10%
14%
18%
22%
26%
FY10 FY11 FY12e FY13e FY14e FY15e
Core Tier 1 (Base III) Tier 1 CAR
18% 12%9%
14%16%
18%15%
3% 8%12%
20%
18%
0%
20%
40%
FY10 FY11 FY12e FY13e FY14e FY15e
Loan growth Deposit growth
National Societe Generale Bank
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Net Interest Margin (%) 3.43 3.56 4.02 3.79 3.72 3.70
Cost/Income (%) 32.1 33.9 32.4 32.8 31.8 30.2
Net Interest Income/ total income (%) 66.0 68.8 72.8 71.8 71.7 72.3
Fees and commissions / Operating income (%) 23.9 23.2 22.5 23.6 23.7 23.4
Trading gains / Operating income (%) 3.2 2.4 1.3 1.3 1.3 1.3
RoTE (%) 22.7 21.6 20.3 19.3 19.7 20.1
Pre Prov.ROE (%) 20.5 23.3 25.1 23.2 23.3 24.5
RoAA (%) 2.3 2.4 2.4 2.3 2.3 2.3
Revenue / RWA (%) 7.50 7.25 6.90 6.55 6.37 6.26
Costs / RWA (%) 3.35 2.46 2.23 2.15 2.03 1.89
PPP / RWA (%) 4.15 4.79 4.67 4.40 4.35 4.37
Cost of risk / RWA (%) 0.01 0.62 0.78 0.63 0.57 0.67
RoRWA (%) 3.18 3.17 2.84 2.71 2.71 2.66
RoRWA (%) (adjusted for gross-up of associate) 3.09 3.07 2.77 2.64 2.64 2.59
Year-end 2010 2011 2012e 2013e 2014e 2015e
Asset Quality
Charge offs / Avg gross loans (%) (0.2) 0.4 1.0 0.8 0.7 0.9
NPL/Gross Loans (%) 3.4 3.0 3.5 3.3 3.1 3.0
Provision coverage (%) 93.8 101.3 94.8 100.6 97.7 99.3
Provision/Avg gross loans (%) 3.8 2.9 2.8 2.9 2.8 2.6
Loan Loss Charge/Operating Income (%) (4.5) 6.7 16.7 14.2 13.1 15.2
Year-end 2010 2011 2012e 2013e 2014e 2015e
Funding and Liquidity
Net loans/Deposits (%) 62.6 67.9 68.6 69.7 67.5 67.6
Cash and Interbank / assets (%) 14.7 15.8 16.9 17.1 19.5 19.0
Deposits/Liabilities (%) 92.3 93.7 91.7 90.2 93.1 92.7
Year-end 2010 2011 2012e 2013e 2014e 2015e
Capital and leverage ratios
Core Tier 1 ratio (Basel III) (%) 13.4 13.4 14.0 14.1 13.9 13.5
Tier 1 ratio (%) 12.7 12.8 12.5 12.7 12.5 12.1
Total capital ratio (%) 15.4 14.8 12.9 13.0 12.8 12.3
Tangible equity / assets (%) 10.9 11.8 12.1 12.0 11.8 11.4
RWA / assets (%) 62.8 68.2 73.8 73.5 73.5 73.5
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Asset growth (%) 14.4 2.7 11.0 14.0 16.0 18.0
Net loan growth (%) 18.0 12.0 9.4 14.1 16.3 18.1
Deposit growth (%) 14.6 3.2 8.2 12.3 20.1 18.0
Net income growth (%) 3.5 11.3 6.1 8.4 16.0 15.8
September 12 2012
National Societe Generale Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 77
Abacus Arqaam Capital Fundamental Data
Company Profile
Incorporated in 1978, National Societe Generale Bank is the 2
nd largest listed bank in Egypt with EGP
63.6bn in total assets with 83% of loan book in corporate lending. NSGB has a lending market share of 7.4% and a deposit market share of 5%. Headquartered in Cairo, the bank operates 161 branches employing 4,200 employees and provides retail and corporate banking services. Parent company Groupe Societe Generale owns a majority stake in the bank with a 77% holding.
Loan Breakdown by Sector
Loan Breakdown by Country
18%
82%
Retail
Corporate
100%
Egypt
National Societe Generale Bank
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (EGPmn)
Interest income 3,866 4,420 5,180 5,479 6,253 7,329
Interest expense 1,970 2,291 2,606 2,744 3,166 3,724
Net interest income 1,896 2,129 2,574 2,735 3,086 3,604
Fee income 685 718 797 900 1,022 1,165
Net Investment income 71 55 24 27 31 36
Other operating income 219 194 140 149 164 182
Total Operating Income 2,871 3,096 3,534 3,811 4,303 4,987
Total Operating expenses 1,283 1,050 1,144 1,248 1,368 1,506
Pre-provision operating profit 1,588 2,046 2,390 2,562 2,935 3,481
Net provisions (71) 138 399 364 386 530
Other provisions/Impairment 75 128 — — — —
Operating profit 1,584 1,781 1,991 2,198 2,550 2,951
Associates 7 21 10 12 14 16
Pre-tax profit 1,591 1,802 2,001 2,210 2,563 2,967
Taxation 253 312 420 497 577 668
Net profit 1,338 1,490 1,581 1,713 1,987 2,300
Minorities — — — — — —
Tier 1 Coupon — — — — — —
Attributable net profit 1,338 1,490 1,581 1,713 1,987 2,300
Diluted EPS 2.74 3.05 3.56 3.86 4.48 5.18
DPS 1.03 1.25 1.25 1.35 1.57 1.81
BVPS 14.93 16.63 18.95 21.46 24.37 27.74
Tangible BVPS 14.69 16.42 18.74 21.25 24.16 27.53
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (EGPmn)
Gross loans and advances 32,387 36,216 39,703 45,281 52,539 62,007
Less: Loan loss provisions 1,042 1,117 1,317 1,481 1,592 1,847
Net loans and advances 31,345 35,099 38,386 43,800 50,947 60,160
Cash and central bank 17,503 14,923 15,624 18,001 20,838 24,672
Due from banks 4,724 4,977 6,943 7,915 9,182 10,835
Investment, net 5,612 5,676 6,492 7,243 8,401 9,914
Fixed assets 700 793 852 914 978 1,046
Other assets 1,000 1,083 1,135 1,281 1,471 1,719
Total assets 60,885 62,552 69,433 79,154 91,818 108,345
Customer deposits 50,084 51,710 55,938 62,801 75,451 89,033
Due to banks 942 110 1,482 2,898 1,112 1,915
Debt 892 961 947 947 1,032 1,125
Other liabilities 2,345 2,394 2,661 2,989 3,414 3,969
Total liabilities 54,263 55,175 61,028 69,636 81,009 96,041
Total Equity 6,621 7,377 8,404 9,518 10,809 12,304
Risk weighted assets (bn) 38 43 51 58 68 80
Average interest-earning assets 55,202 59,831 63,954 72,091 83,036 97,324
Average interest-paying liabilities 48,594 52,350 55,574 62,507 72,121 84,833
Common shareholder’s equity 6,516 7,283 8,311 9,424 10,716 12,210
Core Equity Tier 1 (Basel III) 5,536 6,137 7,178 8,231 9,407 10,768
Tier 1 capital 4,868 5,449 6,381 7,373 8,413 9,620
Jaap Meijer, MBA, CFA Christine Kalindjian [email protected] Arqaam Capital Research Offshore s.a.l.
+97145071744
September 12 2012
National Societe Generale Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 78
National Societe Generale Bank valuation (EGPmn)
Year-end 2010 2011 2012e 2013e 2014e 2015e perp subtotal % of total
1. DCF
Net profit 1,338 1,490 1,581 1,713 1,987 2,300 2,300
Other adjustments (comprehensive income) 121 138 126 137 159 184 184
Minus: excess return excess capital 88 91 122 140 144 137 137
Risk free rate 10.4% 10.4% 10.4% 10.4% 10.4% 10.4% 10.4%
Tax shelter 16.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0%
Adjusted net profit 1,129 1,260 1,332 1,436 1,683 1,979 1,979
Capital requirements 5,051 5,601 6,251 7,102 8,240 9,720 9,720
RoEcC 22.3% 22.5% 21.3% 20.2% 20.4% 20.4% 20.4%
Cost of capital 15.2% 15.2% 15.2% 15.2% 15.2% 15.2% 15.2%
Capital charge 768 851 950 1,079 1,253 1,477 1,477
Economic profit 361 409 382 357 431 502 502
Discount factor -- -- -- 0.93 0.81 0.70 0.70
NPV of Economic Profit -- -- -- 332 348 352 352
DCF EVA Forecast period
1,033 6.4%
Perpetual growth rate (GDP)
10.0%
Terminal Value
9,645
Terminal value discounted
6,772 42.0%
Required Capital
6,251 38.8%
Value of the bank operations
14,055 87.3%
2. Capital surplus/deficit
Available capital:
Shareholders’ equity 6,621 7,377 8,404 9,518 10,809 12,304
Less Goodwill & intangibles (105) (94) (94) (94) (94) (94)
Less non equity elements reported shareholders equity
Less Dividends (if included in reported equity) (458) (554) (553) (599) (695) (805)
Tangible equity 6,058 6,729 7,758 8,825 10,020 11,405
Capital needs
RWAs (Basel I in FY 11A, Basel II/III starting FY 12e) 38,264 42,687 51,223 58,193 67,520 79,643
RWAs (Basel III) 41,344 45,767 51,223 58,193 67,520 79,643
Equity as % RWA 12% 12% 12% 12% 12% 12%
Financial stakes 90 109 104 119 138 163
Capital Requirements 5,051 5,601 6,251 7,102 8,240 9,720
Surplus capital 1,006 1,128 1,507 1,723 1,780 1,686
1,507 9.4%
3. Other adjustments
Real estate losses
Corporate bond fair value losses
Equity investment losses
Under/overprovisioning not covered in forecast period
(9)
Level 3 assets
Total adjustments
(9) (0.1%)
4. Dividends
553 3.4%
Total Fair Value
16,106 100.0%
Fully diluted number of shares
444
Fair value per share
36.3
10% premium over price prior announcement
39.9
Current share price
39.9
Upside
0.0%
Implied P/E (x)
11.2 10.3
Implied P/tNAV (x)
2.1 1.9
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Christine Kalindjian Arqaam Capital Research Offshore s.a.l.
Credit Agricole Egypt Our preferred M&A candidate
BUY
Banks / EGYPT Bloomberg code CIEB EY
Market index EGX
Price target (local) 15.5
Upside (%) 28.2
Market data 11/09/2012
Last closing price 12.1
52 Week range 7.7-13.0
Market cap (EGP mn) 3,461
Market cap (USD mn) 568
Average daily volume (EGP mn) 0.2
Average daily volume (USD mn) 0.0
Year-end (local mn) 2011 2012e 2013e 2014e
Revenues 1,233 1,446 1,511 1,695
Pre-provision Operating Profit
592 751 768 885
EPS 1.07 1.60 1.66 1.93
P/E (x) (mkt price) 11.3 7.6 7.2 6.2
BVPS 6.98 7.93 8.94 10.18
Tangible BVPS 6.76 7.72 8.73 9.96
P/B (x) (mkt price) 1.7 1.5 1.3 1.2
P/TBVPS (x) ((mkt price) 1.8 1.6 1.4 1.2
DPS 0.64 0.65 0.70 0.75
Div. yield (%) 5.3 5.4 5.8 6.2
RoAA (%) 1.2 1.7 1.5 1.5
RoRWA (%) 1.9 2.3 2.1 2.2
RoAE (%) 14.9 22.0 20.2 20.7
Loan/ Deposit ratio (%) 56.5 54.3 58.2 59.6
Risk weighted assets (bn) 15 18 20 23
Core Equity Tier 1 ratio (%)
12.0 11.5 11.4 11.5
Tier 1 capital ratio (%) 11.6 10.2 10.3 10.2
Total capital ratio (%) 13 11 12 11
NPL ratio (%) 1.9 3.0 2.9 2.8
Coverage ratio (%) 163.9 110.4 116.3 123.2
TP upped to EGP 15.5 from EGP 12, 28% upside.
We forecast a 21% FY11e-15e net profit CAGR, on a
pickup in loan growth, wider NIM and lower LLP.
Credit Agricole may sell its Egyptian operations to
strengthen its own capital base like SocGen (NSGB).
FY12e earnings outlook improved: We have increased our EPS
estimates by 19% for FY 12e and c6% for FY 13e-FY15e helped by
wider NIMs. This follows the 88% y-o-y rise in H1 12A profits on the
back of the continuing upward trend in margins (an estimated 38bps
spike in FY 12e), investment income, FX gains and improving cost
efficiency. We have reduced the pay-out in line with FY 11A levels.
We have increased FY12e growth markedly: We increase our loan
and deposit growth estimates to 16% and 20% respectively for FY 12e.
YTD figures mark accelerating lending and deposit growth up 12% and
13% YTD vs. a yet stagnant sector with a mere 3.5% and 3.8% YTD
growth in loans and deposits respectively. Loan to deposit ratio
currently stands at a low 56% giving room to take on more leverage.
Improving asset quality: Loan loss charges estimates for FY 12e should
remain in check at 105bps vs. 121bps in FY 11A. Annualized loan loss
charges in Q2 12A amounted to 82 bps vs. 66 bps in Q2 11A. With
impaired loans ratio shrinking sequentially to 1.5% from 2.2% in Q2
11A, the bank’s credit quality is on its way to recovery as coverage
climbed even higher to 220% from already elevated levels.
We reiterate CAE as a take-over target: The bank trades at a P/E13e
of 7.2x, P/tNAV12e of 1.56x with a forecasted FY 12e ROATE of c21%.
The stock is up c33% since initiation but trades at a 17% earnings
discount to the sector. CAE remains among our top picks in Egypt, our
Core Buy portfolio and an eligible acquisition target particularly if QNB
fails to purchase NSGB. We see CAE as an easier target than NSGB, due
to its smaller size, a higher capital deficit of its parent company and
hence more willing to offload its majority stake and higher financial
synergies (CAE could benefit more from QNB’s capital position). On
the other hand, we do not rule out an offer of QNB for NSGB which is
below NSGB’s current market price given QNB’s interest in operations
of other banks (e.g. BNP Egypt, CAE, Arab Bank to name just a few).
EGP 15.5
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Price Performance
68
83
98
113
128
143
Sep/11 Dec/11 Mar/12 Jun/12
CIEB EY EGX
September 12 2012
Credit Agricole Egypt © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 80
Abacus Arqaam Capital Fundamental Data
Profitability
NIM
Credit Quality
Capital Ratios
Growth
4.44%
4.04%4.18%
3.75%3.80% 3.95%
0.29%0.95% 0.83% 0.72% 0.71%
0.72%
3.04%
1.90% 2.31%2.12% 2.19% 2.29%
0%
1%
2%
3%
4%
5%
FY10 FY11 FY12e FY13e FY14e FY15e
PPP/RWA Cost of risk/RWA RORWA
3.32%
3.54%
3.92%
3.77%
3.64% 3.62%
3.0%
3.2%
3.4%
3.6%
3.8%
4.0%
FY10 FY11 FY12e FY13e FY14e FY15e
Net interest margin
2.6%
2.7%
2.8%
2.9%
3.0%
3.1%
100%
110%
120%
130%
140%
FY12e FY13e FY14e FY15e
NPL Cov ratio (%) NPL as % of tot loans
13.3%11.6%
10.2% 10.3%10.2% 10.1%
14.6%12.8%
11.5% 11.5% 11.5% 11.4%
0%
5%
10%
15%
20%
FY10 FY11 FY12e FY13e FY14e FY15e
Core Tier 1 (Base III) Tier 1 CAR
30%
6%15%
15% 15%
16%8%-4%
20%
8% 13%
14%
-20%
0%
20%
40%
FY10 FY11 FY12e FY13e FY14e FY15e
Loan growth Deposit growth
Credit Agricole Egypt
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Net Interest Margin (%) 3.32 3.54 3.92 3.77 3.64 3.62
Cost/Income (%) 48.0 52.0 48.1 49.2 47.8 45.4
Net Interest Income/ total income (%) 67.8 70.5 71.1 74.9 74.9 75.2
Fees and commissions / Operating income (%) 18.3 18.2 16.6 18.0 18.2 18.2
Trading gains / Operating income (%) 7.4 4.0 4.9 2.3 2.3 2.3
RoAE (%) 21.2 14.9 22.0 20.2 20.7 21.8
Pre Prov.ROE (%) 22.0 20.9 28.1 25.8 26.2 27.5
RoAA (%) 1.9 1.2 1.7 1.5 1.5 1.6
Revenue / RWA (%) 8.54 8.43 8.04 7.39 7.29 7.23
Costs / RWA (%) 4.10 4.38 3.86 3.63 3.48 3.29
PPP / RWA (%) 4.44 4.04 4.18 3.75 3.80 3.95
Cost of risk / RWA (%) 0.29 0.95 0.83 0.72 0.71 0.72
RoRWA (%) 3.04 1.90 2.31 2.12 2.19 2.29
RoRWA (%) (adjusted for gross-up of associate) 3.04 1.90 2.31 2.12 2.19 2.29
Year-end 2010 2011 2012e 2013e 2014e 2015e
Asset Quality
Charge offs / Avg gross loans (%) 0.3 1.2 1.1 0.9 0.9 0.9
NPL/Gross Loans (%) 2.6 1.9 3.0 2.9 2.8 2.8
Provision coverage (%) 107.6 163.9 110.4 116.3 123.2 129.7
Provision/Avg gross loans (%) 2.5 2.6 2.8 2.9 2.9 3.0
Loan Loss Charge/Operating Income (%) 5.4 22.9 19.2 19.2 18.7 18.2
Year-end 2010 2011 2012e 2013e 2014e 2015e
Funding and Liquidity
Net loans/Deposits (%) 51.2 56.5 54.3 58.2 59.6 60.5
Cash and Interbank / assets (%) 14.9 17.7 20.0 14.3 11.5 10.4
Deposits/Liabilities (%) 91.2 85.8 92.0 85.3 82.8 81.4
Year-end 2010 2011 2012e 2013e 2014e 2015e
Capital and leverage ratios
Core Tier 1 ratio (Basel III) (%) 13.6 12.0 11.5 11.4 11.5 11.6
Tier 1 ratio (%) 13.3 11.6 10.2 10.3 10.2 10.1
Total capital ratio (%) 14.6 12.8 11.5 11.5 11.5 11.4
Tangible equity / assets (%) 8.8 7.8 7.9 7.7 7.6 7.5
RWA / assets (%) 52.5 57.0 62.6 61.4 60.2 60.2
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Asset growth (%) 11.0 1.2 12.0 16.0 16.0 16.0
Net loan growth (%) 30.1 6.3 15.3 15.4 15.4 15.9
Deposit growth (%) 8.4 (3.7) 19.9 7.9 12.7 14.2
Net income growth (%) 12.8 (31.1) 49.3 4.6 17.4 21.1
September 12 2012
Credit Agricole Egypt © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 81
Abacus Arqaam Capital Fundamental Data
Company Profile
Established in 2006, Credit Agricole Egypt is the 4th
largest bank in Egypt with EGP 27.4bn in total assets with 2% market share in loans and deposits. The bank operates a network of 72 branches employing over 1,997 employees. The bank provides retail, private and corporate banking services with a focus on corporate lending that comprises 76% of total loan book. CAE is majorly held by parents company Groupe Credit Agricole who owns 47% of the bank with El Mansour and El Maghraby Investment and Development Company owning a 17.5% stake.
Loan Breakdown by Sector
Loan Breakdown by Country
24%
76%
Retail
Corporate
100%
Egypt
Credit Agricole Egypt
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (EGPmn)
Interest income 1,630 1,842 2,101 2,334 2,673 3,085
Interest expense 860 973 1,072 1,202 1,403 1,616
Net interest income 770 869 1,028 1,132 1,270 1,468
Fee income 208 225 241 272 309 355
Net Investment income 75 40 62 25 29 33
Other operating income 84 99 114 83 88 96
Total Operating Income 1,136 1,233 1,446 1,511 1,695 1,953
Total Operating expenses 545 641 695 744 810 887
Pre-provision operating profit 591 592 751 768 885 1,066
Net provisions 32 136 144 148 165 194
Other provisions/Impairment 7 4 4 — — —
Operating profit 553 452 602 620 720 872
Associates — — — — — —
Pre-tax profit 553 452 602 620 720 872
Taxation 108 151 145 143 166 201
Net profit 447 307 458 478 554 672
Minorities — — — — — —
Tier 1 Coupon 42 28 42 43 44 54
Attributable net profit 404 278 416 435 510 618
Diluted EPS 1.41 0.97 1.45 1.51 1.78 2.15
DPS 1.10 0.64 0.65 0.70 0.75 0.80
BVPS 7.75 6.98 7.93 8.94 10.18 11.76
Tangible BVPS 7.54 6.76 7.72 8.73 9.96 11.55
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (EGPmn)
Gross loans and advances 11,097 11,849 13,681 15,804 18,257 21,180
Less: Loan loss provisions 310 377 453 533 630 755
Net loans and advances 10,788 11,472 13,228 15,272 17,627 20,425
Cash and central bank 7,597 5,254 5,532 6,545 7,735 9,007
Due from banks 3,077 5,003 5,748 6,667 7,734 8,972
Investment, net 2,949 2,940 3,276 3,800 4,409 5,159
Fixed assets 283 268 318 324 330 337
Other assets 658 723 637 729 836 959
Total assets 25,352 25,660 28,739 33,337 38,671 44,859
Customer deposits 21,081 20,304 24,339 26,253 29,589 33,778
Due to banks 851 2,297 1,219 3,460 5,212 6,593
Debt 41 33 — — — —
Other liabilities 1,155 1,024 904 1,057 950 1,111
Total liabilities 23,127 23,657 26,462 30,771 35,751 41,483
Total Equity 2,225 2,003 2,277 2,567 2,921 3,376
Risk weighted assets (bn) 13 15 18 20 23 27
Average interest-earning assets 23,212 24,540 26,227 30,034 34,895 40,534
Average interest-paying liabilities 20,806 22,303 24,096 27,636 32,257 37,586
Common shareholder’s equity 2,163 1,941 2,215 2,505 2,858 3,314
Core Equity Tier 1 (Basel III) 1,857 1,791 2,062 2,339 2,677 3,121
Tier 1 capital 1,768 1,696 1,834 2,105 2,384 2,731
Jaap Meijer, MBA, CFA Christine Kalindjian [email protected] Arqaam Capital Research Offshore s.a.l.
+97145071744
September 12 2012
Credit Agricole Egypt © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 82
Credit Agricole Egypt valuation (EGPmn)
Year-end 2010 2011 2012e 2013e 2014e 2015e perp subtotal % of total
1. DCF
Net profit 440 303 441 459 534 649 649
Other adjustments (comprehensive income) 42 28 41 41 43 52 52
Minus: excess return excess capital 19 (2) (10) (13) (13) (15) (15)
Risk free rate 10.4% 10.4% 10.4% 10.4% 10.4% 10.4% 10.4%
Tax shelter 20.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0%
Adjusted net profit 379 276 411 430 504 612 612
Capital requirements 1,632 1,791 2,157 2,455 2,792 3,241 3,241
RoEcC 23.2% 15.4% 19.0% 17.5% 18.1% 18.9% 18.9%
Cost of capital 15.3% 15.3% 15.3% 15.3% 15.3% 15.3% 15.3%
Capital charge 250 274 330 376 427 496 496
Economic profit 129 2 81 55 77 116 116
Discount factor -- -- -- 0.93 0.81 0.70 0.70
NPV of Economic Profit -- -- -- 51 62 81 81
DCF EVA Forecast period
194 4.7%
Perpetual growth rate (GDP)
10.0%
Terminal Value
2,183
Terminal value discounted
1,529 36.8%
Required Capital
2,157 51.9%
Value of the bank operations
3,881 93.4%
2. Capital surplus/deficit
Available capital:
Shareholders’ equity 2,225 2,003 2,260 2,538 2,879 3,320
Minorities 12 12 14 17 19 22
Less Goodwill & intangibles (62) (62) (62) (62) (62) (62)
Less non equity elements reported shareholders equity
Less Dividends (if included in reported equity) (316) (184) (181) (193) (208) (221)
Tangible equity 1,860 1,769 2,032 2,300 2,628 3,060
Capital needs
RWAs (Basel I in FY 11A, Basel II/III starting FY 12e) 13,309 14,632 17,979 20,456 23,267 27,009
RWAs (Basel III) 13,604 14,927 17,979 20,456 23,267 27,009
Equity as % RWA 12% 12% 12% 12% 12% 12%
Financial stakes -- -- -- -- -- --
Capital Requirements 1,632 1,791 2,157 2,455 2,792 3,241
Surplus capital 227 (22) (126) (155) (164) (181)
(126) (3.0%)
3. Other adjustments
Real estate losses
Corporate bond fair value losses
Equity investment losses
Under/overprovisioning not covered in forecast period
221
Level 3 assets
Total adjustments
221 5.3%
4. Dividends
181 4.4%
Total Fair Value
4,156 100.0%
Fully diluted number of shares
287
Fair value per share
14.5
Current share price
12.1
Upside
20.1%
Implied P/E (x)
10.4 10.0
Implied P/tNAV (x)
1.89 1.68
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Loubna El Hassan Arqaam Capital Research Offshore s.a.l.
Qatar National Bank Great play on public growth
BUY
Banks / Qatar Bloomberg code QNBK QD
Market index
Price target (local) 193.0
Upside (%) 44.7
Market data 11/09/2012
Last closing price 133.4
52 Week range 126.1-142.7
Market cap (QAR mn) 94,463
Market cap (USD mn) 25,944
Average daily volume (QAR mn) 20.3
Average daily volume (USD mn) 5.6
Year-end (local mn) 2011 2012e 2013e 2014e
Revenues 10,018 11,811 13,415 15,305
Pre-provision Operating Profit
8,415 9,803 11,052 12,525
EPS 10.73 12.32 14.07 15.86
P/E (x) (mkt price) 12.4 10.8 9.5 8.4
BVPS 60.05 68.43 77.34 87.32
Tangible BVPS 59.85 68.23 77.14 87.12
P/B (x) (mkt price) 2.2 1.9 1.7 1.5
P/TBVPS (x) ((mkt price) 2.2 2.0 1.7 1.5
DPS 3.64 4.80 5.49 6.19
Div. yield (%) 2.7 3.6 4.1 4.6
RoAA (%) 2.8 2.6 2.5 2.4
RoRWA (%) 4.7 4.7 4.7 4.6
RoTE (%) 22.3 18.8 18.9 18.8
Loan/ Deposit ratio (%) 96.9 97.5 97.3 97.2
Risk weighted assets (bn) 156 180 205 237
Core Equity Tier 1 ratio (%)
21.2 21.4 21.5 21.4
Tier 1 capital ratio (%) 22.0 21.9 22.2 21.7
Total capital ratio (%) 22 22 22 22
NPL ratio (%) 1.1 1.2 1.3 1.5
Coverage ratio (%) 118.9 124.0 128.7 123.2
We have recemtly increased our EPS estimates for FY12e by 1% and
by 4% for FY13e-FY15e on the back of much stronger than expected
loan growth for FY12e, partly offset by pressure on asset yields
margins and slower growth in fees & commissions.
Very strong commercial momentum: We increase our FY loan growth
forecast to as much as 28% (from 11%) for FY 12e, post the loan
growth acceleration recorded in Q2 12A (56% y/y, 17% q/q and 21%
Ytd), which is extremely impressive considering the strong growth of
47% recorded in FY11. We expect QNB to continue outpacing the
sector and to marginally increase its market shares in H1 12A,
supported by its strong capital base and capital generation. Even
though the Qatari banks sector is well capitalized as a whole, CBQ and
Doha are not. In particular, we expect QNB to grow at the expense of
these banks, if the banks fail to address their capital deficits.
NIM should pick up in Q3 12e: Note that most of Q2 12A lending
growth took place late in June which may explain part of the NIM
compression of 24bps recorded in Q2 12A. We should thus expect the
corresponding improvement in NIM to hit Q3 and Q4 12A. We expect
loan growth to continue outpacing deposits, though QNB enjoys
strong access to deposits outside Qatar.
Fees & commissions: Since QNB amortizes commissions over the life
of the loan book, we should not expect a sharp increase in fees &
commissions on the back of high lending growth.
Asset quality to remain excellent: We expect QNB asset quality to
remain excellent and average loan loss charges should remain in check
at c 55bps. The average risk weighting of assets also dropped from
52% of assets to 51% of assets by H1-12. The strong growth hardly
affects QNB’s capital ratios thanks to its strong capital generation.
Cheapest Qatari bank: We recentlty increase our TP by 2% to QAR 193
(slightly less than the EPS increase, due to the higher capital
requirements stemming from the strong growth). QNB is trading at
P/E 13e of 9.5x and P/tNAV12 of 1.9x (vs. an RoE of 18.8%), in line
with the sector. If QNB uses the excess capital for M&A, P/E13e falls to
8x; if it uses it for organic growth to just 6x. QNB is one of the best
capitalized bank and is exposed to the sweet spot – high growth
coupled with a high RORWA. The acquisition of NSGB would unlock
11-16% value in a typical Gordon growth model.
QAR 193.0
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Price Performance
87
93
99
105
111
117
Sep/11 Dec/11 Mar/12 Jun/12
QNBK QD
September 12 2012
Qatar National Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 84
Abacus Arqaam Capital Fundamental Data
Profitability
NIM
Credit Quality
Capital Ratios
Growth
5.45%
5.38%5.45% 5.38%
5.28% 5.28%
0.54% 0.64% 0.77% 0.71% 0.73% 0.87%
4.99% 4.70% 4.67% 4.67%4.56% 4.42%
0%
1%
2%
3%
4%
5%
6%
FY10 FY11 FY12e FY13e FY14e FY15e
PPP/RWA Cost of risk/RWA RORWA
2.95%3.08%
2.95%2.86% 2.80% 2.80%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
3.4%
FY10 FY11 FY12e FY13e FY14e FY15e
Net interest margin
0.0%
0.5%
1.0%
1.5%
2.0%
115%
120%
125%
130%
FY12e FY13e FY14e FY15e
NPL Cov ratio (%) NPL as % of tot loans
15.3%
22.0% 21.9% 22.2% 21.7% 21.2%15.3%
22.0% 21.9% 22.2% 21.7% 21.2%
10%
14%
18%
22%
26%
FY10 FY11 FY12e FY13e FY14e FY15e
Core Tier 1 (Base III) Tier 1 CAR
21%
47%
28%16%
19%
20%
31%21%
27%
16% 19%
20%
0%
20%
40%
60%
FY10 FY11 FY12e FY13e FY14e FY15e
Loan growth Deposit growth
Qatar National Bank
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Net Interest Margin (%) 2.95 3.08 2.95 2.86 2.80 2.80
Cost/Income (%) 17.5 16.0 17.0 17.6 18.2 18.2
Net Interest Income/ total income (%) 76.8 77.8 79.6 79.0 78.8 79.3
Fees and commissions / Operating income (%) 15.2 12.9 12.1 12.2 12.4 12.3
Trading gains / Operating income (%) 2.9 3.7 2.8 2.9 2.6 2.1
RoTE (%) 25.4 22.3 18.8 18.9 18.8 18.9
Pre Prov.ROE (%) 27.9 25.3 21.8 21.7 21.8 22.6
RoAA (%) 2.8 2.8 2.6 2.5 2.4 2.3
Revenue / RWA (%) 6.60 6.41 6.57 6.53 6.45 6.46
Costs / RWA (%) 1.15 1.02 1.12 1.15 1.17 1.18
PPP / RWA (%) 5.45 5.38 5.45 5.38 5.28 5.28
Cost of risk / RWA (%) 0.54 0.64 0.77 0.71 0.73 0.87
RoRWA (%) 4.99 4.70 4.67 4.67 4.56 4.42
RoRWA (%) (adjusted for gross-up of associate) 3.28 3.42 3.47 3.56 3.56 3.55
Year-end 2010 2011 2012e 2013e 2014e 2015e
Asset Quality
Charge offs / Avg gross loans (%) 0.4 0.6 0.6 0.5 0.5 0.6
NPL/Gross Loans (%) 1.0 1.1 1.2 1.3 1.5 1.7
Provision coverage (%) 117.7 118.9 124.0 128.7 123.2 121.7
Provision/Avg gross loans (%) 1.2 1.4 1.5 1.7 1.8 2.1
Loan Loss Charge/Operating Income (%) 8.8 12.3 14.1 13.2 13.9 16.4
Year-end 2010 2011 2012e 2013e 2014e 2015e
Funding and Liquidity
Net loans/Deposits (%) 79.6 96.9 97.5 97.3 97.2 97.0
Cash and Interbank / assets (%) 19.8 3.1 — 1.1 5.3 6.6
Deposits/Liabilities (%) 83.3 77.2 82.7 83.2 83.3 84.2
Year-end 2010 2011 2012e 2013e 2014e 2015e
Capital and leverage ratios
Core Tier 1 ratio (Basel III) (%) 14.6 21.2 21.4 21.5 21.4 20.9
Tier 1 ratio (%) 15.3 22.0 21.9 22.2 21.7 21.2
Total capital ratio (%) 15.3 22.0 21.9 22.2 21.7 21.2
Tangible equity / assets (%) 11.1 14.1 13.7 13.5 12.9 12.4
RWA / assets (%) 50.1 51.8 50.5 50.1 49.1 48.7
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Asset growth (%) 24.6 35.2 18.0 15.0 18.0 18.0
Net loan growth (%) 21.1 47.3 27.8 15.8 18.8 19.7
Deposit growth (%) 31.5 20.9 27.0 16.0 19.0 20.0
Net income growth (%) 36.1 31.7 14.2 14.2 12.7 13.6
September 12 2012
Qatar National Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 85
Abacus Arqaam Capital Fundamental Data
Company Profile
Qatar National Bank is the largest bank in Qatar by both assets and market capitalization and maintains respectively 50% and 63% of loans and deposit market share within the Qatari banking sector as of Q1 12A. QNB provides a full range of banking services including retail, corporate, treasury, investment and wealth management services but is mainly focused on the public sector. The bank has presence in 24 countries supported by more than 670 ATMS and employs around 7,600 staff. It recently acquired 49% of Bank of Commerce and Development in Libya and increased its stake in Mansour Investment Bank in Iraq to 51%. The Qatar Investment Authority is the largest shareholder with a 50% stake. Loan Breakdown by Segment
Loan Breakdown by Country
58%
32%
10%
Public
Corporate
Retail
86%
3%
9%
0% 2%
Qatar
Other GCC
Europe
North America
Others
Qatar National Bank
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (QARmn)
Interest income 9,932 10,695 12,979 14,789 16,979 20,073
Interest expense 4,257 2,896 3,577 4,194 4,918 5,840
Net interest income 5,675 7,799 9,402 10,595 12,062 14,233
Fee income 1,121 1,297 1,427 1,641 1,903 2,208
Net Investment income 175 312 243 305 308 293
Other operating income 422 610 739 873 1,032 1,217
Total Operating Income 7,393 10,018 11,811 13,415 15,305 17,950
Total Operating expenses 1,292 1,603 2,008 2,363 2,780 3,273
Pre-provision operating profit 6,101 8,415 9,803 11,052 12,525 14,677
Net provisions 538 1,035 1,384 1,460 1,737 2,406
Other provisions/Impairment 62 (31) 6 6 6 6
Operating profit 5,501 7,411 8,413 9,586 10,782 12,265
Associates 216 166 251 309 375 410
Pre-tax profit 5,718 7,578 8,664 9,895 11,157 12,675
Taxation 16 24 43 49 56 63
Net profit 5,702 7,554 8,621 9,846 11,101 12,611
Minorities (2) 45 — — — —
Tier 1 Coupon 118 152 216 246 278 315
Attributable net profit 5,586 7,357 8,405 9,599 10,823 12,296
Diluted EPS 9.32 10.51 12.01 13.72 15.47 17.57
DPS 3.26 3.64 4.80 5.49 6.19 7.03
BVPS 40.43 60.05 68.43 77.34 87.32 98.71
Tangible BVPS 40.43 59.85 68.23 77.14 87.12 98.51
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (QARmn)
Gross loans and advances 133,268 196,623 251,678 291,946 347,416 416,899
Less: Loan loss provisions 1,572 2,680 3,744 4,884 6,421 8,628
Net loans and advances 131,696 193,943 247,934 287,062 340,995 408,272
Cash and central bank 33,912 10,279 5,248 2,776 18,813 28,723
Due from banks 24,687 38,566 35,631 40,975 48,351 57,054
Investment, net 28,696 55,086 62,754 69,504 64,366 63,686
Fixed assets 915 979 1,036 1,099 1,171 1,253
Other assets 3,476 2,961 3,563 8,195 9,670 11,411
Total assets 223,382 301,955 356,307 409,753 483,509 570,541
Customer deposits 165,470 200,123 254,220 294,895 350,925 421,111
Due to banks 14,345 39,482 40,910 39,145 41,359 48,344
Debt 12,136 12,152 5,437 13,000 20,000 20,000
Other liabilities 6,638 7,563 6,968 7,570 8,913 10,590
Total liabilities 198,590 259,320 307,535 354,610 421,198 500,045
Total Equity 24,793 42,635 48,772 55,143 62,311 70,496
Risk weighted assets (bn) 112 156 180 205 237 278
Average interest-earning assets 192,470 253,048 319,187 370,073 430,253 508,642
Average interest-paying liabilities 173,714 221,854 276,162 323,803 379,662 450,870
Common shareholder’s equity 24,237 41,879 47,740 53,977 60,960 68,927
Core Equity Tier 1 (Basel III) 16,422 33,463 38,471 44,226 50,702 58,189
Tier 1 capital 17,119 34,358 39,465 45,540 51,451 58,953
Jaap Meijer, MBA, CFA Loubna El Hassan [email protected] Arqaam Capital Research Offshore s.a.l. +97145071744
September 12 2012
Qatar National Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 86
Exhibit 154: Qatar national Bank Valuation (QARmn)
Year-end 2010 2011 2012e 2013e 2014e 2015e perp Subtotal % of total
1. DCF
Net profit 5,704 7,509 8,621 9,846 11,101 12,611 12,611 Other adjustments (comprehensive income) 118 152 216 246 278 315 315 Minus: excess return excess capital 232 809 929 1,063 1,195 1,325 1,325 Risk free rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Tax shelter 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% Adjusted net profit 5,355 6,547 7,476 8,536 9,629 10,972 10,972 Capital requirements 18,177 23,678 26,593 29,795 33,826 38,810 38,810 RoEcC 29.5% 27.7% 28.1% 28.7% 28.5% 28.3% 28.3% Cost of capital 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% Capital charge 1,999 2,605 2,925 3,277 3,721 4,269 4,269 Economic profit 3,355 3,943 4,551 5,259 5,908 6,702 6,702 Discount factor -- -- -- 0.95 0.86 0.77 0.77 NPV of Economic Profit -- -- -- 4,992 5,052 5,163 5,163 DCF EVA Forecast period
15,207 11.3%
Perpetual growth rate (GDP)
3.7%
Terminal Value
91,813
Terminal value discounted
70,729 52.4%
Required Capital
26,593 19.7%
Value of the bank operations
112,529 83.3%
2. Capital surplus/deficit
Available capital:
Shareholders’ equity 24,793 42,635 48,772 55,143 62,311 70,496 Less Goodwill & intangibles -- (142) (142) (142) (142) (142) Less non equity elements reported shareholders equity
Less Dividends (if included in reported equity) (1,957) (2,544) (3,362) (3,840) (4,329) (4,918) Tangible equity 22,835 39,949 45,268 51,162 57,840 65,435 Capital needs
RWAs (Basel I in FY 11A, Basel II/III starting FY 12e) 112,003 156,382 179,811 205,347 237,255 277,890 RWAs (Basel III) 112,738 158,124 179,811 205,347 237,255 277,890 Equity as % RWA 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% Financial stakes 4,648 4,703 5,015 5,153 5,355 5,464 Capital Requirements 18,177 23,678 26,593 29,795 33,826 38,810 Surplus capital 4,659 16,271 18,676 21,367 24,014 26,625
18,676 13.8%
3. Other adjustments
Real estate losses
Corporate bond fair value losses
Equity investment losses
Under/overprovisioning not covered in forecast period
547
Level 3 assets
(83)
Total adjustments
464 0.3%
4. Dividends 3,362 2.5%
Total Fair Value
135,030 100.0%
Number of shares (after 10% capital hike)
699.7
Fully diluted number of shares
699.7
Fair value per share
193.0
Current share price
133.4
Upside
44.7%
Implied P/E (x)
16.1 14.1
Implied P/tNAV (x)
2.8 2.5
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Michael Malkoun Arqaam Capital Research Offshore s.a.l
Albilad Bank Showing strong improvement
BUY
Banks / SAUDI ARABIA Bloomberg code ALBI AB
Market index Saudi Arabia
Price target (local) 36.0
Upside (%) 21.9
Market data 11/09/2012
Last closing price 29.8
52 Week range 17.8-35.4
Market cap (SAR mn) 8,850
Market cap (USD mn) 2,360
Average daily volume (SAR mn) 34.3
Average daily volume (USD mn) 9.1
Year-end (local mn) 2011 2012e 2013e 2014e
Revenues 1,374 1,737 1,910 2,120
Pre-provision Operating Profit
582 855 947 1,068
EPS 1.10 3.28 2.60 3.00
P/E (x) (mkt price) 26.8 9.0 11.3 9.8
BVPS 11.39 14.57 17.09 19.76
Tangible BVPS 11.39 14.57 17.09 19.76
P/B (x) (mkt price) 2.6 2.0 1.7 1.5
P/TBVPS (x) ((mkt price) 2.6 2.0 1.7 1.5
DPS — — 0.25 0.25
Div. yield (%) — — 0.8 0.8
RoAA (%) 1.3 3.3 2.2 2.3
RoRWA (%) 1.6 3.6 2.6 2.6
RoAE (%) 10.1 24.5 16.0 15.8
Loan/ Deposit ratio (%) 59.8 69.5 72.1 74.8
Risk weighted assets (bn) 20 26 30 33
Core Equity Tier 1 ratio (%)
15.6 16.8 16.9 17.5
Tier 1 capital ratio (%) 15.4 13.2 14.6 15.1
Total capital ratio (%) 18 18 18 19
NPL ratio (%) 4.7 4.2 4.2 4.2
Coverage ratio (%) 129.0 145.2 151.2 153.6
Returns among highest in the sector
Strong growth, capital & liquidity
TP of SAR 36 offers 21% upside
We increase our EPS estimates for FY 12e by 12.7% as a result of stronger than expected H1 12A results. We increase fee generation, supported by a much stronger than expected loan growth, and slightly upped net interest margins post the strong Q2 12 results. We increase our TP from SAR 30.9 to SAR 36.0. Despite a share price increase of 9.7% since our initiation, we still see room to upgrade our recommendation to BUY. Commercial momentum to improve: Following an 18% y-t-d net lending increase in H1 12A, we revise our FY 12e lending forecasts upwards from 20% to 30%, the 2nd highest in KSA after only Alinma and ahead of Al Rajhi. In addition, the bank has the 2nd highest capital position in KSA with a CET1 of 16.8% in FY 12e, despite the high loan growth; a highly conducive position for further balance sheet growth. Returns should improve markedly: Albilad Bank is expected to generate a strong pre-provision return on RWA of 3.3% in FY 12e, second among KSA banks, and largely due to the bank’s prominent fee income which makes up a sector high 39% of operating income (with remittances accounting for c. 57% of total fees). However, this year’s net income is partially skewed by extraordinary real estate gains in Q1 12A. We expect cost/income to fall from current levels. Improving asset quality: Our asset quality screen suggests a cumulative loss of 330 bps over the next 5 years (66bps pa), coming from both the corporate and retail sectors, well below the loan loss charge of 1.8% in FY 11A. The bank’s NPL ratio is relatively high compared to peers, albeit improving in H1 12A to 3.9% from 4.7% at FY 11A, while improving its coverage ratio from 129% to 150%. Asset quality remains a risk for Albilad given that retail lending makes up c. 40% of the loan book, and has yet to fully mature. Very strong liquidity: We calculate an NSFR of c. 119% and an LCR of c. 349%. The strong liquidity is further corroborated by the bank’s industry-low LTD of 60% and net cash position of c. 52%. We upgrade our recommendation to a buy: Albilad is currently trading at average multiples, with a P/E13e of 11.3x and a P/tNAV12e of 2.1x, fully justified by the estimated ROE12e of 16.5%, its strong capital and liquidity position and RORWA of 2.6%.
SAR 36.0
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Price Performance
87
107
127
147
167
187
Sep/11 Dec/11 Mar/12 Jun/12
ALBI AB Saudi Arabia
September 12 2012
Albilad Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 88
Abacus Arqaam Capital Fundamental Data
Profitability
NIM
Credit Quality
Capital Ratios
Growth
2.10% 2.91%
3.25% 3.19%3.21% 3.33%
1.33% 1.26%0.93%
0.55% 0.50%0.48%
0.51%
1.65%
3.63%
2.55% 2.62% 2.76%
0%
1%
2%
3%
4%
FY10 FY11 FY12e FY13e FY14e FY15e
PPP/RWA Cost of risk/RWA RORWA
3.37%
2.96%2.88% 2.83% 2.79% 2.86%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
3.4%
FY10 FY11 FY12e FY13e FY14e FY15e
Net interest margin
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
135%
140%
145%
150%
155%
FY12e FY13e FY14e FY15e
NPL Cov ratio (%) NPL as % of tot loans
16.6%15.4%
13.2%14.6%
15.1% 15.5%
17.4% 18.3% 18.0% 18.4% 18.9% 19.5%
10%
14%
18%
22%
26%
FY10 FY11 FY12e FY13e FY14e FY15e
Core Tier 1 (Base III) Tier 1 CAR
12%
12%
30%
16% 15%
15%
23%
36%
12% 11%11%
14%
0%
20%
40%
FY10 FY11 FY12e FY13e FY14e FY15e
Loan growth Deposit growth
Albilad Bank
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Net Interest Margin (%) 3.37 2.96 2.88 2.83 2.79 2.86
Cost/Income (%) 65.3 57.6 50.8 50.4 49.6 47.9
Net Interest Income/ total income (%) 56.8 51.2 47.7 48.3 48.5 49.4
Fees and commissions / Operating income (%) 31.1 33.4 37.5 37.5 38.2 38.2
Trading gains / Operating income (%) 1.0 1.3 0.8 1.0 0.8 0.5
RoAE (%) 3.0 10.1 24.5 16.0 15.8 16.1
Pre Prov.ROE (%) 11.0 17.9 31.5 19.9 19.3 19.4
RoAA (%) 0.5 1.3 3.3 2.2 2.3 2.4
Revenue / RWA (%) 6.05 6.87 6.61 6.43 6.37 6.38
Costs / RWA (%) 3.95 3.96 3.35 3.24 3.16 3.06
PPP / RWA (%) 2.10 2.91 3.25 3.19 3.21 3.33
Cost of risk / RWA (%) 1.33 1.26 0.93 0.55 0.50 0.48
RoRWA (%) 0.51 1.65 3.63 2.55 2.62 2.76
RoRWA (%) (adjusted for gross-up of associate) 0.51 1.65 3.63 2.55 2.62 2.76
Year-end 2010 2011 2012e 2013e 2014e 2015e
Asset Quality
Charge offs / Avg gross loans (%) 2.0 1.8 1.5 0.8 0.7 0.7
NPL/Gross Loans (%) 5.5 4.7 4.2 4.2 4.2 4.2
Provision coverage (%) 89.4 129.0 145.2 151.2 153.6 142.9
Provision/Avg gross loans (%) 3.0 4.3 4.6 5.3 5.5 5.7
Loan Loss Charge/Operating Income (%) 63.5 43.4 32.8 25.7 22.3 8.1
Year-end 2010 2011 2012e 2013e 2014e 2015e
Funding and Liquidity
Net loans/Deposits (%) 72.6 59.8 69.5 72.1 74.8 75.2
Cash and Interbank / assets (%) 20.9 25.8 28.4 27.5 27.9 28.4
Deposits/Liabilities (%) 94.0 94.8 90.9 90.2 89.6 91.8
Year-end 2010 2011 2012e 2013e 2014e 2015e
Capital and leverage ratios
Core Tier 1 ratio (Basel III) (%) 14.4 15.6 16.8 16.9 17.5 18.1
Tier 1 ratio (%) 16.6 15.4 13.2 14.6 15.1 15.5
Total capital ratio (%) 17.4 18.3 18.0 18.4 18.9 19.5
Tangible equity / assets (%) 14.7 12.3 13.4 13.9 14.3 14.8
RWA / assets (%) 86.0 72.1 80.3 80.3 80.4 80.8
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Asset growth (%) 21.3 31.3 18.0 13.0 12.0 12.0
Net loan growth (%) 11.6 12.1 29.9 15.7 14.9 14.5
Deposit growth (%) 23.4 36.1 11.8 11.5 10.7 14.0
Net income growth (%) (137.2) 257.0 189.4 (20.5) 15.4 18.3
September 12 2012
Albilad Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 89
Abacus Arqaam Capital Fundamental Data
Company Profile
One of the most recently established banks under coverage, Albilad began its operations 2004 providing Islamic commercial banking services through its c. 83 branches and c. 650 ATMs, all in KSA and in which it employees over 2,100 employees. Albilad also generates significant revenue from its remittance service. The bank currently has a c. 1.4% lending market share and a 2.1% deposit market share. Major shareholders include Mohammed Ibrahim Mohammed Al Subeaei with 11.67%, Abdullah Ibrahim Mohammed Al Subeaei with 11.14%, First Investment Company with 7.43%, Abulrahman Saleh Abdulaziz Al Rajhi with 6.97%, Abdulrahman Abdulaziz Saleh Al Rajhi with 6.57%, and a public free float of 50%
Loan breakdown by Sector
Loan breakdown by Country
38.5%
61.5%
Retail
Corporate
100%KSA
Albilad Bank
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (SARmn)
Interest income 646 728 848 945 1,053 1,210
Interest expense 21 25 20 22 25 28
Net interest income 625 703 828 923 1,028 1,182
Fee income 342 458 651 716 809 915
Net Investment income 8 7 8 9 9 7
Other operating income 125 205 250 261 274 289
Total Operating Income 1,099 1,374 1,737 1,910 2,120 2,393
Total Operating expenses 717 792 882 963 1,052 1,146
Pre-provision operating profit 382 582 855 947 1,068 1,247
Net provisions 242 252 245 165 166 180
Other provisions/Impairment 47 — — — — —
Operating profit 92 330 610 782 902 1,067
Associates — — — — — —
Pre-tax profit 92 330 610 782 902 1,067
Taxation — — — — — —
Net profit 92 330 984 782 902 1,067
Minorities — — — 782 902 1,067
Tier 1 Coupon — — 30 23 27 32
Attributable net profit 92 330 954 758 875 1,035
Diluted EPS 0.31 1.10 3.28 2.60 3.00 3.55
DPS — — — 0.25 0.25 0.25
BVPS 10.34 11.39 14.57 17.09 19.76 22.95
Tangible BVPS 10.34 11.39 14.57 17.09 19.76 22.95
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (SARmn)
Gross loans and advances 12,923 14,664 19,063 22,113 25,430 28,990
Less: Loan loss provisions 633 884 1,163 1,404 1,640 1,739
Net loans and advances 12,290 13,780 17,900 20,709 23,790 27,251
Cash and central bank 2,497 5,835 3,090 3,749 4,574 5,041
Due from banks 4,032 6,454 8,186 8,577 9,317 10,667
Investment, net 2,912 1,552 1,909 2,264 1,843 1,296
Fixed assets 342 328 598 609 622 636
Other assets 344 378 1,636 1,664 1,863 2,087
Total assets 21,117 27,727 32,718 36,971 41,408 46,377
Customer deposits 16,932 23,038 25,761 28,718 31,788 36,238
Due to banks 382 422 359 305 259 220
Debt — — 361 402 445 507
Other liabilities 699 851 1,868 2,418 2,989 2,525
Total liabilities 18,014 24,311 28,348 31,843 35,481 39,491
Total Equity 3,103 3,416 4,370 5,128 5,927 6,886
Risk weighted assets (bn) 18 20 26 30 33 37
Average interest-earning assets 18,551 23,725 28,752 32,592 36,811 41,288
Average interest-paying liabilities 15,617 20,387 24,970 27,953 30,958 34,728
Common shareholder’s equity 3,103 3,416 4,370 5,128 5,927 6,886
Core Equity Tier 1 (Basel III) 3,103 3,416 4,411 5,019 5,818 6,777
Tier 1 capital 3,011 3,087 3,457 4,336 5,019 5,818
Jaap Meijer, MBA, CFA Michael Malkoun [email protected] Arqaam Capital Research Offshore s.a.l
+97145071744
September 12 2012
Albilad Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 90
Bank Albilad valuation (SARmn)
Year-end 2010 2011 2012e 2013e 2014e 2015e perp subtotal % of total
1. DCF
Net profit 92 330 984 781 901 1,066 1,066
Other adjustments (Zakat) 0 0 30 23 27 32 32
Minus: excess return excess capital 29 44 67 82 102 127 127
Risk free rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Tax shelter -- -- -- -- -- -- --
Adjusted net profit 64 286 887 676 772 907 907
Capital requirements 2,585 2,625 3,154 3,563 3,997 4,499 4,499
RoEcC 2.5% 10.9% 28.1% 19.0% 19.3% 20.2% 20.2%
Cost of capital 10.7% 10.7% 10.7% 10.7% 10.7% 10.7% 10.7%
Capital charge 277 281 338 381 428 481 481
Economic profit (213) 5 550 295 344 426 426
Discount factor -- -- -- 0.95 0.86 0.78 0.78
NPV of Economic Profit -- -- -- 280 296 330 330
DCF EVA Forecast period
906 8.4%
Perpetual growth rate (nominal GDP)
3.5%
Terminal Value
5,912
Terminal value discounted
4,585 42.5%
Required Capital
3,154 29.2%
Value of the bank operations
8,645 80.1%
2. Capital surplus/deficit
Available capital:
Shareholders’ equity 3,103 3,416 4,370 5,128 5,927 6,886
Minorities -- -- -- -- -- --
Less Goodwill & intangibles -- -- -- -- -- --
Less non equity elements reported shareholders equity
Less Dividends (if included in reported equity) -- -- -- (75) (75) (75)
Tangible equity 3,103 3,416 4,370 5,053 5,852 6,811
Capital needs
RWAs (Basel I in FY 11A, Basel II/III after FY 12e) 18,160 19,982 26,286 29,689 33,306 37,490
RWAs (Basel III) 21,539 21,877 26,286 29,689 33,306 37,490
Equity as % RWA 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Financial stakes -- -- -- -- -- --
Capital Requirements 2,585 2,625 3,154 3,563 3,997 4,499
Surplus capital 518 791 1,216 1,490 1,855 2,313
1,216 11.3%
3. Other adjustments
Real estate losses
93
Corporate bond fair value losses
Equity investment losses
Under/overprovisioning not covered in forecast period
851
Level 3 assets
(15)
Total adjustments
929 8.6%
4. Dividends
-- --
Total Fair Value
10,790 100.0%
Fully diluted number of shares
300
Fair value per share
36.0
Current share price
29.5
Upside
21.9%
Implied P/E (x)
11.0 13.8
Implied P/tNAV (x)
2.47 2.10
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Michael Malkoun Arqaam Capital Research Offshore s.a.l
Al Rajhi Bank Balance sheet momentum continues
BUY
Banks / SAUDI ARABIA Bloomberg code RJHI AB
Market index Saudi Arabia
Price target (local) 94.9
Upside (%) 28.6
Market data 11/09/2012
Last closing price 73.8
52 Week range 67.0-83.3
Market cap (SAR mn) 110,625
Market cap (USD mn) 29,497
Average daily volume (SAR mn) 107.3
Average daily volume (USD mn) 28.6
Year-end (local mn) 2011 2012e 2013e 2014e
Revenues 12,333 13,636 15,262 16,857
Pre-provision Operating Profit
8,854 9,881 11,180 12,420
EPS 4.92 5.69 6.43 7.09
P/E (x) (mkt price) 16.6 13.9 12.3 11.1
BVPS 21.88 23.92 26.35 29.10
Tangible BVPS 21.88 23.92 26.35 29.10
P/B (x) (mkt price) 3.4 3.1 2.8 2.5
P/TBVPS (x) ((mkt price) 3.4 3.1 2.8 2.5
DPS 3.25 3.25 3.55 3.85
Div. yield (%) 4.4 4.4 4.8 5.2
RoAA (%) 3.3 3.6 3.5 3.4
RoRWA (%) 3.8 3.9 3.8 3.7
RoAE (%) 21.0 23.1 23.8 23.8
Loan/ Deposit ratio (%) 81.0 81.8 82.7 83.7
Risk weighted assets (bn) 173 206 235 267
Core Equity Tier 1 ratio (%)
14.6 16.2 16.4 16.7
Tier 1 capital ratio (%) 14.7 14.1 14.2 14.4
Total capital ratio (%) 20 20 20 20
NPL ratio (%) 1.7 1.8 1.8 1.8
Coverage ratio (%) 148.4 150.3 152.6 154.3
Margin compression continues in retail
Blue chip qualities remain, with strong RORWA & growth
TP of SAR 94.9 still offers a 29% upside
We cut our FY 12e EPS forecasts for Al Rajhi by 1%, and our FY 13-15e estimates by 5% as a result of further NIM compression emanating from the retail network, despite an increase in expected loan growth for FY12e. We therefore reduce our TP by 5.6% to SAR 94.9 from SAR 100.5, which offers upside of 29%. The stock price has remained virtually unchanged since our initiation report. Significant margin compression: We expect Al Rajhi to face noticeable pressure on net interest margins in the retail segment (60% of its loan book). New consumer loans are yielding 5.25% as compared to 6.25% of the existing book and the margin pressure will take 5 years to fully filter through to the net interest margins, with little room to reduce funding costs going forward. Nevertheless, we expect Al Rajhi to remain at near the forefront of lending growth in KSA and to grow their loan book in FY 12e by 20%, as opposed to our 17% estimate, thus continuing to build on strong 13% y-t-d lending growth in H1 12A. It should continue to capture a large share of the Islamic finance growth, even though the pure Islamic peers can outgrow Al Rajhi. Industry leading returns across all metrics: Al Rajhi is expected to continue generating stellar pre-provisioning returns of c. 5% of RWA; second only to RAKBank. The net RORWA should be c. 4% despite above average loan loss charges emanating from the bank’s retail tilt. High capital generation: We calculate CET1 of 16.2% for FY 12e, higher than Al Rajhi’s reported Tier-1, which does not include current year’s earnings. We expect CET1 to improve by 0.5-0.6% pa, driven by the bank’s high returns, partly offset by its high pay-out and RWA growth. Sufficient liquidity: With an NSFR of 118% and LCR of 200%, Al Rajhi appears to be sufficiently liquid despite some maturity mismatches between assets and liabilities. The bank’s net cash balance is 18%. Strong asset quality: Our asset quality screen suggests a cumulative loss of 416 bps over the next 5 years (83bps pa), particularly due to its increasing retail exposure, although Al Rajhi should be able to easily absorb those charges. The bank’s NPL ratio of 1.7% and coverage ratio of 147% are both towards the top end of the industry spectrum. We reiterate our buy recommendation despite margin compression. Al Rajhi offers 29% upside and very attractive returns (ROTE12e of 23.1% and RORWA of 3.9%). The high multiples are justified by the strong RORWA, growth, capital generation and balance sheet.
SAR 94.9
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Price Performance
86
96
106
116
126
136
Sep/11 Dec/11 Mar/12 Jun/12
RJHI AB Saudi Arabia
September 12 2012
Al Rajhi Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 92
Abacus Arqaam Capital Fundamental Data
Profitability
NIM
Credit Quality
Capital Ratios
Growth
5.51%
5.12% 4.80% 4.76%4.66% 4.79%
1.13%0.85% 0.65% 0.65% 0.67%
0.69%
3.89% 3.83% 3.85% 3.82%3.71% 3.81%
0%
1%
2%
3%
4%
5%
6%
FY10 FY11 FY12e FY13e FY14e FY15e
PPP/RWA Cost of risk/RWA RORWA
5.30%4.61%
4.12% 4.00% 3.88% 3.99%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
FY10 FY11 FY12e FY13e FY14e FY15e
Net interest margin
0.0%
0.5%
1.0%
1.5%
2.0%
145%
150%
155%
160%
165%
FY12e FY13e FY14e FY15e
NPL Cov ratio (%) NPL as % of tot loans
15.2% 14.7% 14.1% 14.2%14.4% 14.8%
20.6% 20.0% 20.1% 20.1% 20.0% 20.4%
10%
14%
18%
22%
26%
FY10 FY11 FY12e FY13e FY14e FY15e
Core Tier 1 (Base III) Tier 1 CAR
7%
17% 20% 17% 15%
14%
16%
21%
19%16%
14%
13%
0%
20%
40%
FY10 FY11 FY12e FY13e FY14e FY15e
Loan growth Deposit growth
Al Rajhi Bank
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Net Interest Margin (%) 5.30 4.61 4.12 4.00 3.88 3.99
Cost/Income (%) 25.9 28.2 27.5 26.7 26.3 25.1
Net Interest Income/ total income (%) 79.3 73.5 70.3 70.7 70.9 72.1
Fees and commissions / Operating income (%) 14.2 18.6 21.8 21.5 21.3 20.3
Trading gains / Operating income (%) 0.2 0.3 0.3 0.4 0.4 0.4
RoAE (%) 20.4 21.0 23.1 23.8 23.8 24.8
Pre Prov.ROE (%) 28.9 28.0 28.8 29.7 29.9 31.1
RoAA (%) 3.4 3.3 3.6 3.5 3.4 3.4
Revenue / RWA (%) 7.44 7.13 6.62 6.49 6.32 6.40
Costs / RWA (%) 1.93 2.01 1.82 1.74 1.66 1.61
PPP / RWA (%) 5.51 5.12 4.80 4.76 4.66 4.79
Cost of risk / RWA (%) 1.13 0.85 0.65 0.65 0.67 0.69
RoRWA (%) 3.89 3.83 3.85 3.82 3.71 3.81
RoRWA (%) (adjusted for gross-up of associate) 3.89 3.83 3.85 3.82 3.71 3.81
Year-end 2010 2011 2012e 2013e 2014e 2015e
Asset Quality
Charge offs / Avg gross loans (%) 1.5 1.1 0.9 0.8 0.8 0.8
NPL/Gross Loans (%) 2.2 1.7 1.8 1.8 1.8 1.8
Provision coverage (%) 135.8 148.4 150.3 152.6 154.3 160.0
Provision/Avg gross loans (%) 3.4 2.5 2.1 2.2 2.3 2.4
Loan Loss Charge/Operating Income (%) 20.6 16.7 24.4 22.5 22.5 23.1
Year-end 2010 2011 2012e 2013e 2014e 2015e
Funding and Liquidity
Net loans/Deposits (%) 83.9 81.0 81.8 82.7 83.7 84.6
Cash and Interbank / assets (%) 6.0 6.2 8.6 8.8 9.1 8.8
Deposits/Liabilities (%) 92.6 92.3 92.4 92.3 92.1 92.2
Year-end 2010 2011 2012e 2013e 2014e 2015e
Capital and leverage ratios
Core Tier 1 ratio (Basel III) (%) 14.6 14.6 16.2 16.4 16.7 17.3
Tier 1 ratio (%) 15.2 14.7 14.1 14.2 14.4 14.8
Total capital ratio (%) 20.6 20.0 20.1 20.1 20.0 20.4
Tangible equity / assets (%) 16.4 14.9 13.9 13.3 12.9 12.9
RWA / assets (%) 83.7 78.4 79.7 79.1 79.1 79.3
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Asset growth (%) 8.3 19.5 17.0 15.0 13.5 12.5
Net loan growth (%) 7.1 16.9 19.8 17.0 15.0 13.9
Deposit growth (%) 16.4 21.2 18.6 15.6 13.7 12.7
Net income growth (%) (6.5) 10.1 19.8 13.0 10.3 15.9
September 12 2012
Al Rajhi Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 93
Abacus Arqaam Capital Fundamental Data
Company Profile
Al Rajhi was established in 1976 and has gone on to become the largest Islamic bank in the world and the largest publicly traded bank in KSA. Al Rajhi has a 13.5% lending market share and a 15.7% deposit market share. The bank operates c. 500 branches and c. 3000 ATMs in KSA, with over 3,000 employees, and has been expanding its operations internationally, primarily to Malaysia with c. 23 branches while establishing a presence in Kuwait and Jordan. Al Rajhi provides both commercial and investment banking services, all according to the principles of Islam. Major shareholders include Suleiman Bin Abdulaziz Saleh Al Rajhi at 19.9%, Saleh Bin Abdulaziz Saleh Al Rajhi at 15.1%, the General Organization for Social Insurance – KSA at 9.9%, Abdullah Bin Abdulaziz Saleh Al Rajhi with 5.9%, with the remaining 49.2% as free float.
Loan Breakdown by Sector
Loan Breakdown by Country
59.5%
40.5% Retail
Corporate
Government
96.7%
0.1% 3.2%
KSA
Other Middle East
South East Asia
Al Rajhi Bank
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (SARmn)
Interest income 9,353 9,324 9,878 11,103 12,283 14,226
Interest expense 230 254 291 312 331 346
Net interest income 9,122 9,070 9,587 10,791 11,952 13,880
Fee income 1,634 2,298 2,976 3,274 3,585 3,908
Net Investment income — — — — — —
Other operating income 749 964 1,072 1,197 1,321 1,455
Total Operating Income 11,506 12,333 13,636 15,262 16,857 19,243
Total Operating expenses 2,981 3,479 3,754 4,082 4,437 4,838
Pre-provision operating profit 8,524 8,854 9,881 11,180 12,420 14,405
Net provisions 1,754 1,476 1,346 1,537 1,782 2,071
Other provisions/Impairment — — — — — —
Operating profit 6,771 7,378 8,535 9,643 10,639 12,333
Associates — — — — — —
Pre-tax profit 6,771 7,378 8,535 9,643 10,639 12,333
Taxation 750 750 597 675 745 863
Net profit 6,771 7,378 8,535 9,643 10,639 12,333
Minorities — — — — — —
Tier 1 Coupon 750 750 597 675 745 863
Attributable net profit 6,021 6,628 7,938 8,968 9,894 11,470
Diluted EPS 4.01 4.42 5.29 5.98 6.60 7.65
DPS 3.00 3.25 3.25 3.55 3.85 4.15
BVPS 20.21 21.88 23.92 26.35 29.10 32.59
Tangible BVPS 20.21 21.88 23.92 26.35 29.10 32.59
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (SARmn)
Gross loans and advances 123,681 143,951 172,742 202,108 232,424 264,963
Less: Loan loss provisions 3,616 3,556 4,543 5,396 6,275 7,419
Net loans and advances 120,065 140,396 168,198 196,711 226,148 257,544
Cash and central bank 19,475 20,419 24,318 27,760 32,066 34,884
Due from banks 11,118 14,600 16,793 19,312 21,919 24,659
Investment, net 29,270 39,968 42,757 46,200 49,065 53,301
Fixed assets 3,395 3,624 4,089 4,597 5,150 5,753
Other assets 2,230 2,597 3,100 3,565 4,047 4,552
Total assets 184,841 220,813 258,352 297,104 337,214 379,365
Customer deposits 143,064 173,429 205,638 237,766 270,251 304,546
Due to banks 5,414 7,021 1,755 878 702 562
Debt — — — — — —
Other liabilities 6,045 7,542 15,075 18,934 22,614 25,367
Total liabilities 154,523 187,992 222,468 257,577 293,567 330,474
Total Equity 30,318 32,821 35,884 39,527 43,646 48,891
Risk weighted assets (bn) 155 173 206 235 267 301
Average interest-earning assets 171,969 196,561 232,431 269,497 307,845 347,822
Average interest-paying liabilities 138,721 164,464 193,922 223,018 254,798 288,030
Common shareholder’s equity 30,318 32,821 35,884 39,527 43,646 48,891
Core Equity Tier 1 (Basel III) 25,068 27,197 33,291 38,640 44,430 52,114
Tier 1 capital 23,547 25,443 29,104 33,422 38,286 44,394
Jaap Meijer, MBA, CFA Michael Malkoun [email protected] Arqaam Capital Research Offshore s.a.l
+97145071744
September 12 2012
Al Rajhi Bank © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 94
Exhibit 155: Al Rajhi Bank valuation (SARmn)
Year-end 2010 2011 2012e 2013e 2014e 2015e perp subtotal % of total
1. DCF
Net profit 6,771 7,378 8,535 9,643 10,639 12,333 12,333
Other adjustments (Zakat) 750 750 597 675 745 863 863
Minus: excess return excess capital 238 254 283 270 264 296 296
Risk free rate 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%
Tax shelter -- -- -- -- -- -- --
Adjusted net profit 5,783 6,374 7,655 8,699 9,630 11,174 11,174
Capital requirements 20,539 22,306 24,719 28,209 32,005 36,093 36,093
RoEcC 28.2% 28.6% 31.0% 30.8% 30.1% 31.0% 31.0%
Cost of capital 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6%
Capital charge 2,167 2,353 2,608 2,976 3,377 3,808 3,808
Economic profit 3,616 4,021 5,047 5,723 6,253 7,367 7,367
Discount factor -- -- -- 0.95 0.86 0.78 0.78
NPV of Economic Profit -- -- -- 5,443 5,380 5,733 5,733
DCF EVA Forecast period
16,556 11.6%
Perpetual growth rate (nominal GDP)
4.0%
Terminal Value
112,467
Terminal value discounted
87,524 61.5%
Required Capital
24,719 17.4%
Value of the bank operations
128,798 90.5%
2. Capital surplus/deficit
Available capital:
Shareholders’ equity 30,318 32,821 35,884 39,527 43,646 48,891
Minorities -- -- -- -- -- --
Less Goodwill & intangibles -- -- -- -- -- --
Less non equity elements reported shareholders equity -- -- -- -- -- --
Less Dividends (if included in reported equity) (4,500) (4,875) (4,875) (5,325) (5,775) (6,225)
Tangible equity 25,818 27,946 31,009 34,202 37,871 42,666
Capital needs
RWAs (Basel I in FY 11A, Basel II/III after FY 12e) 154,636 173,017 205,988 235,078 266,707 300,771
RWAs (Basel III) 171,161 185,887 205,988 235,078 266,707 300,771
Equity as % RWA 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Financial stakes -- -- -- -- -- --
Capital Requirements 20,539 22,306 24,719 28,209 32,005 36,093
Surplus capital 5,278 5,640 6,290 5,993 5,866 6,574
6,290 4.4%
3. Other adjustments
Real estate losses
Corporate bond fair value losses
Equity investment losses
Under/overprovisioning not covered in forecast period
2,521
Level 3 assets
(205)
Total adjustments
2,316 1.6%
4. Dividends
4,875 3.4%
Total Fair Value
142,279 100.0%
Fully diluted number of shares
1,500
Fair value per share
94.9
Current share price
73.5
Upside
29.1%
Implied P/E (x)
17.9 15.9
Implied P/tNAV (x)
3.96 3.60
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Zeina Nasreddine Arqaam Capital Research Offshore s.a.l
National Bank of Kuwait Remains fully valued
HOLD
Banks / KUWAIT Bloomberg code NBK KK
Market index Kuwait
Price target (local) 1.09
Upside (%) 15
Market data 11/09/2012
Last closing price 0.95
52 Week range 0.93-1.11
Market cap (KWD mn) 4,136
Market cap (USD mn) 14,694
Average daily volume (KWD mn) 1,378.9
Average daily volume (USD mn) 4,932.0
Year-end (local mn) 2011 2012e 2013e 2014e
Revenues 523 598 650 700
Pre-provision Operating Profit
361 403 444 480
EPS 0.07 0.07 0.08 0.08
P/E (x) (mkt price) 13.6 12.8 12.5 12.6
BVPS 0.54 0.57 0.58 0.59
Tangible BVPS 0.49 0.44 0.46 0.47
P/B (x) (mkt price) 1.8 1.7 1.6 1.6
P/TBVPS (x) ((mkt price) 1.9 2.2 2.1 2.0
DPS 0.04 0.04 0.04 0.04
Div. yield (%) 3.8 3.8 3.9 3.9
RoAA (%) 2.3 2.1 2.1 2.1
RoRWA (%) 3.5 3.0 3.1 3.1
RoAE (%) 16.6 20.1 24.8 22.6
Loan/ Deposit ratio (%) 120.3 114.9 115.4 115.0
Risk weighted assets (bn) 9 11 11 12
Core Equity Tier 1 ratio (%)
15.9 15.6 16.7 17.4
Tier 1 capital ratio (%) 18.3 16.5 17.5 18.2
Total capital ratio (%) 18 17 18 19
NPL ratio (%) 1.5 1.8 1.5 1.0
Coverage ratio (%) 243.0 194.6 257.6 412.8
Consolidating financials after 58.34% ownership in Boubyan
Boubyan acquisition reduce FV as expected reducing NBK’s tNAV
Acquisition previously accounted for, minor TP change
NBK acquires majority stake in Boubyan: NBK offering of KWD 630
per share for Boubyan. The number of shares tendered were only
11.05%, bringing NBK's stake to 58.34%. We believe NBK's offer at
630/share was extremely generous (P/tNAV 4.0x), and reduces the FV
and tNAV of NBK. However, our old TP already included the negative
impact of the purchase of this stake.
Negative effect on capital ratios and tNAV: The acquisition increases
RWAs by over KWD 1bn, resulting in lower pre provisioning of 3.92%,
0.27% below our previous estimate. We calculate a negative effect on
NBK's Tier-1 of 2.1% and CET1 of 1.9% and a negative effect on
tangible NAV of 10.5%.
Improves RoE, but hardly supports EPS: The impact on EPS is
insignificant. The banks RoTE increases to 20.1% in FY 12e vs. our
previous forecasts 14.9% due to relatively lower tNAV base.
Growth outlook supported by acquisition: We expect NIMs to pick up
by 10bps as a result of acquisition. We also increased the loan growth
for FY13e and beyond by 1% helped by the acquisition after a jump of
21% in FY12e, of which 12.5% comes from the acquisition of Boubyan.
We take into account modest cost synergies.
We continue to see a weak liquidity profile for the company, with an
NSFR of 101% as of FY 11A and a very low LCR of 79%. Cash &
interbank stood at -17% of total assets FY 11A, though part of this
comes from government institutions and NBK should be able to have
strong access to wholesale markets to address the low liquidity.
Fully valued: The acquisition of Boubyan had a negative effect on
capital ratios, tangible net asset base and has created significant
goodwill, though it moderately increases NBK’s growth outlook. We
have slightly reduced our TP from KWD 1.12 to KWD 1.09. We
recommend shareholders in Boubyan to sell their shares as the
valuation support from M&A has disappeared. We reiterate our Hold
recommendation for NBK.
KWD 1.1
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Price Performance
86
93
100
107
114
121
Sep/11 Dec/11 Mar/12 Jun/12
NBK KK Kuwait
September 12 2012
National Bank of Kuwait © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 96
Abacus Arqaam Capital Fundamental Data
Profitability
NIM
Credit Quality
Capital Ratios
Growth
4.05%4.21% 3.80% 3.92%
3.93% 4.01%
0.25%0.67% 0.69% 0.54% 0.59%
0.52%
3.73% 3.52%3.04% 3.15%
3.10% 3.24%
0%
1%
2%
3%
4%
5%
FY10 FY11 FY12e FY13e FY14e FY15e
PPP/RWA Cost of risk/RWA RORWA
3.00%3.11% 3.16%
3.00% 2.95% 2.93%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
3.4%
FY10 FY11 FY12e FY13e FY14e FY15e
Net interest margin
0.0%
0.5%
1.0%
1.5%
2.0%
0%
200%
400%
600%
800%
1000%
FY12e FY13e FY14e FY15e
NPL Cov ratio (%) NPL as % of tot loans
18.2% 18.3%16.5%
17.5%18.2%
18.9%
18.3% 18.3%16.8%
17.8% 18.6% 19.3%
10%
14%
18%
22%
26%
FY10 FY11 FY12e FY13e FY14e FY15e
Core Tier 1 (Base III) Tier 1 CAR
0%
4%
20%8% 8%
9%-3%
6%
26%
7% 8%
9%
-20%
0%
20%
40%
FY10 FY11 FY12e FY13e FY14e FY15e
Loan growth Deposit growth
National Bank of Kuwait
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Net Interest Margin (%) 3.00 3.11 3.16 3.00 2.95 2.93
Cost/Income (%) 32.7 31.0 32.7 31.8 31.4 30.4
Net Interest Income/ total income (%) 73.7 72.8 74.0 74.0 72.9 72.2
Fees and commissions / Operating income (%) 20.2 19.9 19.7 19.9 20.9 21.6
Trading gains / Operating income (%) 1.3 2.7 1.8 1.5 1.5 1.5
RoAE (%) 19.5 16.6 20.1 24.8 22.6 22.2
Pre Prov.ROE (%) 15.5 15.6 16.2 15.8 15.6 15.9
RoAA (%) 2.3 2.3 2.1 2.1 2.1 2.2
Revenue / RWA (%) 6.02 6.09 5.64 5.74 5.73 5.76
Costs / RWA (%) 1.97 1.89 1.84 1.82 1.80 1.75
PPP / RWA (%) 4.05 4.21 3.80 3.92 3.93 4.01
Cost of risk / RWA (%) 0.25 0.67 0.69 0.54 0.59 0.52
RoRWA (%) 3.73 3.52 3.04 3.15 3.10 3.24
RoRWA (%) (adjusted for gross-up of associate) 2.10 1.99 2.49 2.62 2.63 2.79
Year-end 2010 2011 2012e 2013e 2014e 2015e
Asset Quality
Charge offs / Avg gross loans (%) 0.1 0.6 0.5 0.5 0.6 0.5
NPL/Gross Loans (%) 1.6 1.5 1.8 1.5 1.0 0.5
Provision coverage (%) 208.7 243.0 194.6 257.6 412.8 885.2
Provision/Avg gross loans (%) 3.4 3.8 3.4 3.9 4.1 4.3
Loan Loss Charge/Operating Income (%) 3.6 14.5 16.9 12.4 13.6 11.7
Year-end 2010 2011 2012e 2013e 2014e 2015e
Funding and Liquidity
Net loans/Deposits (%) 123.0 120.3 114.9 115.4 115.0 114.9
Cash and Interbank / assets (%) (16.9) (16.5) 1.6 1.4 3.5 2.9
Deposits/Liabilities (%) 59.9 60.2 63.2 61.9 62.0 62.0
Year-end 2010 2011 2012e 2013e 2014e 2015e
Capital and leverage ratios
Core Tier 1 ratio (Basel III) (%) 15.7 15.9 15.6 16.7 17.4 18.1
Tier 1 ratio (%) 18.2 18.3 16.5 17.5 18.2 18.9
Total capital ratio (%) 18.3 18.3 16.8 17.8 18.6 19.3
Tangible equity / assets (%) 17.3 17.1 15.8 16.1 16.2 16.3
RWA / assets (%) 62.7 63.0 64.1 63.9 63.9 63.8
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Asset growth (%) (0.1) 5.6 21.5 7.0 8.0 9.0
Net loan growth (%) 0.5 4.2 20.1 7.9 7.7 8.8
Deposit growth (%) (3.3) 6.5 25.8 7.5 8.0 9.0
Net income growth (%) 13.7 0.2 6.6 10.5 6.4 13.7
September 12 2012
National Bank of Kuwait © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 97
Abacus Arqaam Capital Fundamental Data
Company Profile
National Bank of Kuwait (NBK) provides commercial banking services directly and through subsidiaries across the MENA region, Turkey, China, Singapore, Vietnam, Switzerland, US and UK. It was established in 1952, it has 5,000 employees, and a network of 70 branches located in Kuwait. The bank holds a market share of 32%, the largest market share in terms of loans, and 21% of market share in terms of deposits. NBK is corporate focused bank, with 73% of its loan book consisting of corporate loans. The bank’s main operations are in the Middle East and North Africa region with 94% of NBK’s loan book in FY 11A coming from that region. The bank’s free float is 49%.
Loan Breakdown by Sector
Loan Breakdown by Country
73%
27%Corporate
Retail
94%
1%3% 1% 1%
MENA
North America
Europe
Asia
Other
National Bank of Kuwait
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (KWDmn)
Interest income 482 490 585 642 692 755
Interest expense 123 109 142 161 182 201
Net interest income 359 381 443 481 510 554
Fee income 98 104 118 130 146 165
Net Investment income 3 9 6 6 6 6
Other operating income 27 29 31 34 37 41
Total Operating Income 487 523 598 650 700 767
Total Operating expenses 159 162 195 206 219 233
Pre-provision operating profit 328 361 403 444 480 534
Net provisions 12 52 68 55 66 63
Other provisions/Impairment 8 5 5 6 6 7
Operating profit 308 304 330 383 409 464
Associates 12 17 14 5 7 7
Pre-tax profit 320 321 345 388 416 471
Taxation 17 17 19 20 22 25
Net profit 303 304 326 368 394 447
Minorities 1 1 4 12 15 16
Tier 1 Coupon — — — — — —
Attributable net profit 302 302 322 356 379 431
Diluted EPS 0.07 0.07 0.07 0.08 0.08 0.08
DPS 0.03 0.04 0.04 0.04 0.04 0.04
BVPS 0.51 0.54 0.57 0.58 0.59 0.60
Tangible BVPS 0.46 0.49 0.44 0.46 0.47 0.49
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (KWDmn)
Gross loans and advances 8,133 8,502 10,221 11,035 11,918 12,991
Less: Loan loss provisions 279 320 391 426 492 555
Net loans and advances 7,853 8,182 9,830 10,609 11,426 12,436
Cash and central bank 1,594 1,668 2,090 2,640 2,947 3,336
Due from banks 716 788 1,377 1,063 1,148 1,251
Investment, net 2,260 2,485 2,392 2,516 2,696 2,883
Fixed assets 174 174 198 211 232 255
Other assets 301 330 666 673 680 689
Total assets 12,899 13,627 16,553 17,711 19,128 20,850
Customer deposits 6,385 6,799 8,556 9,196 9,932 10,826
Due to banks 4,074 4,310 2,766 2,926 2,843 3,352
Debt — — 2,000 2,500 3,000 3,000
Other liabilities 209 181 212 239 253 276
Total liabilities 10,668 11,290 13,535 14,861 16,029 17,454
Total Equity 2,231 2,337 2,609 2,850 3,100 3,396
Risk weighted assets (bn) 8 9 11 11 12 13
Average interest-earning assets 11,970 12,257 14,033 16,042 17,311 18,870
Average interest-paying liabilities 10,664 10,784 12,216 13,973 15,199 16,476
Common shareholder’s equity 1,989 2,109 1,901 2,142 2,381 2,666
Core Equity Tier 1 (Basel III) 1,378 1,475 1,656 1,886 2,127 2,414
Tier 1 capital 1,474 1,570 1,752 1,982 2,223 2,510
Jaap Meijer, MBA, CFA Zeina Nasreddine [email protected] Arqaam Capital Research Offshore s.a.l
+97145071744
September 12 2012
National Bank of Kuwait © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 98
National Bank of Kuwait valuation (KWDmn)
2010 2011 2012e 2013e 2014e 2015e perp subtotal % of total
1. DCF
Net profit 302 302 322 356 379 431 431
Other adjustments (comprehensive income) -- -- -- -- -- -- --
Minus: excess return excess capital 15 16 20 27 33 41 41
Risk free rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Tax shelter 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Adjusted net profit 287 287 302 329 346 390 390
Capital requirements 1,561 1,644 1,460 1,540 1,644 1,770 1,770
RoEcC 18.4% 17.4% 20.7% 21.4% 21.0% 22.0% 22.0%
Cost of capital 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5%
Capital charge 164 173 153 162 173 186 186
Economic profit 123 114 149 167 173 204 204
Discount factor -- -- -- 0.95 0.86 0.78 0.78
NPV of Economic Profit -- -- -- 159 149 159 159
DCF EVA Forecast period
467 9.8%
Perpetual growth rate (GDP)
3.3%
Terminal Value
2,813
Terminal value discounted
2,192 46.1%
Required Capital
1,460 30.7%
Value of the bank operations
4,119 86.6%
2. Capital surplus/deficit
Available capital:
Shareholders’ equity 2011 2,231 2,337 2,609 2,850 3,100 3,396
Less Goodwill & intangibles (229) (216) (585) (585) (585) (585)
Less non equity elements reported shareholders equity
Less Dividends (if included in reported equity) (144) (157) (158) (174) (187) (201)
Tangible equity 1,858 1,964 1,866 2,091 2,328 2,610
Capital needs
RWAs (Basel I in FY 11A, Basel II/III starting FY 12e) 8,088 8,586 10,609 11,320 12,217 13,308
RWAs (Basel III) 8,805 9,302 10,609 11,320 12,217 13,308
Equity as % RWA 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Financial stakes 504 528 187 182 178 173
Capital Requirements 1,561 1,644 1,460 1,540 1,644 1,770
Surplus capital 298 320 406 551 684 841
406 8.5%
3. Other adjustments
Real estate losses
Corporate bond fair value losses
Under/overprovisioning not covered in forecast period
73
Level 3 assets
Total adjustments
73 1.5%
4. Dividends
158 3.3%
Total Fair Value
4,756 100%
Fully diluted number of shares
4,353
Fair value per share
1.09
Current share price
0.95
Upside
15.0%
Implied P/E (x)
14.8 14.4
Implied P/tNAV (x)
2.50 2.39
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Zeina Nasreddine Arqaam Capital Research Offshore s.a.l
Bank Muscat Lower TP but still our best pick in Oman
BUY
Banks / OMAN Bloomberg code BKMB OM
Market index Muscat
Price target (local) 0.8
Upside (%) 46.0
Market data 11/09/2012
Last closing price 0.5
52 Week range 0.5-0.7
Market cap (OMR mn) 1,127
Market cap (USD mn) 2,929
Average daily volume (OMR mn) 0.5
Average daily volume (USD mn) 1.4
Year-end (local mn) 2011 2012e 2013e 2014e
Revenues 294 333 376 423
Pre-provision Operating Profit
173 199 227 257
EPS 0.07 0.07 0.07 0.08
P/E (x) (mkt price) 8.3 7.8 7.4 6.5
BVPS 0.43 0.48 0.53 0.58
Tangible BVPS 0.43 0.48 0.53 0.58
P/B (x) (mkt price) 1.3 1.2 1.0 0.9
P/TBVPS (x) ((mkt price) 1.3 1.2 1.0 0.9
DPS 0.02 0.02 0.02 0.02
Div. yield (%) 4.0 3.8 4.1 4.5
RoAA (%) 1.8 1.8 1.8 1.8
RoRWA (%) 1.8 1.7 1.7 1.7
RoTE (%) 15.9 15.6 14.8 15.1
Loan/ Deposit ratio (%) 101.5 103.8 103.8 103.8
Risk weighted assets (bn) 7 8 9 10
Core Equity Tier 1 ratio (%)
9.1 11.3 11.0 10.8
Tier 1 capital ratio (%) 11.9 11.4 12.7 12.2
Total capital ratio (%) 15 16 17 16
NPL ratio (%) 3.0 4.0 4.0 4.0
Coverage ratio (%) 118.4 75.6 74.5 74.4
Bank Muscat capital hike out of the way, still upcoming private placement of USD150m in Q4 planned
TP slightly adjusted for higher than expected discount and NIM compression
Muscat shows one of the highest upside in the sector after lackluster share price performance
Bank Muscat is a medium return bank, but with a favorable macro
environment. We have slightly reduced our net interest margin forecasts
(NIM cut by up to 13bps by FY15e) on the back of slightly disappointing
Q2 results and increased competition and the effect of existing regulatory
caps on personal loans. We expect RORWA to remain at c 1.7% vs. 1.8-
1.9% previously.
Capital shortfall largely addressed: Core Equity Tier-1 stood at 9%, but
should improve to 11.3% by FY 12e helped by the capital hikes. It
successfully placed a1:8 rights issue raising OMR96.7m, which increased
the number of shares by 226.5m.The remaining capital hike of USD
150mn as private placement is expected by Q4 of this year. Ideally, we
would like to see a higher CET1, but in Oman context, Bank Muscat is well
capitalized.
Strong growth: We expect strong loan growth in Oman of c14% pa, of
which 10% stems from project related lending, and helped by strong
support from Islamic finance, which has been recently introduced to the
country. We expect bank Muscat to acquire its fair share, while we expect
HSBC Oman to focus on its internal merger process rather than acquiring
market share in the next 2 years. We also think the capital increases of
pure Islamic banks are too small to provide those banks a large share of
the Islamic opportunities in Oman.
Cost of risk under control: We expect a structural loan loss of 67bps,
more or less unchanged from previous years.
National champion at a discount: We think the shares are offering a
cheap entry point. The stock is trading at a P/tNAV12e of 1.2x (with a
RoTE of 15%) and a P/E13e of 7.4x, despite taking into account the
dilutive effect of two capital increases. Our TP offers a very substantial
upside, despite factoring in slightly lower net interest margins.
OMR 0.8
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Price Performance
77
85
93
101
109
117
Sep/11 Dec/11 Mar/12 Jun/12
BKMB OM Muscat
September 12 2012
Bank Muscat © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 100
Abacus Arqaam Capital Fundamental Data
Profitability
NIM
Credit Quality
Capital Ratios
Growth
2.85%
2.61% 2.49% 2.47% 2.45% 2.50%
0.56% 0.51% 0.47% 0.47% 0.47%0.49%
1.78%1.77% 1.73% 1.73% 1.73% 1.77%
0%
1%
2%
3%
FY10 FY11 FY12e FY13e FY14e FY15e
PPP/RWA Cost of risk/RWA RORWA
3.36%3.42%
3.23%3.16%
3.09% 3.09%
2.8%
3.0%
3.2%
3.4%
3.6%
FY10 FY11 FY12e FY13e FY14e FY15e
Net interest margin
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
74%
74%
75%
75%
76%
76%
FY12e FY13e FY14e FY15e
NPL Cov ratio (%) NPL as % of tot loans
15.2% 14.8%15.9% 16.8% 16.4% 15.7%
10%
14%
18%
22%
26%
FY10 FY11 FY12e FY13e FY14e FY15eCore Tier 1 (Base III) Tier 1 CAR
4%
20%
16%15% 15%
15%15%
35%
13% 15% 15%
15%
0%
20%
40%
FY10 FY11 FY12e FY13e FY14e FY15e
Loan growth Deposit growth
Bank Muscat
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Net Interest Margin (%) 3.36 3.42 3.23 3.16 3.09 3.09
Cost/Income (%) 38.8 41.1 40.1 39.7 39.3 38.3
Net Interest Income/ total income (%) 70.5 72.1 71.7 71.7 71.6 72.0
Fees and commissions / Operating income (%) 19.6 20.8 21.3 21.5 21.8 21.7
Trading gains / Operating income (%) 0.9 2.4 2.5 2.6 2.6 2.6
RoTE (%) 14.7 15.9 15.6 14.8 15.1 15.7
Pre Prov.ROE (%) 19.0 19.5 19.2 18.3 18.7 19.6
RoAA (%) 1.7 1.8 1.8 1.8 1.8 1.8
Revenue / RWA (%) 4.66 4.43 4.16 4.09 4.03 4.05
Costs / RWA (%) 1.81 1.82 1.67 1.62 1.59 1.55
PPP / RWA (%) 2.85 2.61 2.49 2.47 2.45 2.50
Cost of risk / RWA (%) 0.56 0.51 0.47 0.47 0.47 0.49
RoRWA (%) 1.78 1.77 1.73 1.73 1.73 1.77
RoRWA (%) (adjusted for gross-up of associate) 1.59 1.62 1.59 1.59 1.59 1.62
Year-end 2010 2011 2012e 2013e 2014e 2015e
Asset Quality
Charge offs / Avg gross loans (%) 0.8 0.6 0.7 0.7 0.7 0.7
NPL/Gross Loans (%) 4.2 3.0 4.0 4.0 4.0 4.0
Provision coverage (%) 105.9 118.4 75.6 74.5 74.4 75.8
Provision/Avg gross loans (%) 4.4 3.5 3.0 3.0 3.0 3.0
Loan Loss Charge/Operating Income (%) 20.3 17.7 18.7 18.9 19.2 19.6
Year-end 2010 2011 2012e 2013e 2014e 2015e
Funding and Liquidity
Net loans/Deposits (%) 113.6 101.5 103.8 103.8 103.8 103.8
Cash and Interbank / assets (%) 8.8 13.3 12.0 10.2 10.3 9.6
Deposits/Liabilities (%) 68.7 73.5 73.6 73.3 73.0 72.8
Year-end 2010 2011 2012e 2013e 2014e 2015e
Capital and leverage ratios
Core Tier 1 ratio (Basel III) (%) 9.3 9.1 11.3 11.0 10.8 10.7
Tier 1 ratio (%) 11.6 11.9 11.4 12.7 12.2 12.0
Total capital ratio (%) 15.2 14.8 15.9 16.8 16.4 15.7
Tangible equity / assets (%) 12.2 10.6 12.3 11.9 11.5 11.3
RWA / assets (%) 97.4 91.9 96.3 96.2 95.4 94.7
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Asset growth (%) — 23.5 15.0 15.0 15.0 15.0
Net loan growth (%) 4.4 20.2 15.6 15.1 15.0 14.9
Deposit growth (%) 14.9 34.7 13.1 15.0 15.0 15.0
Net income growth (%) 37.8 15.7 17.9 14.8 14.0 16.7
September 12 2012
Bank Muscat © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 101
Abacus Arqaam Capital Fundamental Data
Company Profile
Bank Muscat, the best player in Oman, holding 40% and 38% in terms of loans and deposits market share respectively, it was established in 1982, with 2,904 employees and a network of 130 branches. Bank Muscat launched its Islamic banking operations, in December 2011, Meethaq. The bank’s loan book consists mainly of corporate and retail loans with 56% and 39% respectively in FY 11A. The bank’s main operations are in Oman, with 94% in FY 11A coming from Sultanate of Oman and 4% from other GCC countries. Major shareholders include Royal Court Affairs with 24.8% stake, Dubai Financial Group holding 15% and HSBC A/C The Bank of New York International with 13% stake. It has a free float of 49%.
Loan Breakdown by Sector
Loan Breakdown by Country
56%
1%4%
39%
Corporate
Sovereign
Financial institution
Retail
94%
4% 2%
Sultanate of Oman
Other GCC countries
Others
Bank Muscat
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (OMRmn)
Interest income 275 287 330 374 424 487
Interest expense 88 75 91 105 121 138
Net interest income 187 212 239 269 303 349
Fee income 52 61 71 81 92 105
Net Investment income 1 4 5 6 7 8
Other operating income 25 17 18 19 21 23
Total Operating Income 265 294 333 376 423 485
Total Operating expenses 103 121 134 149 166 186
Pre-provision operating profit 163 173 199 227 257 299
Net provisions 33 31 37 43 49 59
Other provisions/Impairment (1) 3 — — — —
Operating profit 130 140 162 184 207 240
Associates (13) (4) (1) 1 4 6
Pre-tax profit 118 136 161 185 211 246
Taxation 16 19 23 26 30 34
Net profit 102 118 139 159 181 212
Minorities — — — — — —
Tier 1 Coupon — — — — — —
Attributable net profit 102 118 139 159 181 212
Diluted EPS 0.06 0.07 0.06 0.07 0.08 0.10
DPS 0.02 0.02 0.02 0.02 0.02 0.03
BVPS 0.40 0.43 0.48 0.53 0.58 0.65
Tangible BVPS 0.40 0.43 0.48 0.53 0.58 0.65
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (OMRmn)
Gross loans and advances 4,194 4,996 5,745 6,607 7,598 8,738
Less: Loan loss provisions 186 176 174 197 226 265
Net loans and advances 4,008 4,819 5,571 6,410 7,372 8,473
Cash and central bank 726 826 1,108 1,275 1,471 1,700
Due from banks 550 869 831 956 1,099 1,264
Investment, net 322 392 474 545 627 721
Fixed assets 75 72 78 86 95 105
Other assets 170 249 249 287 330 379
Total assets 5,851 7,228 8,312 9,559 10,993 12,642
Customer deposits 3,527 4,749 5,369 6,175 7,101 8,166
Due to banks 760 731 940 1,258 1,433 1,755
Debt 334 502 502 511 511 511
Other liabilities 514 482 482 482 681 785
Total liabilities 5,135 6,464 7,293 8,425 9,726 11,217
Total Equity 716 764 1,019 1,134 1,267 1,425
Risk weighted assets (bn) 6 7 8 9 10 12
Average interest-earning assets 5,579 6,204 7,392 8,523 9,805 11,280
Average interest-paying liabilities 4,696 5,301 6,396 7,377 8,494 9,738
Common shareholder’s equity 716 764 1,019 1,133 1,267 1,425
Core Equity Tier 1 (Basel III) 599 656 902 1,009 1,132 1,279
Tier 1 capital 675 755 1,017 1,124 1,263 1,410
Jaap Meijer, MBA, CFA Zeina Nasreddine [email protected] Arqaam Capital Research Offshore s.a.l
+97145071744
September 12 2012
Bank Muscat © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 102
Bank Muscat valuation (OMRmn)
2010 2011 2012e 2013e 2014e 2015e perp subtotal % of total
1. DCF
Net profit 102 118 138 158 180 211 211
Other adjustments (comprehensive income) -- -- -- -- -- -- --
Minus: excess return excess capital (line 6 x line 29 x tax shelter) (7) (10) (7) (8) (10) (11) (11)
Risk free rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Tax shelter 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Adjusted net profit 109 127 145 166 190 222 222
Capital requirements 825 924 1,016 1,158 1,313 1,491 1,491
RoEcC 13.2% 13.8% 14.3% 14.4% 14.5% 14.9% 14.9%
Cost of capital 11.2% 11.2% 11.2% 11.2% 11.2% 11.2% 11.2%
Capital charge 92 103 113 129 146 166 166
Economic profit 17 24 32 37 44 55 55
Discount factor -- -- -- 0.95 0.85 0.77 0.77
NPV of Economic Profit -- -- -- 35 37 43 43
DCF EVA Forecast period
115 6.8%
Perpetual growth rate (GDP)
3.5%
Terminal Value
724
Terminal value discounted
556 32.8%
Required Capital (adjusted for release associates)
1,016 60.0%
Value of the bank operations
1,686 99.6%
2. Capital surplus/deficit
Available capital:
Shareholders’ equity 716 764 922 1,035 1,167 1,324
Less Goodwill & intangibles -- -- -- -- -- --
Less non equity elements reported shareholders equity
Less Dividends (if included in reported equity) (34) (39) (45) (48) (54) (59)
Tangible equity 683 725 877 987 1,114 1,265
Capital needs
RWAs (Basel I in FY 11A, Basel II/III starting FY 12e) 5,696 6,640 8,006 9,196 10,486 11,970
RWAs (Basel III) 6,416 7,242 8,006 9,196 10,486 11,970
Equity as % RWA 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Financial stakes 55 55 55 55 55 55
Capital Requirements 825 924 1,016 1,158 1,313 1,491
Surplus capital (142) (199) (138) (171) (199) (226)
(138) (8.2%)
3. Other adjustments
Real estate losses
Corporate bond fair value losses
Equity investment losses
Under/overprovisioning not covered in forecast period
106
Level 3 assets
(6)
Total adjustments
100 5.9%
4. Dividends
45 2.7%
Total Fair Value
1,693 100%
Fully diluted number of shares
2,175
Fair value per share
0.78
Current share price
0.55
Upside
41.8%
Implied P/E (x)
12.1 10.6
Implied P/tNAV (x)
1.81 1.61
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Jonathan Milan Arqaam Capital Research Offshore s.a.l
MedGulf Insurance Further downside amid deteriorating margins
SELL
Insurance / KSA Bloomberg code MEDGULF AB
Market index TASI
Price target (local) 19.3
Upside (%) -26.4
Market data 11/09/2012
Last closing price 26.2
52 Week range 24.3-37.5
Market cap (SAR mn) 2,128
Market cap (USD mn) 567
Average daily volume (SAR mn) 14.5
Average daily volume (USD mn) 3.9
Year-end (local mn) 2011 2012e 2013e 2014e
Gross Written Premiums 2,811 3,071 3,417 3,786
Underwriting Profit 492 255 356 457
EPS 2.56 0.91 1.82 2.71
P/E (x) (market price) 10.2 28.6 14.4 9.7
BVPS 14.67 15.17 16.17 17.66
Tangible BVPS 8.67 9.17 10.17 11.66
P/B (x) (market price) 1.8 1.7 1.6 1.5
P/TBVPS (x) (market price) 3.0 2.9 1.9 1.7
DPS 1.3 0.4 0.8 1.2
Div. yield (%) 4.8 1.6 3.1 4.6
RoAA (%) 5.2 1.7 3.1 4.0
RoAE (%) 32.0 10.3 18.8 24.8
Investments/Assets (%) 8.6 16.0 21.1 23.6
Investment Yield (%) 0.8 0.8 1.2 1.7
Net Loss Ratio 73.4 86.3 83.3 80.9
Combined Ratio 94.2 103.9 100.3 97.8
Underwriting Profit Margin
7.3 0.4 2.5 4.2
Net Profit Margin 7.3 2.4 4.3 5.7
Policy Reserves/Equity 176.5 215.0 239.7 259.8
Soaring net loss ratio in medical segment to reduce
underwriting profit by 61% in FY 12e
Motor segment records an unanticipated hike in claims,
resulting in diminishing underwriting profit
MedGulf reported a SAR 11mn loss in Q2 12A as a result of
escalating net claims in the medical and motor segments.
We reduce our EPS estimate for FY 12e and FY 13e by 58% and 30% respectively, after a very poor performance in Q2 12A: In the medical segment we expect 90% and 87% net loss ratios for FY 12e and FY 13e respectively; we thereafter forecast net loss ratio of 84%, compared to 80% previously. We forecast a net loss ratio for the motor segment of 84.5% and 81% for FY12e and FY 13e respectively. The sudden hike in motor net loss ratio up to 85% compared to 75% in previous years was especially disappointing. We believe that is the result of increasing competition and increasing repair costs.
Underwriting profitability severely reduced for FY12e and FY13e: As a result of rising net loss ratios we forecast combined ratio of 104% and 100% for FY 12e and FY13e respectively. The latter leading to a significant reduction in underwriting profit margin down to 0.4% and 2.5% for FY12e and FY 13e respectively, compared to 8.2% and 7.3% for FY 10A and FY 11A. We forecast combined ratio of 98% from FY 14e onward in anticipation of higher policy premiums and better claims management. Investment income remains unchanged at SAR 4mn for FY 12e barely contributing to net earnings.
We reduce our TP by 22% to SAR 19.3 and reiterate our SELL recommendation and it remains in our Avoid portfolio: MedGulf’s deteriorating performance in the medical and motor segment will continue to weaken earnings while investment income fails to contribute significantly. We reduce our TP down to SAR 19.3 with 26% downside, P/E 12e of 21.1x and P/B 12e of 2.1x. Medgulf remains the most expensive insurance stock in our universe. It is also at risk of having to impair the large capitalized intangibles. The share price has not yet fully reflected the poorer earnings outlook in our view and we keep the stock in our Avoid portfolio.
SAR 19.3
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Price Performance
60
100
140
180
Sep/11 Dec/11 Mar/12 Jun/12
MEDGULF AB TASI
September 12 2012
MedGulf Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 104
Abacus Arqaam Capital Fundamental Data
Profitability
Investment Yield
Investment Exposure
Solvency ratios & reserve adequacy
Growth
8% 7%
0%
3% 4% 4%
8% 7%
2%
4%
6% 6%
0%
5%
10%
FY10 FY11 FY12e FY13e FY14e FY15eNet Underwriting Margin Net Earnings Margin
2% 1% 1% 1% 2% 2%
0.0%
10.0%
20.0%
FY10 FY11 FY12e FY13e FY14e FY15eInvestmentYield
60%
70%
80%
10%
20%
30%
40%
FY10 FY11 FY12e FY13e FY14e FY15eInvestments/Assets Equities/Investments
0.72x 0.74x 0.85x 0.91x 0.97x 1.03x
1.75x 1.77x2.15x
2.40x 2.60x 2.78x
0.0x
2.0x
4.0x
FY10 FY11 FY12e FY13e FY14e FY15ePolicy Reserves/Gross Premiums Policy Reserves/Equity
42%7% 9% 11% 11% 10%
-29%
82%112%
49%
27% 26%
-100%
0%
100%
200%
FY10 FY11 FY12e FY13e FY14e FY15e
Growth in GrossPremiums Gross in Investments
MedGulf Insurance
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Cession Ratio 26.2 31.8 27.5 26.4 25.9 25.4
Net Loss Ratio 71.9 73.4 86.3 83.3 80.9 81.0
Expense Ratio 19.1 20.8 17.6 17.0 16.9 16.8
Combined Ratio 91.0 94.2 103.9 100.3 97.8 97.8
Underwriting Profit Margin 8.2 7.3 0.4 2.5 4.2 4.1
Investment Yield 2.1 0.8 0.8 1.2 1.7 2.4
Net Margin 7.7 7.3 2.4 4.3 5.7 5.9
RoAE 39.3 32.0 10.3 18.8 24.8 24.6
RoAA 5.9 5.2 1.7 3.1 4.0 4.0
Net Premiums/Equity 1.7 1.6 1.6 1.8 1.9 1.9
Gross Premiums/Equity 2.5 2.4 2.5 2.6 2.7 2.7
Claims Reserve/NPE 0.3 0.4 0.5 0.5 0.5 0.6
Investment Income/Total Income 0.3 0.1 0.2 0.5 0.8 1.3
Year-end 2010 2011 2012e 2013e 2014e 2015e
Investment Exposure
Investments/Assets 4.7 8.6 16.0 21.1 23.6 26.4
Equities/Investments 10.1 5.5 5.5 5.5 5.5 5.5
Equity/Assets (%) 27.3 29.9 27.1 25.7 24.7 23.9
Year-end 2010 2011 2012e 2013e 2014e 2015e
Liquidity/Leverage
Policy Reserves/Gross Premiums 0.7 0.7 0.8 0.9 1.0 1.0
Policy Reserves/Net Earned Premiums 1.0 1.1 1.3 1.3 1.4 1.5
Policy Reserves/Equity 1.8 1.8 2.2 2.4 2.6 2.8
Debt/Capital — — — — — —
Debt/Equity (x) — — — — — —
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Gross Premiums 41.8 7.2 9.2 11.3 10.8 10.2
Net Earned Premiums 37.8 4.4 4.5 19.9 11.6 11.0
Investments (29.0) 82.5 112.0 48.6 27.0 26.4
Assets 32.2 0.2 14.1 12.7 13.5 13.1
Total Reserves 37.1 10.5 26.0 18.9 18.4 17.3
Equity 15.5 9.8 3.4 6.6 9.2 9.6
Year-end 2010 2011 2012e 2013e 2014e 2015e
Valuation
P/B(x) (current price) 2.0 1.8 1.7 1.6 1.5 1.4
P/B(x) (target price) 1.4 1.3 1.3 1.2 1.1 1.0
P/E(x) (current price) 10.3 10.2 28.6 14.4 9.7 8.5
P/E(x) (target price) 7.6 7.5 21.1 10.6 7.1 6.3
September 12 2012
MedGulf Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 105
Abacus Arqaam Capital Fundamental Data
MedGulf
MedGulf is the 2ndlargest insurer in Saudi Arabia by GWP. The company maintained a c. 15.7% market share of total premiums in FY 11A. The company operates solely in Saudi Arabia with c. 700 employees and 56 representative offices. The company’s main shareholders are MedGulf Bahrain with 40% and Saudi Investment Bank with 19%. The majority of GWP arise from the medical segment, accounting for 72% of total GWP, motor for 6.6% and other segments (including life) combine to form 21.6% of total GWP.
MedGulf Insurance
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (mn)
Gross Written Premiums 2,623 2,811 3,071 3,417 3,786 4,174
Ceded Premiums 688 895 844 902 981 1,062
Retained Premiums 1,935 1,916 2,227 2,515 2,805 3,112
Movement in Unearned Premiums 143 45 271 171 189 209
Net Premiums Earned 1,792 1,871 1,956 2,344 2,615 2,903
Commissions Received on Ceded Reinsurance 54 98 89 92 100 107
Gross Claims Paid — — — — — —
Claims recovered — — — — — —
Movement in Outstanding Claims 216 283 381 529 764 1,024
Net Claims 1,288 1,373 1,687 1,953 2,115 2,352
commissions paid 116 104 103 128 143 157
Underwriting Profit 442 492 255 356 457 500
Investment Income 5 3 4 11 21 37
Other operating income 24 43 60 71 79 84
Total Income 471 537 319 438 556 622
Interest Expense — — — — — —
General & Administrative 226 286 242 270 300 329
Operating Profit 245 251 77 168 257 292
Other income/(loss) (13) (13) 7 (1) (8) (9)
Tax 29 33 11 22 32 37
Minority Interest — — — — — —
Net Income 203 205 73 146 217 247
Reported EPS 2.5 2.6 0.9 1.8 2.7 3.1
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (mn)
Cash 734 680 506 292 235 230
Reinsurers Share of Outstanding Claims 317 538 623 762 899 1,070
Reinsurers Share of Unearned Premiums 438 453 568 653 748 767
Investment Properties — — — — — —
Investments 185 338 717 1,066 1,354 1,711
Associates — 14 14 14 14 14
Insurance Receivables 1,224 979 1,119 1,311 1,514 1,715
Fixed Assets 57 67 80 89 95 96
Other Assets 957 853 849 859 865 872
Total Assets 3,914 3,922 4,476 5,045 5,724 6,475
Outstanding Claims 616 754 906 1,142 1,428 1,834
Unearned Contribution Reserves 1,259 1,318 1,704 1,960 2,244 2,472
Debt — — — — — —
Insurance Payables 294 371 377 372 355 329
Other Liabilities 677 306 275 276 285 292
Total Liabilities 2,845 2,749 3,262 3,751 4,311 4,926
Shareholders Equity 1,069 1,174 1,214 1,294 1,413 1,549
Minority Interest — — — — — —
Total Equity 1,069 1,174 1,214 1,294 1,413 1,549
BVPS 13.4 14.7 15.2 16.2 17.7 19.4
Jaap Meijer, MBA, CFA Jonathan Milan [email protected] Arqaam Capital Research Offshore s.a.l
+97145071744
September 12 2012
MedGulf Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 106
MedGulf valuation (SAR mn)
2012e 2013e 2014e 2015e 2020e perp subtotal % of total
1 DCF
Net profit 73,178 145,821 216,541 246,555 415,364 415,364
Other adjustments (comprehensive income) -- -- -- -- --
Minus: excess return excess capital (16,536) (20,720) (23,440) (25,447) (29,726) (29,726)
Return on excess capital 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Tax shelter 13.0% 13.0% 13.0% 13.0% 13.0% 13.0%
Adjusted net profit 89,713 166,541 239,981 272,002 445,090 445,090
Capital requirements 1,146,174 1,306,681 1,467,590 1,643,273 2,634,777 2,634,777
RoEcC 7.8% 12.7% 16.4% 16.6% 16.9% 16.9%
Cost of capital 12.6% 12.6% 12.6% 12.6% 12.6% 12.6%
Capital charge 144,418 164,642 184,916 207,052 331,982 331,982
Economic profit (54,705) 1,899 55,065 64,949 113,108 113,108
Discount factor 0.00 0.94 0.84 0.74 0.41 0.41
NPV of Economic Profit -- 1,790 46,086 48,276 46,447 113,108
DCF EVA Forecast period
354,134
Perpetual growth rate (GDP)
3.0%
Terminal Value
1,178,206
Terminal value discounted
483,819
Required Capital
1,146,174
Value of the bank operations
1,984,127 128.7%
2 Capital surplus/deficit
Available capital:
Shareholders’ equity 1,213,753 1,293,955 1,413,052 1,548,657 2,513,984
Less Goodwill & intangibles 509,810 517,055 521,580 525,666 546,480
Less dividends 32,930 65,620 97,443 110,950 186,914
Tangible equity 671,013 711,280 794,029 912,041 1,780,590
Capital needs
Gross written premium (GWP) 3,070,769 3,416,836 3,786,100 4,173,601 6,169,461
Technical reserves
Equity investments 176,226 261,913 332,631 420,496 1,046,320
Investment properties
Associates 14,000 14,000 14,000 14,000 14,000
Equity as % GWP 34.0% 34.0% 34.0% 34.0% 34.0%
Equity as % Technical reserves
Equity as % of investments 50% 50% 50% 50% 50%
Equity as % of investment properties
Equity as % of associates 100% 100% 100% 100% 100%
Capital Requirements 1,146,174 1,306,681 1,467,590 1,643,273 2,634,777
Surplus capital (475,161) (595,400) (673,561) (731,231) (854,187)
(475,161) (30.8%)
3 Other adjustments
Total adjustments
4. Dividends
32,930 2.1%
Total Fair Value YE 2011
1,541,896
Fair value per share
19.3
Current share price
26.2
Upside
(26.4%)
Implied P/E 21.1x 10.6x
Implied P/B 2.1x 1.9x
Source: Company Data, Arqaam Capital Research
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Jonathan Milan Arqaam Capital Research Offshore s.a.l
Qatar Insurance Company High expectations for H2 12A
BUY
Insurance / Qatar Bloomberg code QATI QD
Market index Qatar
Price target (local) 85.3
Upside (%) 21.0
Market data 12/09/2012
Last closing price 70.5
52 Week range 63.3-78.3
Market cap (QAR mn) 6,288
Market cap (USD mn) 1,727
Average daily volume (QAR mn) 2.1
Average daily volume (USD mn) 0.6
Year-end (local mn) 2011 2012e 2013e 2014e
Gross Written Premiums 2,383 2,611 2,856 3,116
Underwriting Profit 338 264 454 501
EPS 6.64 6.26 7.26 7.47
P/E (x) (market price) 10.6 11.2 9.7 9.4
BVPS 39.57 40.01 41.23 42.49
Tangible BVPS 39.57 40.01 41.23 42.49
P/B (x) (market price) 1.8 1.8 1.7 1.7
P/TBVPS (x) (market price) 2.2 1.8 2.1 2.0
DPS 5.7 5.9 6.2 6.4
Div. yield (%) 8.1 8.5 8.8 9.0
RoAA (%) 7.6 6.3 6.8 6.6
RoAE (%) 16.8 15.7 17.9 17.9
Investments/Assets (%) 53.5 51.8 51.9 52.1
Investment Yield (%) 10.2 11.4 8.7 8.0
Net Loss Ratio 65.1 71.7 61.7 61.5
Combined Ratio 92.8 99.7 88.9 88.4
Underwriting Profit Margin
4.0 0.2 6.1 6.5
Net Profit Margin 24.8 21.4 22.7 21.4
Policy Reserves/Equity 97.6 121.5 131.3 141.1
Worst almost over; entire claims related to New Zeeland
quake to be paid by end FY 12e.
Combined ratios to drop drastically in FY 13e-14e, boosting
underwriting profit.
Higher investment income softened the drop from rising net
loss ratios. Investment yields consistently high.
We reduce our EPS estimate for FY 12e and FY 13e by 2.8% and 10.1% respectively as a result of higher claims: We reduce underwriting profit margin to 0.2% from 3.9% for FY 12e and 6.1% from 9.2% in FY 13e as a result. This translated into a 26% and 15% drop in underwriting profit respectively. QIC experienced higher than anticipated claims from the New Zeeland quake, pushing net loss ratios up to 75%, combined ratios above 100% and underwriting profit margins down to 7.4% in H1 12A.
Revised net loss ratio substantially higher: We augmented the net loss ratio by 5.9%, to 71.7% for FY 12e, and 4.6% to 61.7% for FY13e. Management anticipates that most claims have been paid, hence loss ratios in H2 12e are expected to be lower. We expect the combined ratio to drop to 99.7% for FY 12e as a result of lower claims in H2 12e. Moving forward we forecast combined ratios to average 88.4% with net loss ratios of 61.6% and an underwriting profit margin of 6.5%. We increased net loss ratios by 3.5%-4.0% from our initial forecasts to account for the possibility of other disasters of the same magnitude as the previous one.
Consistently strong investment returns soften the drop resulting from higher claims: We upgrade our forecasts for FY 12e by 21%, with investment income totaling QAR 497mn compared to our initial QAR 410mn. We further increase return on investments by 30bps and 80bps for FY13e and FY 14e-FY 15e respectively. Investment income rose 29% y/y during H1 12A by QAR 65mn, reducing the drop in earnings resulting from the QAR 94mn in lower underwriting income. Management seems confident that returns won’t drop anytime soon.
We reduce our TP by 10%, down to QAR 85/share: We maintain our BUY recommendation with an upside of 21.6%, P/B 12e-13e of 2.1x and P/E 13e of 11.8x, despite a potential 10% capital increase. We see the drop in profitability as only temporary and expect a strong recovery in FY 13e-14e although not to pre-FY 11A levels.
QAR 85.3
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Price Performance
80
100
120
140
Sep/11 Dec/11 Mar/12 Jun/12
QATI QD Qatar
September 12 2012
Qatar Insurance Company © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 108
Abacus Arqaam Capital Fundamental Data
Profitability
Investment Yield
Investment Exposure
Solvency ratios & reserve adequacy
Growth
10%
4% 0%
6%
6% 6%
27% 25%
21% 23% 21% 20%
0%
5%
10%
15%
20%
25%
30%
FY10 FY11 FY12e FY13e FY14e FY15eNet Underwriting Margin Net Earnings Margin
8%10% 11%
9% 8% 7%
0.0%
10.0%
20.0%
30.0%
FY10 FY11 FY12e FY13e FY14e FY15eInvestmentYield
0%
20%
40%
60%
40%
50%
60%
70%
FY10 FY11 FY12e FY13e FY14e FY15eInvestments/Assets Equities/Investments
1.27x 1.37x1.57x 1.59x 1.61x 1.63x
0.82x0.98x
1.22x 1.31x 1.41x 1.51x
0.0x0.2x0.4x0.6x0.8x1.0x1.2x1.4x1.6x1.8x
FY10 FY11 FY12e FY13e FY14e FY15ePolicy Reserves/Gross Premiums Policy Reserves/Equity
0%
11% 10% 9% 9% 9%11%
-5%
3%4%
5% 5%
-8.00%
-2.00%
4.00%
10.00%
FY10 FY11 FY12e FY13e FY14e FY15e
Growth in GrossPremiums Gross in Investments
Qatar Insurance Company
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Cession Ratio 45.8 41.9 42.2 41.7 41.3 41.3
Net Loss Ratio 52.3 65.1 71.7 61.7 61.5 61.6
Expense Ratio 28.7 27.8 28.0 27.3 26.9 26.8
Combined Ratio 81.0 92.8 99.7 88.9 88.4 88.4
Underwriting Profit Margin 9.8 4.0 0.2 6.1 6.5 6.5
Investment Yield 8.0 10.2 11.4 8.7 8.0 7.4
Net Margin 27.4 24.8 21.4 22.7 21.4 20.0
RoAE 18.1 16.8 15.7 17.9 17.9 17.6
RoAA 8.2 7.6 6.3 6.8 6.6 6.3
Net Premiums/Equity 0.3 0.4 0.4 0.5 0.5 0.5
Gross Premiums/Equity 0.6 0.7 0.8 0.8 0.9 0.9
Claims Reserve/NPE 1.6 1.7 2.1 2.0 2.0 2.0
Investment Income/Total Income 43.3 51.5 59.7 44.1 41.5 39.4
Year-end 2010 2011 2012e 2013e 2014e 2015e
Investment Exposure
Investments/Assets 60.2 53.5 51.8 51.9 52.1 52.2
Equities/Investments 52.8 50.7 46.3 44.9 43.7 41.5
Equity/Assets (%) 46.1 42.9 38.1 36.5 35.3 34.1
Year-end 2010 2011 2012e 2013e 2014e 2015e
Liquidity/Leverage
Policy Reserves/Gross Premiums 1.3 1.4 1.6 1.6 1.6 1.6
Policy Reserves/Net Earned Premiums 2.5 2.5 2.9 2.9 2.9 2.9
Policy Reserves/Equity 0.8 1.0 1.2 1.3 1.4 1.5
Debt/Capital 0.1 0.1 0.1 0.1 0.1 0.1
Debt/Equity (x) 0.1 0.1 0.1 0.1 0.1 0.1
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Gross Premiums 0.2 10.7 9.6 9.4 9.1 8.9
Net Earned Premiums 5.9 18.2 6.8 12.1 9.7 8.9
Investments 11.3 (5.0) 2.6 4.5 5.5 5.4
Assets 6.5 7.5 13.5 7.5 6.5 6.5
Total Reserves 30.6 19.0 25.5 11.2 10.6 9.8
Equity 17.0 — 0.8 2.9 2.9 2.9
Year-end 2010 2011 2012e 2013e 2014e 2015e
Valuation
P/B(x) (current price) 1.8 1.8 1.8 1.7 1.7 1.6
P/B(x) (target price) 2.2 2.2 2.1 2.1 2.0 1.9
P/E(x) (current price) 10.6 10.6 11.2 9.7 9.4 9.2
P/E(x) (target price) 12.9 12.9 13.6 11.8 11.4 11.2
September 12 2012
Qatar Insurance Company © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 109
Abacus Arqaam Capital Fundamental Data
Qatar Insurance Company
Qatar Insurance Company is the largest insurer in Qatar by GWP, having over 50% market share. Founded in 1964, the company operates outside Qatar as well, with 54% of GWP received from outside the state. The company engages in reinsurance, accounting for c.20% of total GWP. Along with the 2nd and 3rd largest insurers in Qatar, QIC accounts for c.68% of total GWP. The Qatari government is the largest shareholder with 12% ownership, followed by QNB and Burooq Trading Co. each with 5% ownership. Free float is estimated to be 72%.
GWP Breakdown by Segment
86%
14%Fire & General
Marine & Aviation
Qatar Insurance Company
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (mn)
Gross Written Premiums 2,153 2,383 2,611 2,856 3,116 3,392
Ceded Premiums 987 1,000 1,103 1,191 1,286 1,399
Retained Premiums 1,166 1,383 1,508 1,664 1,830 1,992
Movement in Unearned Premiums 48 62 97 82 93 102
Net Premiums Earned 1,118 1,321 1,411 1,583 1,736 1,891
Commissions Received on Ceded Reinsurance — — — — — —
Gross Claims Paid 976 1,123 1,190 1,331 1,457 1,591
Claims recovered 447 532 495 543 595 650
Movement in Outstanding Claims 56 268 317 188 206 225
Net Claims 585 859 1,011 976 1,068 1,165
commissions paid 107 123 136 153 168 183
Underwriting Profit 426 338 264 454 501 543
Investment Income 362 435 497 416 408 400
Other operating income 48 71 71 72 73 74
Total Income 836 845 832 942 982 1,017
Interest Expense — — (5) (7) (8) (7)
General & Administrative (214) (244) (260) (279) (299) (323)
Operating Profit 622 601 567 656 675 687
Other income/(loss) — 2 3 3 4 5
Tax — — — — — —
Minority Interest 33 11 11 12 13 14
Net Income 590 592 558 647 667 679
Reported EPS 6.6 6.6 6.3 7.3 7.5 7.6
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (mn)
Cash 1,736 2,081 2,591 2,882 3,095 3,351
Reinsurers Share of Outstanding Claims 1,160 1,282 1,701 1,824 1,930 2,016
Reinsurers Share of Unearned Premiums 457 523 523 588 663 744
Investment Properties 385 453 453 454 454 454
Investments 2,860 2,718 2,787 2,912 3,071 3,238
Associates 62 64 66 70 74 79
Insurance Receivables 549 630 680 735 794 855
Fixed Assets 29 26 26 25 25 25
Other Assets — — — — — —
Total Assets 7,237 7,777 8,827 9,489 10,106 10,763
Outstanding Claims 1,789 2,180 2,916 3,226 3,538 3,849
Unearned Contribution Reserves 950 1,080 1,176 1,323 1,491 1,674
Debt 229 182 217 348 289 248
Insurance Payables 746 807 950 914 997 1,086
Other Liabilities — — — — — —
Total Liabilities 3,715 4,248 5,259 5,812 6,316 6,857
Shareholders Equity 3,339 3,339 3,367 3,464 3,564 3,666
Minority Interest 184 190 201 213 226 239
Total Equity 3,522 3,529 3,568 3,677 3,790 3,905
BVPS 39.5 39.6 40.0 41.2 42.5 43.8
Jaap Meijer, MBA, CFA Jonathan Milan [email protected] Arqaam Capital Research Offshore s.a.l
+97145071744
September 12 2012
Qatar Insurance Company © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 110
Qatar Insurance Company valuation (QAR mn)
2012e 2013e 2014e 2015e 2020e perp subtotal % of total
1 DCF
Net profit 558,429 647,343 666,624 678,847 843,589 873,115
Other adjustments (comprehensive income) -- -- -- -- --
Minus: excess return excess capital 35,362 33,444 31,497 30,860 18,359 19,002
Return on excess capital 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Tax shelter 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Adjusted net profit 523,067 613,898 635,127 647,987 825,230 854,113
Capital requirements 2,153,587 2,290,958 2,436,013 2,556,924 3,377,922 3,496,150
RoEcC 24.3% 26.8% 26.1% 25.3% 24.4% 24.4%
Cost of capital 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Capital charge 258,430 274,915 292,322 306,831 405,351 419,538
Economic profit 264,637 338,983 342,806 341,156 419,880 434,576
Discount factor 0.00 0.94 0.84 0.75 0.43 0.43
NPV of Economic Profit -- 320,309 289,215 256,985 179,469 434,576
DCF EVA Forecast period
1,857,118
Perpetual growth rate (GDP)
3.5%
Terminal Value
5,112,653
Terminal value discounted
2,185,300
Required Capital
2,153,587
Value of the bank operations
6,196,005 81.4%
2 Capital surplus/deficit
Available capital:
Shareholders’ equity 2010 3,568,153 3,677,306 3,790,075 3,905,444 4,553,950
Less Goodwill & intangibles -- -- -- -- --
Less dividends 530,508 550,241 566,631 577,020 717,051
Tangible equity 3,037,645 3,127,065 3,223,445 3,328,424 3,836,899
Capital needs
Gross written premium (GWP) 2,611,145 2,855,561 3,115,507 3,391,615 4,959,420
Technical reserves 2,915,723 3,226,319 3,538,435 3,849,220 5,220,354
Equity investments 2,172,150 2,273,918 2,378,769 2,422,363 2,933,954
Investment properties 453,495 453,767 454,039 454,312 455,676
Associates 66,349 69,666 73,846 79,016 110,823
Equity as % GWP 34.0% 34.0% 34.0% 34.0% 34.0%
Equity as % Technical reserves
Equity as % of investments 50.0% 50.0% 50.0% 50.0% 50.0%
Equity as % of investment properties 25.0% 25.0% 25.0% 25.0% 25.0%
Equity as % of associates 100.0% 100.0% 100.0% 100.0% 100.0%
Capital Requirements 2,153,587 2,290,958 2,436,013 2,556,924 3,377,922
Surplus capital 884,058 836,107 787,432 771,500 458,977
884,058 11.6%
3 Other adjustments
Total adjustments
4. Dividends
530,508 7.0%
Total Fair Value YE 2011
7,610,571
Fair value per share
85.3
Current share price
70.2
Upside
21.6%
Implied P/E 13.6x 11.8x 11.4x
Implied P/B 2.1x 2.1x 2.0x
Source: Company Data, Arqaam Capital Research
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Jonathan Milan Arqaam Capital Research Offshore s.a.l.
Salama Insurance Still attractive despite setback
BUY
Insurance / UAE Bloomberg code SALAMA UH
Market index UAE
Price target (local) 0.82
Upside (%) 20.1
Market data 11/09/2012
Last closing price 0.68
52 Week range 0.5-1.0
Market cap (AED mn) 841
Market cap (USD mn) 229
Average daily volume (AED mn) 3.9
Average daily volume (USD mn) 1.1
Year-end (local mn) 2011 2012e 2013e 2014e
Gross Written Premiums 2,268 2,173 2,266 2,402
Underwriting Profit 222 193 290 294
EPS 0.05 0.04 0.09 0.08
P/E (x) (market price) 13.8 16.2 7.7 8.3
BVPS 1.34 1.39 1.48 1.57
Tangible BVPS 1.19 1.23 1.33 1.41
P/B (x) (market price) 0.5 0.5 0.5 0.4
P/TBVPS (x) (market price) 0.6 0.6 0.5 0.5
DPS — — — —
Div. yield (%) — — — —
RoAA (%) 1.4 1.0 2.0 1.8
RoAE (%) 4.2 3.5 6.9 6.0
Investments/Assets (%) 31.4 30.1 31.9 33.5
Investment Yield (%) 2.9 4.1 3.1 3.1
Net Loss Ratio 59.3 62.7 57.1 57.6
Combined Ratio 101.0 104.4 98.5 99.0
Underwriting Profit Margin
1.5 — 4.0 3.6
Net Profit Margin 2.6 2.3 4.7 4.1
Policy Reserves/Equity 126.4 136.8 130.1 134.9
Rising claims in Non-Motor segment push combined ratio to
104% in FY 12e; drop back below 100% from FY 13e onward.
Selective policy on contracts in motor segment to reduce net
loss ratios, but at the expense of diminishing GWP.
Disappointing family Takaful performance; diminishing GWP
and rising loss ratio collude to shrinking underwriting profit.
We reduce our EPS estimate for FY 12e and FY 13e by 22.8% and 16.2% respectively as a result of lower GWP and investment income. We have reduced motor and family Takaful GWP forecasts, and hence net earned premiums. We forecast an 18% drop in motor GWP for FY 12e. The drop is the result of the company’s new policy of only renewing contracts that deem highly profitable. We expect net loss ratio to drop to 43% and 46% in FY 12e and FY 14e onwards compared to 63.7% in FY 11A in motor. We expect motor underwriting profit to increase by 207% during FY 12e. We now expect GWP in family Takaful to diminish by 2% only for FY 12e, compared to our initial 15% increase in GWP. We forecast 75% net loss ratio for FY 12e and only 2% increase in GWP, resulting in an overall AED 54mn underwriting loss for FY 12e in the non-motor segment. We forecast non-motor to be far less profitable in the future than in previous years as a precaution against possible future disasters. As per management guidance Salama needs to invest in highly liquid, safe sukuks to meet capital requirements, hence we reduced investments returns by 60bps down to 3.0%.
Disappointing topline: After over 4 years of double digit growth in GWP, Salama recorded a 1.6% decrease in GWP during H1 12A driven by a severe 10.6% drop in motor GWP, with further drops in Q3 12 ahead of us as Salama ended contracts. GWP in the family Takaful segment diminished by c. 4.8% during H1 12A y/y, even though individual Takaful (mainly investment products with life wrappers) in UAE continues to be successful. The disappointing growth in GWP is a result of increased competition. The drop in GWP was accompanied by a hike in net claims, particularly in group life, resulting in a plummeting in underwriting profit.
12% reduction in TP to AED 0.82. We maintain our BUY recommendation with 21% upside, P/E 13e of 9.3x and P/B 13e of 0.55x, but we remove it from our Core Buy portfolio, due to the challenging Q3 12, as Salama’s subsidiary Best Re deals with claims from the Thai floods. As of FY13e we expect improving underwriting profits.
AED 0.82
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Price Performance
0
100
200
Sep/11 Dec/11 Mar/12 Jun/12
SALAMA UH UAE
September 12 2012
Salama Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 112
Abacus Arqaam Capital Fundamental Data
Profitability
Investment Yield
Investment Exposure
Solvency ratios & reserve adequacy
Growth
3%
1%
4%
4% 4%
3%
3% 2%
5% 4% 4%
0%
5%
FY10 FY11 FY12e FY13e FY14e FY15eNet Underwriting Margin Net Earnings Margin
3% 3% 4% 3% 3% 3%
0.0%
10.0%
20.0%
30.0%
FY10 FY11 FY12e FY13e FY14e FY15eInvestmentYield
60%
70%
80%
10%
20%
30%
40%
FY10 FY11 FY12e FY13e FY14e FY15eInvestments/Assets Equities/Investments
0.79x0.90x
1.06x 1.03x 1.06x 1.11x0.92x
1.26x1.37x 1.30x 1.35x 1.41x
0.0x0.2x0.4x0.6x0.8x1.0x1.2x1.4x1.6x
FY10 FY11 FY12e FY13e FY14e FY15ePolicy Reserves/Gross Premiums Policy Reserves/Equity
17%23%
-4%4% 6% 6%9% 6% 3%
14%
13% 12%
-20.00%
0.00%
20.00%
40.00%
FY10 FY11 FY12e FY13e FY14e FY15e
Growth in GrossPremiums Gross in Investments
Salama Insurance
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Cession Ratio 15.9 15.1 16.6 15.9 16.0 16.1
Net Loss Ratio 55.8 59.3 62.7 57.1 57.6 57.7
Expense Ratio 44.6 41.8 41.8 41.5 41.4 41.1
Combined Ratio 100.3 101.0 104.4 98.5 99.0 98.8
Underwriting Profit Margin 2.7 1.5 — 4.0 3.6 3.8
Investment Yield 2.8 2.9 4.1 3.1 3.1 3.1
Net Margin 2.7 2.6 2.3 4.7 4.1 4.3
RoAE 3.7 4.2 3.5 6.9 6.0 6.2
RoAA 1.4 1.4 1.0 2.0 1.8 1.8
Net Premiums/Equity 0.9 1.1 1.0 1.0 1.0 1.0
Gross Premiums/Equity 1.2 1.4 1.3 1.3 1.3 1.3
Claims Reserve/NPE 0.7 0.8 0.9 0.8 0.8 0.8
Investment Income/Total Income 60.5 59.1 74.2 69.4 71.0 72.4
Year-end 2010 2011 2012e 2013e 2014e 2015e
Investment Exposure
Investments/Assets 37.8 31.4 30.1 31.9 33.5 34.9
Equities/Investments 2.4 0.6 0.7 0.7 0.7 0.7
Equity/Assets (%) 42.7 34.7 33.3 33.0 32.5 32.1
Year-end 2010 2011 2012e 2013e 2014e 2015e
Liquidity/Leverage
Policy Reserves/Gross Premiums 0.8 0.9 1.1 1.0 1.1 1.1
Policy Reserves/Net Earned Premiums 1.0 1.2 1.4 1.3 1.4 1.4
Policy Reserves/Equity 0.9 1.3 1.4 1.3 1.3 1.4
Debt/Capital 0.1 0.1 0.1 0.2 0.2 0.2
Debt/Equity (x) 0.1 0.1 0.1 0.3 0.3 0.3
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Gross Premiums 17.1 23.1 (4.2) 4.3 6.0 6.0
Net Earned Premiums 24.7 25.3 (5.2) 6.0 5.2 5.8
Investments 9.1 5.7 3.5 14.1 12.6 12.1
Assets 11.9 27.1 8.0 7.5 7.5 7.5
Total Reserves 38.3 67.8 5.5 (5.3) 4.1 6.1
Equity 4.2 3.3 3.5 6.6 5.8 6.1
Year-end 2010 2011 2012e 2013e 2014e 2015e
Valuation
P/B(x) (current price) 0.5 0.5 0.5 0.5 0.4 0.4
P/B(x) (target price) 0.6 0.6 0.6 0.6 0.5 0.5
P/E(x) (current price) 16.5 13.8 16.2 7.7 8.3 7.5
P/E(x) (target price) 19.8 16.6 19.4 9.3 10.0 9.1
September 12 2012
Salama Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 113
Abacus Arqaam Capital Fundamental Data
Salama
Salama was established in 1979, operates 6 branches in the UAE with 150 employees. The company provides Islamic non-life insurance, life insurance and Islamic reinsurance services. The majority of the company’s GWP arise from the Far East (Malaysia, mainly reinsurance) accounting for 62%, and 19% from the Middle East (mostly UAE). The company recently launched a Sharia compliant life insurance segment that has been experiencing strong double digit growth. Noor al Ain Management Services is the largest shareholder with 13.7% ownership, Ajyad Management services with 10% ownership and 56% owned by several investors, with a remaining 20% free float.
GWP Breakdown by Segment
9.4%2.1%
28.8%59.7%
TakafulMedicalMotorNon-motor
Salama Insurance
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (mn)
Gross Written Premiums 1,842 2,268 2,173 2,266 2,402 2,545
Ceded Premiums 292 342 361 361 384 409
Retained Premiums 1,550 1,926 1,811 1,905 2,018 2,136
Movement in Unearned Premiums 127 144 121 114 132 141
Net Premiums Earned 1,423 1,783 1,690 1,792 1,886 1,996
Commissions Received on Ceded Reinsurance 54 52 74 65 69 73
Gross Claims Paid — — — — — —
Claims recovered — — — — — —
Movement in Outstanding Claims 76 180 (148) 102 109 115
Net Claims 793 1,057 1,059 1,023 1,087 1,151
commissions paid 461 556 512 543 574 608
Underwriting Profit 222 222 193 290 294 310
Investment Income 35 40 73 59 66 73
Other operating income 23 28 25 26 27 28
Total Income 280 289 291 375 386 410
Interest Expense 22 17 16 29 41 44
General & Administrative 173 189 194 199 206 213
Operating Profit 86 84 81 147 139 153
Other income/(loss) (22) (17) (15) (18) (19) (20)
Tax 9 7 9 17 16 18
Minority Interest 5 — 6 5 6 6
Net Income 50 60 51 106 99 109
Reported EPS — — — 0.1 0.1 0.1
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (mn)
Cash 209 435 537 831 957 1,055
Reinsurers Share of Outstanding Claims 218 478 728 521 489 492
Reinsurers Share of Unearned Premiums 52 69 92 115 134 154
Investment Properties 83 275 280 286 292 297
Investments 1,389 1,468 1,519 1,733 1,952 2,189
Associates 57 58 59 61 63 65
Insurance Receivables 826 1,103 1,042 1,087 1,152 1,220
Fixed Assets 72 107 107 107 107 107
Other Assets 773 685 685 688 691 693
Total Assets 3,679 4,676 5,050 5,429 5,836 6,274
Outstanding Claims 953 1,393 1,495 1,390 1,466 1,584
Unearned Contribution Reserves 500 659 803 940 1,091 1,251
Debt 214 160 240 480 540 567
Insurance Payables 282 715 704 696 710 724
Other Liabilities 158 126 129 132 134 137
Total Liabilities 2,107 3,053 3,371 3,638 3,941 4,263
Shareholders Equity 1,525 1,579 1,630 1,737 1,835 1,944
Minority Interest 46 44 49 55 60 67
Total Equity 1,572 1,623 1,680 1,791 1,896 2,011
BVPS 1.3 1.3 1.4 1.5 1.6 1.7
Jaap Meijer, MBA, CFA Jonathan Milan [email protected] Arqaam Capital Research Offshore s.a.l
+97145071744
September 12 2012
Salama Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 114
Salama valuation (AED in mn)
2012e 2013e 2014e 2015e 2020e perp subtotal % of total
1 DCF
Net profit 50,936 106,450 98,640 109,132 199,461 199,461
Other adjustments (comprehensive income) -- -- -- -- --
Minus: excess return excess capital 13,321 15,648 16,641 17,752 27,191 27,191
Return on excess capital 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Tax shelter 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Adjusted net profit 37,616 90,802 81,998 91,381 172,271 172,271
Capital requirements 1,110,663 1,156,467 1,232,828 1,316,894 1,785,452 1,785,452
RoEcC 3.4% 7.9% 6.7% 6.9% 9.6% 9.6%
Cost of capital 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Capital charge 133,169 138,660 147,816 157,896 214,076 214,076
Economic profit (95,553) (47,858) (65,818) (66,515) (41,805) (41,805)
Discount factor 0.00 0.94 0.84 0.75 0.43 0.43
NPV of Economic Profit -- (45,224) (55,536) (50,115) (17,881) (41,805)
DCF EVA Forecast period
(302,152)
Perpetual growth rate (GDP)
3.0%
Terminal Value
(465,016)
Terminal value discounted
(198,895)
Required Capital
1,110,663
Value of the insurance operations
609,617 61.7%
2 Capital surplus/deficit
Available capital:
Shareholders' equity 1,679,513 1,791,165 1,895,555 2,011,042 2,767,505
Less Goodwill & intangibles 190,425 190,144 189,962 189,843 189,648
Less dividends -- -- -- -- 19,946
Tangible equity 1,489,088 1,601,021 1,705,593 1,821,199 2,557,911
Capital needs
Gross written premium (GWP) 2,172,885 2,266,304 2,401,996 2,544,970 3,243,654
Technical reserve 2,298,207 2,330,055 2,557,062 2,835,529 4,741,464
Equity investments 117,933 134,579 151,596 170,004 283,244
Investment properties 280,228 285,832 291,549 297,380 328,331
Associates 59,002 60,772 62,899 65,415 79,588
Equity as % GWP 34% 34% 34% 34% 34%
Equity as % Technical reserves 8% 8% 8% 8% 8%
Equity as % of investments 50% 50% 50% 50% 50%
Equity as % of investment properties 25% 25% 25% 25% 25%
Equity as % of associates 100% 100% 100% 100% 100%
Capital Requirements 1,110,663 1,156,467 1,232,828 1,316,894 1,785,452
Surplus capital 378,425 444,554 472,765 504,305 772,459
378,425 38.3%
3. Other adjustments
Total adjustments
4. Dividends
Total Fair Value
988,042
Fair value per share
0.82
Current share price
0.68
Upside
20.1%
Implied P/E 19.4x 9.3x
Implied P/BV 0.59x 0.55x
Source: Company Data, Arqaam Capital Research
C o m p a n y U p d a t e
S e p t e m b e r 1 2 2 0 1 2 Jaap Meijer, MBA, CFA [email protected] +97145071744
Jonathan Milan Arqaam Capital Research Offshore s.a.l.
Tawuniya Insurance Growing medical GWP could prove problematic
BUY
Insurance / KSA Bloomberg code TAWUNIYA AB
Market index KSA
Price target (local) 52.8
Upside (%) 21.3
Market data 11/09/2012
Last closing price 43.5
52 Week range 41.7-66.8
Market cap (SAR mn) 3,263
Market cap (USD mn) 870
Average daily volume (SAR mn) 17.7
Average daily volume (USD mn) 4.7
Year-end (local mn) 2011 2012e 2013e 2014e
Gross Written Premiums 4,431 5,027 5,534 6,043
Underwriting Profit 824 575 711 879
EPS 5.76 3.88 4.64 6.23
P/E (x) (market price) 7.6 11.2 9.4 7.0
BVPS 27.32 29.84 32.86 36.91
Tangible BVPS 25.14 27.29 30.14 33.95
P/B (x) (market price) 1.6 1.5 1.3 1.2
P/TBVPS (x) (market price) 2.1 1.6 1.8 1.6
DPS 2.0 1.4 1.6 2.2
Div. yield (%) 4.6 3.1 3.7 5.0
RoAA (%) 5.8 3.8 4.2 5.0
RoAE (%) 24.7 14.8 16.2 19.4
Investments/Assets (%) 50.3 51.0 51.6 51.7
Investment Yield (%) 1.7 5.0 4.0 4.0
Net Loss Ratio 67.6 79.2 77.4 75.3
Combined Ratio 91.0 101.2 99.0 96.7
Underwriting Profit Margin
9.6 2.2 3.8 5.5
Net Profit Margin 9.7 5.8 6.3 7.7
Policy Reserves/Equity 177.4 173.4 180.2 183.5
Strong GWP growth in medical segment increases dilutes
underwriting margins.
Combined ratio to reach 101% in FY 12e and 99% in FY 13e as
a result of rising claims in medical segment.
Cheaper than Medgulf
We reduce our EPS estimate by 17.6% and 12.9% for FY 12e and FY 13e respectively: Disappointing results from Tawuniya render the next 6 months very crucial. We forecast a combined ratio of 101% and 99% for FY12e and FY13e respectively. We expect combined ratio to stabilize at c. 97% from FY 14e onwards. Our increase in combined ratio results from higher net claims in the medical segment and higher than anticipated growth in medical GWP, diluting profitability. We forecast 13% 5 year CAGR in medical GWP compared to 5.6% and 4.9% 5 year CAGR in motor and P&C GWP growth respectively. Tawuniya’s growing dependence on the less profitable medical segments will mean higher combined ratios and lower profitability despite double digit growth in GWP, due to difficulty to increase rates (increased competition in KSA), increased claims and rising cost per claims.
Profitability expected to improve post FY 13e: We forecast net loss ratio of 89% for FY 12e in the medical segment. However we expect higher policy premiums and better cost management to reduce net loss ratio down to 85% and 81.5% for FY 13e and FY 14e respectively. We expect a small decline in underwriting profitability in the motor segment as a result of toughening competition. We expect net loss ratios to increase to 64.5% by FY 14e compared to 63% for FY 12e. In line with H1 12A performance, we expect net loss ratios in the P&C segment to drop down to 26% in FY 12e, compared to 31.4% in FY 11A. Due to rising net loss ratios in the P&C industry elsewhere, we gradually increase net loss ratios to 27.5% by FY 14e. We expect the investment yield to drop from H1 12A, as we view this level was unsustainable, though it represented a welcome support to compensate for the weak underwriting profitability.
We reduce our TP by 13.6% to SAR 52.8/share. We reiterate our BUY recommendation with 20% upside, and P/E 12e-13e of 13.6x and 11.4x respectively and P/B 12e of 1.8x, given the high RoE, robust capital position and improving trend in H2. The pullback offers an attractive entry point, though the company could underperform our forecasts once again (like in Q2).
SAR 52.8
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Price Performance
80
120
160
Sep/11 Dec/11 Mar/12 Jun/12
TAWUNIYA AB KSA
September 12 2012
Tawuniya Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 116
Abacus Arqaam Capital Fundamental Data
Profitability
Investment Yield
Investment Exposure
Solvency ratios & reserve adequacy
Growth
11% 10%
2% 4%
5% 6%
13%
10%
6% 6% 8% 8%
0%
5%
10%
15%
FY10 FY11 FY12e FY13e FY14e FY15eNet Underwriting Margin Net Earnings Margin
2% 2%5% 4% 4% 4%
0.0%
10.0%
20.0%
30.0%
FY10 FY11 FY12e FY13e FY14e FY15eInvestmentYield
60%
70%
80%
10%
20%
30%
40%
FY10 FY11 FY12e FY13e FY14e FY15eInvestments/Assets Equities/Investments
0.93x 0.82x 0.77x 0.80x 0.84x 0.88x
2.20x
1.77x 1.73x 1.80x 1.83x 1.87x
0.0x0.2x0.4x0.6x0.8x1.0x1.2x1.4x1.6x1.8x2.0x2.2x2.4x
FY10 FY11 FY12e FY13e FY14e FY15ePolicy Reserves/Gross Premiums Policy Reserves/Equity
4%6%
10% 9% 9%
0%
5%
11%
12%
-8.00%
-2.00%
4.00%
10.00%
FY10 FY11 FY12e FY13e FY14e FY15e
Growth in GrossPremiums Gross in Investments
Tawuniya Insurance
Year-end 2010 2011 2012e 2013e 2014e 2015e
Performance analysis
Cession Ratio 30.8 22.5 20.1 19.2 19.0 18.8
Net Loss Ratio 58.2 67.6 79.2 77.4 75.3 75.4
Expense Ratio 28.4 23.3 22.0 21.5 21.4 21.1
Combined Ratio 86.6 91.0 101.2 99.0 96.7 96.5
Underwriting Profit Margin 10.9 9.6 2.2 3.8 5.5 5.5
Investment Yield 2.2 1.7 5.0 4.0 4.0 4.2
Net Margin 13.3 9.7 5.8 6.3 7.7 8.0
RoAE 38.6 24.7 14.8 16.2 19.4 19.4
RoAA 7.4 5.8 3.8 4.2 5.0 5.0
Net Premiums/Equity 1.5 1.5 1.7 1.7 1.7 1.6
Gross Premiums/Equity 2.4 2.2 2.2 2.2 2.2 2.1
Claims Reserve/NPE 0.6 0.4 0.3 0.4 0.4 0.4
Investment Income/Total Income 54.1 65.7 86.4 84.5 86.3 88.7
Year-end 2010 2011 2012e 2013e 2014e 2015e
Investment Exposure
Investments/Assets 49.3 50.3 51.0 51.6 51.7 52.7
Equities/Investments 26.5 29.4 29.0 29.0 29.0 29.0
Equity/Assets (%) 23.5 27.7 29.1 29.4 29.5 29.5
Year-end 2010 2011 2012e 2013e 2014e 2015e
Liquidity/Leverage
Policy Reserves/Gross Premiums 0.9 0.8 0.8 0.8 0.8 0.9
Policy Reserves/Net Earned Premiums 1.5 1.2 1.0 1.1 1.1 1.2
Policy Reserves/Equity 2.2 1.8 1.7 1.8 1.8 1.9
Debt/Capital — — — — — —
Debt/Equity (x) — — — — — —
Year-end 2010 2011 2012e 2013e 2014e 2015e
Growth
Gross Premiums 3.5 6.0 13.4 10.1 9.2 8.7
Net Earned Premiums 28.7 16.5 23.3 10.1 9.5 9.0
Investments 24.2 — 5.4 10.6 12.0 14.3
Assets 7.4 (2.0) 4.0 9.3 11.8 12.2
Total Reserves 13.4 (6.6) 6.8 14.5 14.3 14.4
Equity 25.4 15.8 9.2 10.1 12.3 12.3
Year-end 2010 2011 2012e 2013e 2014e 2015e
Valuation
P/B(x) (current price) 1.8 1.6 1.5 1.3 1.2 1.0
P/B(x) (target price) 2.2 1.9 1.8 1.6 1.4 1.3
P/E(x) (current price) 5.9 7.6 11.2 9.4 7.0 6.2
P/E(x) (target price) 7.1 9.2 13.6 11.4 8.5 7.5
September 12 2012
Tawuniya Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 117
Abacus Arqaam Capital Fundamental Data
Tawuniya
Established in 1986, Tawuniya is the largest insurer in the Kingdom and the region by GWP. The company operates 10 branches with 1,500 employees. Tawuniya provides Shariah compliant non-life insurance including medical, motor, fire and property, marine and aviation, and energy insurance. The company also provides life insurance and reinsurance. Medical insurance accounts for 56.5% of total GWP, motor 25.2% and the remaining 18% among the other lines. The company operates a non-life insurance provider in Bahrain, the United Insurance Company, which provides car insurance.
Tawuniya Insurance
Year-end 2010 2011 2012e 2013e 2014e 2015e
Income statement (mn)
Gross Written Premiums 4,181 4,431 5,027 5,534 6,043 6,571
Ceded Premiums 1,288 995 1,010 1,061 1,146 1,232
Retained Premiums 2,893 3,436 4,017 4,474 4,897 5,338
Movement in Unearned Premiums 234 338 197 266 292 319
Net Premiums Earned 2,659 3,098 3,820 4,207 4,605 5,019
Commissions Received on Ceded Reinsurance 100 144 158 165 178 191
Gross Claims Paid — — — — — —
Claims recovered — — — — — —
Movement in Outstanding Claims 131 (221) 61 114 139 151
Net Claims 1,548 2,095 3,026 3,258 3,467 3,785
commissions paid 331 322 377 403 437 472
Underwriting Profit 880 824 575 711 879 952
Investment Income 74 65 191 165 184 218
Other operating income 30 19 18 19 18 18
Total Income 984 908 784 895 1,081 1,188
Interest Expense — — — — — —
General & Administrative 321 233 271 293 318 338
Operating Profit 663 676 513 602 763 850
Other income/(loss) (80) (209) (202) (230) (263) (289)
Tax 27 35 20 24 32 37
Minority Interest — — — — — —
Net Income 555 432 291 348 467 525
Reported EPS 7.4 5.8 3.9 4.6 6.2 7.0
Year-end 2010 2011 2012e 2013e 2014e 2015e
Balance sheet (mn)
Cash 165 254 276 227 325 348
Reinsurers Share of Outstanding Claims 977 739 715 830 963 1,145
Reinsurers Share of Unearned Premiums 647 511 523 590 663 742
Investment Properties — — — — — —
Investments 3,714 3,714 3,916 4,332 4,851 5,545
Associates 153 156 156 156 156 156
Insurance Receivables 1,297 1,392 1,460 1,607 1,755 1,908
Fixed Assets 147 177 192 200 201 202
Other Assets 431 442 443 453 467 477
Total Assets 7,532 7,384 7,679 8,394 9,381 10,523
Outstanding Claims 1,688 1,229 1,264 1,493 1,765 2,098
Unearned Contribution Reserves 2,204 2,406 2,615 2,948 3,313 3,712
Debt — — — — — —
Insurance Payables 826 564 417 405 392 384
Other Liabilities 1,044 1,136 1,145 1,083 1,143 1,219
Total Liabilities 5,763 5,335 5,442 5,930 6,613 7,414
Shareholders Equity 1,769 2,049 2,238 2,464 2,768 3,109
Minority Interest — — — — — —
Total Equity 1,769 2,049 2,238 2,464 2,768 3,109
BVPS 23.6 27.3 29.8 32.9 36.9 41.5
Jaap Meijer, MBA, CFA Jonathan Milan [email protected] Arqaam Capital Research Offshore s.a.l
+97145071744
September 12 2012
Tawuniya Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 118
Tawuniya valuation (SAR mn)
2012e 2013e 2014e 2015e 2020e perp subtotal % of total
1. DCF
Net profit 290,806 348,374 467,338 525,067 821,805 821,805
Other adjustments (comprehensive income) -- -- -- -- --
Minus: excess return excess capital (17,220) (19,820) (19,957) (19,087) (2,729) (2,729)
Return on excess capital 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Tax shelter 6.5% 6.5% 6.5% 6.5% 6.5% 6.5%
Adjusted net profit 308,026 368,194 487,295 544,154 824,534 824,534
Capital requirements 2,435,373 2,668,199 2,916,570 3,196,512 4,827,159 4,827,159
RoEcC 12.6% 13.8% 16.7% 17.0% 17.1% 17.1%
Cost of capital 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%
Capital charge 297,116 325,520 355,822 389,974 588,913 588,913
Economic profit 10,910 42,673 131,473 154,179 235,620 235,620
Discount factor 0.00 0.94 0.84 0.75 0.42 0.42
NPV of Economic Profit -- 40,287 110,624 115,623 99,372 235,620
DCF EVA Forecast period
801,900
Perpetual growth rate (GDP)
3.0%
Terminal Value
2,561,090
Terminal value discounted
1,080,136
Required Capital
2,435,373
Value of the bank operations
4,317,409 109.1%
2. Capital surplus/deficit
Available capital:
Shareholders’ equity 2,267,882 2,464,325 2,768,095 3,109,388 5,375,682
Less Goodwill & intangibles 191,149 204,133 221,570 239,451 333,856
Less dividends 101,782 121,931 163,568 183,773 287,632
Tangible equity 1,974,951 2,138,261 2,382,956 2,686,164 4,754,194
Capital needs
Gross written premium (GWP) 5,027,047 5,534,197 6,043,312 6,570,629 9,345,747
Technical reserves
Equity investments 1,135,552 1,256,341 1,406,886 1,608,193 2,982,407
Investment properties 9,861 9,861 9,861 9,861 9,861
Associates 155,936 155,936 155,936 155,936 155,936
Equity as % GWP 34.0% 34.0% 34.0% 34.0% 34.0%
Equity as % Technical reserves
Equity as % of investments 50.0% 50.0% 50.0% 50.0% 50.0%
Equity as % of investment properties 25.0% 25.0% 25.0% 25.0% 25.0%
Equity as % of associates 100.0% 100.0% 100.0% 100.0% 100.0%
Capital Requirements 2,435,373 2,668,199 2,916,570 3,196,512 4,827,159
Surplus capital (460,422) (529,937) (533,614) (510,348) (72,965)
(460,422) (11.6%)
3. Other adjustments
Total adjustments
4. Dividends
101,782 2.6%
Total Fair Value
3,958,769
Fair value per share
52.8
Current share price
43.5
Upside
21.3%
Implied P/E 13.6x 11.4x
Implied P/B 1.8x 1.6x
Source: Company Data, Arqaam Capital Research
September 12 2012
Tawuniya Insurance © Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 119
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