Alinma Bank
Alinma Banking Sector ALINMA AB - 1150.SE July 20, 2017
Alinma Bank Recommendation Fair Value (SAR)
Q2 2017 Overweight 13.71
Price as of July 20, 2017
16.51
Expected Return
11.51%
Tadawul Symbol 52 Week High (SAR)
1150.SE 15.74
YTD Change
4.58%
Company Data
52 Week Low (SAR)
On an annual basis, the rise is tied to strong growth in net special commission income, which skyrocketed 33.1% YoY, supported by significant loans growth. In spite of the increase in exchange income by 32.5% YoY, non-interest income fell 10.7% YoY, due to decline in fees and commission income and gains from equity investments.
10.75
3-Month Average Volume (Thousand Shares)
20,085
Market Cap. (USD Million)
6,256
Market Cap. (SAR Million)
Meanwhile, profits on a quarterly basis were underpinned by lower operating expenses (down 10.8% QoQ) on the back of a decrease in staff salaries, impairment charge for financing, and depreciation. This was partially offset by an increase in general and administrative expenses.
23,460
Outstanding Shares (Million Shares)
1,500
Major Shareholders ( > 5% ) Public Pension Agency
10.7%
General Organization for Social Insurance
6.1%
Public Investment Fund of Saudi Arabia
On the other side, customer deposits surged by 15.7% from Q2 2016, outperforming the growth rate of the banking sector deposits, as we expect the sector deposits to grow slightly by 0.83% in Q2 2017.
10.0%
Likewise, the bank increased its loans portfolio significantly (15.8% YoY). Corporate loans represented about 81.5% of total loans. Moreover, the loans-to-deposits ratio stabilized at 89.7%; close to the same level of the corresponding quarter of the previous year. However, this rate may limit the expansion of lending, as it approximately near the maximum regulatory limit by SAMA.
52-week Stock Price Movement
120
Alin ma
Alinma Bank reported better-than-expected second-quarter results, with the bank’s bottom-line edging up 19.3% YoY and 15.9% QoQ to SAR 488 million, beating analyst consensus and our estimate of SAR 425 million and SAR 437 million, respectively.
Tad awu l In dex
Alinma's second-quarter results showed a sharp swelling in operating expenses (up 27% YoY), mainly due to inflated expenses of the corporate segment (96.8% over the second -quarter of 2016), as a result of a sharp increase in an impairment charge for credit losses of the corporate segment by 847% YoY. The coverage ratio came in at 179%, with a positive spike of 3% over the same-quarter last year. Yet, the bank is still achieving significant growth in profits.
110 100 90 80 70
Source: Tadawul
Quarterly Operating Income (SAR mn) and Profit Margin Operating Income
Profit M argin
1,000
60%
800
50%
600
40%
400
30%
200
20%
0
10%
Source: Company Filings, Albilad Capital Research Estimates
For more information, please contact: Turki Fadaak Research & Advisory Manager [email protected]
Abdulrahman S. Aljarboua, MSF Financial Analyst [email protected]
We believe that the bank has benefited from the recent increase in interest rates as well as the economic changes, especially after reinstating allowances, financial benefits, and bonuses for all state employees retroactively. The retail segment profit has witnessed a significant growth, advancing 155% over the same-quarter last year. Meanwhile, the corporate segment profit shrank 24% in Q2 2017 triggered mainly by provisions growth, which elevated total expenses at a faster pace than operating income. Looking ahead, we think that the bank will continue to post robust results during the FY 2017, helped by net special commission income growth across nearly all business segments and better net interest margin. Accordingly, we upgraded our valuation from SAR 15.38 to SAR 17.30 per share with assigning an “overweight” recommendation.
FY - Ending December
5116A
5115A
5113E
5112F
Net Interest Margin
3.07%
3.01%
3.49%
3.31%
Return on Assets
1.7%
1.6%
1.6%
1.5%
Return on Equity
8.1%
8.0%
9.5%
9.7%
Net Special Commission Growth
9.8%
12.0%
25.8%
9.6%
Expenses to Income
52%
54%
54%
55%
Net Loans / Deposits
86.8%
87.2%
90.2%
91.4%
NPL / Total Loans
0.74%
0.77%
0.74%
0.76%
Coverage Ratio
175.1%
173.3%
179.6%
174.9%
PE
14.69
14.38
12.75
12.06
P / BV
1.18
1.13
1.19
1.16
EPS (SAR)
0.98
1.00
1.23
1.30
Source: Company Filings, Albilad Capital Research Estimates
1
Alinma Banking Sector July 20, 2017
ALINMA AB - 1150.SE Summary of Q2 Results Income Statement (SAR mn)
Q2 2016
Q2 2017
Change
Q1 2017
Change
Special Commission Income
813
1,021
56.5%
1112
1.7%
Special Commission Expense
186
187
1.6%
193
)7.5%(
Net Special Commission Income
726
438
..33%
418
532%
Other Incomes
193
173
)11.1%(
191
)4.1%(
Total Operating Income
428
1,886
5532%
1881
335%
Total Operating Expenses
411
519
55.7%
584
)11.1%(
Net Income
884
844
3.3.%
821
323.%
EPS (SAR)
0.27
0.33
Balance Sheet (SAR mn)
Q2 2016
Q2 2017
0.28
Change
Q1 2017
Change
Investments
5,708
7,265
53.7%
53775
11.3%
Loans and advances, net
66,488
76,961
16.2%
373615
1.5%
Total Assets
423125
111,376
17.1%
1163565
6.2%
Customer Deposits
74,166
85,783
16.3%
213116
6.7%
Loans / Deposits
24.56%
24.35%
1.1%
41.71%
)1.5%(
Summary of Financial Statements & Forecasts Income Statement (SAR mn)
5111A 2,286
5116A
5115A 3,385
5113E
4,177
5112F
Special Commission Income Special Commission Expense
211
268
834
967
1,112
Net Special Commission Income
2,861
2,264
2,111
3,218
3,114
Fees & Commission Income, net
396
620
615
647
649
Foreign Exchange Income, net
57
94
121
149
164
Other Income
92
70
41
50
56
Total Operating Income
2,728
3,873
3,324
8,817
8,346
Salaries & Employee-related Expense
637
670
755
872
943
Rent & Premises-related Expense
286
316
436
517
559
Other expenses
271
300
322
417
500
Total Operating Expenses
1,148
1,241
1,113
1,487
2,882
Impairment Charge for Credit Losses & Other Assets
162
308
313
395
443
Net Income
1,278
1,868
1,182
1,411
1,482
Balance Sheet (SAR mn)
5111A
5116A
5115A
5113E
5112F
Cash & Balances with SAMA & Other Fin. Institutions
16,384
22,225
24,747
24,863
25,648
Investments, net
8,036
6,473
6,157
7,697
8,082
Loans & Advances, net
53,637
57,006
70,312
84,374
98,296
Property & Equipment, net
1,544
1,629
1,738
1,642
1,658
Other Assets
1,261
1,392
1,775
1,598
1,630
Total Assets
48,472
44,621
188,638
128,168
131,318
Due to Banks & Other Financial Institutions
33
2,264
2,432
4,377
4,815
Customer Deposits
59,428
65,695
80,612
93,510
107,537
Other Liabilities
3,462
2,414
2,507
2,574
2,645
Total Liabilities
72,423
68,362
41,111
188,871
118,446
Total Equity
17,939
18,352
19,178
19,713
20,317
Total Liabilities & Shareholders' Equity
48,472
44,621
188,638
128,168
131,318
2,547
4,630
Source: Company Filings, Albilad Capital Research Estimates
A: Actual. E: Albilad Capital Research Estimates. F: Albilad Capital Research Forecasts.
5
Alinma Banking Sector July 20, 2017
ALINMA AB - 1150.SE
Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight:
The Target share price exceeds the current share price by ≥ 10%.
Neutral:
The Target share price is either more or less than the current share price by < 10%.
Underweight:
The Target share price is less than the current share price by ≥ 10%.
To be Revised:
No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials , waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research.
Albilad Capital Client Services E-mail: Tel:
[email protected] +966-11-203-9888
Toll-free: 800-116-0001
Research & Advisory
E-mail: [email protected] Tel: +966-11-290-6250 Website: www.albilad-capital.com
Asset Management
Brokerage
Custody
Investment Banking
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6280
[email protected] +966-11-290-6259
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6230
[email protected] +966-11-290-6256
Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital, its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Capital. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recomme nd consulting a qualified investment advisor before investing in these investment tools. AlBilad Capital preserves all rights associated with this report.
CMA Authorization Number 08100-37
7
Alinma Bank Recommendation Fair Value (SAR)
Q2 2017 Overweight 13.71
Price as of July 20, 2017
16.51
Expected Return
11.51%
Tadawul Symbol 52 Week High (SAR)
1150.SE 15.74
YTD Change
4.58%
Company Data
52 Week Low (SAR)
On an annual basis, the rise is tied to strong growth in net special commission income, which skyrocketed 33.1% YoY, supported by significant loans growth. In spite of the increase in exchange income by 32.5% YoY, non-interest income fell 10.7% YoY, due to decline in fees and commission income and gains from equity investments.
10.75
3-Month Average Volume (Thousand Shares)
20,085
Market Cap. (USD Million)
6,256
Market Cap. (SAR Million)
Meanwhile, profits on a quarterly basis were underpinned by lower operating expenses (down 10.8% QoQ) on the back of a decrease in staff salaries, impairment charge for financing, and depreciation. This was partially offset by an increase in general and administrative expenses.
23,460
Outstanding Shares (Million Shares)
1,500
Major Shareholders ( > 5% ) Public Pension Agency
10.7%
General Organization for Social Insurance
6.1%
Public Investment Fund of Saudi Arabia
On the other side, customer deposits surged by 15.7% from Q2 2016, outperforming the growth rate of the banking sector deposits, as we expect the sector deposits to grow slightly by 0.83% in Q2 2017.
10.0%
Likewise, the bank increased its loans portfolio significantly (15.8% YoY). Corporate loans represented about 81.5% of total loans. Moreover, the loans-to-deposits ratio stabilized at 89.7%; close to the same level of the corresponding quarter of the previous year. However, this rate may limit the expansion of lending, as it approximately near the maximum regulatory limit by SAMA.
52-week Stock Price Movement
120
Alin ma
Alinma Bank reported better-than-expected second-quarter results, with the bank’s bottom-line edging up 19.3% YoY and 15.9% QoQ to SAR 488 million, beating analyst consensus and our estimate of SAR 425 million and SAR 437 million, respectively.
Tad awu l In dex
Alinma's second-quarter results showed a sharp swelling in operating expenses (up 27% YoY), mainly due to inflated expenses of the corporate segment (96.8% over the second -quarter of 2016), as a result of a sharp increase in an impairment charge for credit losses of the corporate segment by 847% YoY. The coverage ratio came in at 179%, with a positive spike of 3% over the same-quarter last year. Yet, the bank is still achieving significant growth in profits.
110 100 90 80 70
Source: Tadawul
Quarterly Operating Income (SAR mn) and Profit Margin Operating Income
Profit M argin
1,000
60%
800
50%
600
40%
400
30%
200
20%
0
10%
Source: Company Filings, Albilad Capital Research Estimates
For more information, please contact: Turki Fadaak Research & Advisory Manager [email protected]
Abdulrahman S. Aljarboua, MSF Financial Analyst [email protected]
We believe that the bank has benefited from the recent increase in interest rates as well as the economic changes, especially after reinstating allowances, financial benefits, and bonuses for all state employees retroactively. The retail segment profit has witnessed a significant growth, advancing 155% over the same-quarter last year. Meanwhile, the corporate segment profit shrank 24% in Q2 2017 triggered mainly by provisions growth, which elevated total expenses at a faster pace than operating income. Looking ahead, we think that the bank will continue to post robust results during the FY 2017, helped by net special commission income growth across nearly all business segments and better net interest margin. Accordingly, we upgraded our valuation from SAR 15.38 to SAR 17.30 per share with assigning an “overweight” recommendation.
FY - Ending December
5116A
5115A
5113E
5112F
Net Interest Margin
3.07%
3.01%
3.49%
3.31%
Return on Assets
1.7%
1.6%
1.6%
1.5%
Return on Equity
8.1%
8.0%
9.5%
9.7%
Net Special Commission Growth
9.8%
12.0%
25.8%
9.6%
Expenses to Income
52%
54%
54%
55%
Net Loans / Deposits
86.8%
87.2%
90.2%
91.4%
NPL / Total Loans
0.74%
0.77%
0.74%
0.76%
Coverage Ratio
175.1%
173.3%
179.6%
174.9%
PE
14.69
14.38
12.75
12.06
P / BV
1.18
1.13
1.19
1.16
EPS (SAR)
0.98
1.00
1.23
1.30
Source: Company Filings, Albilad Capital Research Estimates
1
Alinma Banking Sector July 20, 2017
ALINMA AB - 1150.SE Summary of Q2 Results Income Statement (SAR mn)
Q2 2016
Q2 2017
Change
Q1 2017
Change
Special Commission Income
813
1,021
56.5%
1112
1.7%
Special Commission Expense
186
187
1.6%
193
)7.5%(
Net Special Commission Income
726
438
..33%
418
532%
Other Incomes
193
173
)11.1%(
191
)4.1%(
Total Operating Income
428
1,886
5532%
1881
335%
Total Operating Expenses
411
519
55.7%
584
)11.1%(
Net Income
884
844
3.3.%
821
323.%
EPS (SAR)
0.27
0.33
Balance Sheet (SAR mn)
Q2 2016
Q2 2017
0.28
Change
Q1 2017
Change
Investments
5,708
7,265
53.7%
53775
11.3%
Loans and advances, net
66,488
76,961
16.2%
373615
1.5%
Total Assets
423125
111,376
17.1%
1163565
6.2%
Customer Deposits
74,166
85,783
16.3%
213116
6.7%
Loans / Deposits
24.56%
24.35%
1.1%
41.71%
)1.5%(
Summary of Financial Statements & Forecasts Income Statement (SAR mn)
5111A 2,286
5116A
5115A 3,385
5113E
4,177
5112F
Special Commission Income Special Commission Expense
211
268
834
967
1,112
Net Special Commission Income
2,861
2,264
2,111
3,218
3,114
Fees & Commission Income, net
396
620
615
647
649
Foreign Exchange Income, net
57
94
121
149
164
Other Income
92
70
41
50
56
Total Operating Income
2,728
3,873
3,324
8,817
8,346
Salaries & Employee-related Expense
637
670
755
872
943
Rent & Premises-related Expense
286
316
436
517
559
Other expenses
271
300
322
417
500
Total Operating Expenses
1,148
1,241
1,113
1,487
2,882
Impairment Charge for Credit Losses & Other Assets
162
308
313
395
443
Net Income
1,278
1,868
1,182
1,411
1,482
Balance Sheet (SAR mn)
5111A
5116A
5115A
5113E
5112F
Cash & Balances with SAMA & Other Fin. Institutions
16,384
22,225
24,747
24,863
25,648
Investments, net
8,036
6,473
6,157
7,697
8,082
Loans & Advances, net
53,637
57,006
70,312
84,374
98,296
Property & Equipment, net
1,544
1,629
1,738
1,642
1,658
Other Assets
1,261
1,392
1,775
1,598
1,630
Total Assets
48,472
44,621
188,638
128,168
131,318
Due to Banks & Other Financial Institutions
33
2,264
2,432
4,377
4,815
Customer Deposits
59,428
65,695
80,612
93,510
107,537
Other Liabilities
3,462
2,414
2,507
2,574
2,645
Total Liabilities
72,423
68,362
41,111
188,871
118,446
Total Equity
17,939
18,352
19,178
19,713
20,317
Total Liabilities & Shareholders' Equity
48,472
44,621
188,638
128,168
131,318
2,547
4,630
Source: Company Filings, Albilad Capital Research Estimates
A: Actual. E: Albilad Capital Research Estimates. F: Albilad Capital Research Forecasts.
5
Alinma Banking Sector July 20, 2017
ALINMA AB - 1150.SE
Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight:
The Target share price exceeds the current share price by ≥ 10%.
Neutral:
The Target share price is either more or less than the current share price by < 10%.
Underweight:
The Target share price is less than the current share price by ≥ 10%.
To be Revised:
No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials , waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research.
Albilad Capital Client Services E-mail: Tel:
[email protected] +966-11-203-9888
Toll-free: 800-116-0001
Research & Advisory
E-mail: [email protected] Tel: +966-11-290-6250 Website: www.albilad-capital.com
Asset Management
Brokerage
Custody
Investment Banking
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6280
[email protected] +966-11-290-6259
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6230
[email protected] +966-11-290-6256
Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital, its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Capital. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recomme nd consulting a qualified investment advisor before investing in these investment tools. AlBilad Capital preserves all rights associated with this report.
CMA Authorization Number 08100-37
7
