2Q15 review: Earnings beat estimate; Maintain Hold
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Al Rajhi Bank Banks | 2Q 2015 Preliminary Results | July 9, 2015
2Q15 review: Earnings beat estimate; Maintain Hold
Rating Summary Recommendation
2Q earnings beat consensus: Al Rajhi Bank has reported 2Q15 net profit of SAR1.94bn
HOLD
Target price (SAR)
55.0
Upside/ (downside)
-9%
(+28% qoq, flat yoy) beating consensus estimate by c.12%. While Net Income from Investing and Financing Assets (NIIF) came in at SAR2.51bn (+2.1% qoq, +1% yoy), quarterly NIIF
Stock Details
margin (calculated on average total assets) is estimated at 3.11% (down 3bps qoq). NIIF
Closing price*
margin has trended downwards with a 24 bps contraction from 2014 and a 42bps contraction over 2013. This is line with competitive pressures seen across the sector. Operating Income was down 3.0% yoy in 2Q 2015, thus the earnings beat may be possibly attributed to lower
SAR
60.3
SAR mn
98,020
mn
1,625
52-Week High
SAR
79.5
52-Week Low
SAR
48.4
%
+18.6
Market capitalization Shares outstanding
impairment charges during the quarter (in 1Q 2015 impairment charges were down c.25%
Price chg. (YTD)
yoy). The Board of Directors (BoD) has recommended a dividend distribution of SAR
EPS 2014A
0.5/share for 1H 2015; offering an annualized yield of 1.7%.
Ticker (Reuters/ Bloomberg)
Net financing volume growth lags that of the system, expanding its retail presence:
*As of July 8, 2015
Given its scale of operations, volume growth for Al Rajhi lags that of the system. During
Key Shareholding (%)
2Q15, while the bank’s total assets increased c.11% yoy (c.2% qoq) and net financing
Awkaf Sulaiman A.A Al Rajhi Co.
14.8%
portfolio grew c.5% yoy (c+3% qoq), customer deposits increased c.8% yoy (flat qoq) leading
GOSI
10.2%
to net financing/customer deposits of c.79.3% (1Q15: 77.2%). This compares to yoy growth
Others
75.0%
SAR
4.2
1120.SE
RJHI AB
of system assets/loans/deposits of c.8%/10%/10% (SAMA data, as of May 2015). As per SAMA data, Al Rajhi added 23 new branches (c.100% of new branches in the system), 35
Valuation (at current price)
new ATMs (c.14% of new ATMs in the system) and 4,167 POS terminals (c.39% of new PoS
P/E (x)
terminals added in the system) during the first two months of 2Q 2015.
P/Pre-Provision Profit (x) P/B (x)
Trades at a premium to peers (2015E P/B of 2.2x vs. KSA/GCC peers 1.3x); Maintain
2015e
2016e
13.7
12.8
9.8
9.1
2.2
2.0
Hold: Al Rajhi’s key strengths include its wide scale of operations (c.27% of total bank branches in KSA as of May 2015), low cost funding base (demand deposits c.94% of customer deposits vs. c.65% for the system as of 1Q 2015) and an industry leading cost
Stock price movement vs. TASI 180
structure (1Q 2015 cost/income ratio of 40.4% vs. Alinma 42.8%, Al Bilad 58.5% and Bank Al 160
Jazira 57.6%). However, despite its strong market position, in a competitive environment, Al Rajhi equity’s story has not panned out as expected and the company witnessed consistent decline in NIIF margin and RoE.
140
120
On a YTD basis, Al Rajhi has outperformed its KSA peers (YTD: Al Rajhi +c.19%, KSA Bank
100
index +c.9%, TASI +c.9%). While we expect operating environment to remain competitive, we will wait to see consistent improvement in the bank’s key profitability metrics before
80 Jan-13
Jul-13
Jan-14 TASI
Jul-14
Jan-15
Jul-15
Al Rajhi Bank
getting more constructive on the stock. Given the high proportion of retail loans in its loan portfolio, on a relative basis the bank may underperform in NIIF margin expansion in a rising
Sources: Tadawul, and Saudi Fransi Capital analysis
rate environment from late 2015. The bank trades at 2.2x 2015E P/B (SFC Est.) which is at a premium to Saudi and GCC peers (KSA: 1.3x and GCC: 1.3x). We retain the Hold rating on Al Rajhi with a target price of SAR 55/share. SAR mn
2Q15
Cons*
% Dev
1Q15
% QoQ
2Q14
% YoY
Net Inc. from Inv. & Financing Assets
2,514
na
na
2,463
2.1%
2,494
1%
Net Profit
1,941
1,732
12%
1,519
27.8%
1,949
0%
Total Assets
3,27,070
na
na
3,20,426
2.1%
2,95,155
11%
Net Financing
2,10,621
na
na
2,05,115
2.7%
2,00,926
5%
Customer Deposits
2,65,506
na
na
2,65,600
0.0%
2,45,416
8%
Sector Coverage Dipanjan Ray [email protected] +966-1-12826861 AbdulAziz Jawdat [email protected] +966-11-2826856
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Al Rajhi Bank Banks | 2Q 2015 Preliminary Results | July 9, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Al Rajhi Bank Banks | 2Q 2015 Preliminary Results | July 9, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Al Rajhi Bank Banks | 2Q 2015 Preliminary Results | July 9, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the c ompany that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and stat ements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this report should make themselves aware of, and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Al Rajhi Bank Banks | 2Q 2015 Preliminary Results | July 9, 2015
2Q15 review: Earnings beat estimate; Maintain Hold
Rating Summary Recommendation
2Q earnings beat consensus: Al Rajhi Bank has reported 2Q15 net profit of SAR1.94bn
HOLD
Target price (SAR)
55.0
Upside/ (downside)
-9%
(+28% qoq, flat yoy) beating consensus estimate by c.12%. While Net Income from Investing and Financing Assets (NIIF) came in at SAR2.51bn (+2.1% qoq, +1% yoy), quarterly NIIF
Stock Details
margin (calculated on average total assets) is estimated at 3.11% (down 3bps qoq). NIIF
Closing price*
margin has trended downwards with a 24 bps contraction from 2014 and a 42bps contraction over 2013. This is line with competitive pressures seen across the sector. Operating Income was down 3.0% yoy in 2Q 2015, thus the earnings beat may be possibly attributed to lower
SAR
60.3
SAR mn
98,020
mn
1,625
52-Week High
SAR
79.5
52-Week Low
SAR
48.4
%
+18.6
Market capitalization Shares outstanding
impairment charges during the quarter (in 1Q 2015 impairment charges were down c.25%
Price chg. (YTD)
yoy). The Board of Directors (BoD) has recommended a dividend distribution of SAR
EPS 2014A
0.5/share for 1H 2015; offering an annualized yield of 1.7%.
Ticker (Reuters/ Bloomberg)
Net financing volume growth lags that of the system, expanding its retail presence:
*As of July 8, 2015
Given its scale of operations, volume growth for Al Rajhi lags that of the system. During
Key Shareholding (%)
2Q15, while the bank’s total assets increased c.11% yoy (c.2% qoq) and net financing
Awkaf Sulaiman A.A Al Rajhi Co.
14.8%
portfolio grew c.5% yoy (c+3% qoq), customer deposits increased c.8% yoy (flat qoq) leading
GOSI
10.2%
to net financing/customer deposits of c.79.3% (1Q15: 77.2%). This compares to yoy growth
Others
75.0%
SAR
4.2
1120.SE
RJHI AB
of system assets/loans/deposits of c.8%/10%/10% (SAMA data, as of May 2015). As per SAMA data, Al Rajhi added 23 new branches (c.100% of new branches in the system), 35
Valuation (at current price)
new ATMs (c.14% of new ATMs in the system) and 4,167 POS terminals (c.39% of new PoS
P/E (x)
terminals added in the system) during the first two months of 2Q 2015.
P/Pre-Provision Profit (x) P/B (x)
Trades at a premium to peers (2015E P/B of 2.2x vs. KSA/GCC peers 1.3x); Maintain
2015e
2016e
13.7
12.8
9.8
9.1
2.2
2.0
Hold: Al Rajhi’s key strengths include its wide scale of operations (c.27% of total bank branches in KSA as of May 2015), low cost funding base (demand deposits c.94% of customer deposits vs. c.65% for the system as of 1Q 2015) and an industry leading cost
Stock price movement vs. TASI 180
structure (1Q 2015 cost/income ratio of 40.4% vs. Alinma 42.8%, Al Bilad 58.5% and Bank Al 160
Jazira 57.6%). However, despite its strong market position, in a competitive environment, Al Rajhi equity’s story has not panned out as expected and the company witnessed consistent decline in NIIF margin and RoE.
140
120
On a YTD basis, Al Rajhi has outperformed its KSA peers (YTD: Al Rajhi +c.19%, KSA Bank
100
index +c.9%, TASI +c.9%). While we expect operating environment to remain competitive, we will wait to see consistent improvement in the bank’s key profitability metrics before
80 Jan-13
Jul-13
Jan-14 TASI
Jul-14
Jan-15
Jul-15
Al Rajhi Bank
getting more constructive on the stock. Given the high proportion of retail loans in its loan portfolio, on a relative basis the bank may underperform in NIIF margin expansion in a rising
Sources: Tadawul, and Saudi Fransi Capital analysis
rate environment from late 2015. The bank trades at 2.2x 2015E P/B (SFC Est.) which is at a premium to Saudi and GCC peers (KSA: 1.3x and GCC: 1.3x). We retain the Hold rating on Al Rajhi with a target price of SAR 55/share. SAR mn
2Q15
Cons*
% Dev
1Q15
% QoQ
2Q14
% YoY
Net Inc. from Inv. & Financing Assets
2,514
na
na
2,463
2.1%
2,494
1%
Net Profit
1,941
1,732
12%
1,519
27.8%
1,949
0%
Total Assets
3,27,070
na
na
3,20,426
2.1%
2,95,155
11%
Net Financing
2,10,621
na
na
2,05,115
2.7%
2,00,926
5%
Customer Deposits
2,65,506
na
na
2,65,600
0.0%
2,45,416
8%
Sector Coverage Dipanjan Ray [email protected] +966-1-12826861 AbdulAziz Jawdat [email protected] +966-11-2826856
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Al Rajhi Bank Banks | 2Q 2015 Preliminary Results | July 9, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Al Rajhi Bank Banks | 2Q 2015 Preliminary Results | July 9, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Al Rajhi Bank Banks | 2Q 2015 Preliminary Results | July 9, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the c ompany that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and stat ements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this report should make themselves aware of, and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
