Bahrain
Global Research - Bahrain
Bahrain
Investment Update
Bahrain Islamic Bank Tickers: BISB.BH (Reuters) BISB BI (Bloomberg)
May, 2009
Buy
Listing: Bahrain Stock Exchange Current Price: 304 fils (As on April 30, 2009)
Investment Summary • Bahrain Islamic Bank (BISB) was able to achieve decent returns in 2008, as the bank reported net profit of BD22.3mn, a decrease of 10.8% as compared to the previous year. The decline was mainly on account of BD15.9mn provisioning during the fourth quarter of 2008 as the global financial crisis hit the GCC countries with tumbling real estate prices and fall in equity markets. • The balance sheet size of the bank increased by 32.6% to BD874.0mn in 2008 as compared to BD659.0mn in 2007 with the total assets having grown at a CAGR of 36.1% during the period 2004-2008, from BD320.7mn in 2004. • Income from Islamic finances increased by 17.4% to reach BD36.9mn as compared to BD31.5mn recorded in the previous year. Income from Islamic finances includes income from Murahaba receivables, Mudaraba investing, Musharaka investments, investments in Sukuk, and Ijarah muntahia bittamleek. • In 2008, the operating income registered a significant increase of 39.3%, from BD52.6mn in 2007 to BD73.3mn. The return on unrestricted investment accounts witnessed an increase of 13.4% to reach BD17.7mn in 2008 as compared to BD15.6mn recorded in the previous year. • Due to the decline in net profits, return ratios took a significant hit with the return on average assets declining to 2.9% in 2008 from 4.6% in 2007 and return on average equity coming down to 12.6% in 2008 from 19.1% in 2007.
Faisal Hasan, CFA Head of Research
[email protected] Phone No:(965) 22951270
Digvijay Tanwar Financial Analyst
[email protected] Phone No:(965) 22951275
• During 1Q-2009, the total operating income of the bank came down and recorded a Yo-Y decline of 18.6% and stood at BD14.5mn. Income from Islamic finances, however, showed a marginal increase of 0.5% to BD8.3mn. Investment income, which until recently was the main driver of growth came down significantly and stood at BD3.0mn for the quarter less than half of BD6.2mn recorded in 1Q-2008. However, gains on fair value adjustment for investments in properties jumped significantly and helped cushion the fall in operating income a little.
Bahrain Islamic Bank
1
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• Earnings of the bank took a significant hit with the bank reporting net profit for 1Q-2009 at BD6.0mn, a decline of 40.3% over BD10.1mn reported for 1Q-2008. • BISB’s balance sheet size increased by a marginal 2.5% Q-o-Q to reach BD895.5mn at the end of 1Q-2009 as compared to BD874.0mn at the end 2008. • We are of the opinion that the era of super-growth in assets is over. The 4-yr CAGR of 36% in assets that we have seen lately may drop down to the early double-digits; for BISB we see a 4-yr CAGR of 12% for the forecast period. The banks super profitability growths that it had witnessed until recently (4-yr CAGR of 57% in profitability) also would slowdown and we expect the profits would grow at a much lesser CAGR of around 22% in the next 4-yr period. • We have assigned an 80% weight to the DDM valuation and 20% to the adaptation of the Gordon Growth Model. Based on the weighted average valuation approach, we have reached a fair value for BISB of 341fils. Given a current market price of 304fils (as of April 30, 2009), the stock currently has an upside potential of 12.3% from current levels. Therefore, we recommend a "BUY” on BISB’s stock. Table 01: Investment Indicators Price (April 30, 2009) (fils) 304 Operating Revenues Year (BD mn) 2010F 82.3 2009F 68.8 2008A 73.3 2007A 52.6
Shares in issue (mn) 728.6 Operating Profit Net Profit (BD mn) (BD mn) 59.4 36.9 49.9 26.2 55.6 22.3 37.0 25.0
Market Cap (BD mn) 221.5
52 - week price range 236 - 506fils
EPS BVPS ROAA ROAE (fils) (fils) (%) (%) 51 259 3.5% 20.6% 36 234 2.8% 15.6% 31 228 2.9% 12.6% 34 257 4.6% 19.1%
P/E (x) 6.0 8.4 8.6 12.4
P/BV (x) 1.2 1.3 1.2 1.7
Source: Global Research. Historical P/E & P/BV multiples pertain to respective year -end prices, while those for future years are based on closing prices on the BSE as of April 30, 2009.
Chart 01: Performance of BISB vs Bahrain Indices 450 500
350
400
300
300 Fils
Index (Points)
400
250
200
200 100
"Global" Bahrain Index (LHS)
"Global" Bahrain Bank Index (LHS)
Apr-09
Mar-09
Feb-09
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
0
Jun-08
Apr-08
100
May-08
150
BISB (RHS)
Source: Global Research
Bahrain Islamic Bank
Global Research - Bahrain
Global Investment House
Bahrain Islamic Bank - Recent Developments • The bank acquired a 31% stake in Islamic Bank of Yemen in June-2008 and increased its stake in the latter to 33%. • During June-2008, the bank along with Abu Dhabi Water & Electricity Authority, Tasameem Real Estate, Gulf Finance House, Dubai Investments, Emirates Islamic Bank, Capital Management House, Khaleeji Commercial Bank, Al Jabr Trading Company and other investors, has invested in the First Energy Bank to increase the latter's capital from US$750mn to US$1.0bn. • The bank in May-08, along with a consortium of banks, arranged a US$100mn syndicated Morabaha Facility for Rasameel Structured Finance Company (Kuwait). • BISB was assigned “Baa1” long-term and “Prime-2” short-term local and foreign currency issuer ratings as well as a “D+” bank financial strength rating (BFSR) by Moody’s Investor Services in Feb-2009. According to Moody's report, the “D+” BFSR, which maps to a baseline credit assessment of Ba1 under Moody's joint default analysis methodology, reflects BISB's growing franchise as Bahrain's leading Islamic commercial bank, strong financial metrics across the board, good asset quality, strong capitalization and ample liquidity.
Financial Performance – 2008 Despite the credit turmoil and international financial crisis, BISB was able to achieve decent returns in 2008, as the bank reported net profit of BD22.3mn, a decrease of 10.8% as compared to the previous year. The decline was mainly on account of BD15.9mn provisioning during the fourth quarter of 2008 as the global financial crisis hit the GCC countries with tumbling real estate prices and fall in equity markets. The balance sheet size of the bank increased Y-o-Y by 32.6% to reach BD874.0mn at the end of 2008 as compared to BD659.0mn in the previous year. Growing deposit base… BISB has been increasing its deposits using its technological innovations and aggressive marketing strategies. The bank has benefited from customers’ changing preference and migration from the conventional banking products towards Islamic banking products. Customers’ current account grew at a CAGR of 23.0%, from BD30.4mn in 2004 to reach BD69.5mn at the end of 2008. For 2008, the rate of growth was 13.9%. In addition, the bank was also able to increase its external funding through the unrestricted investments accounts, which grew at a CAGR of 38.7% from BD168.8mn in 2004 to reach BD624.1mn in 2008. In 2008, the unrestricted investment accounts increased by 54.8% over BD403.2mn in 2007. Customer’s contribution to the total unrestricted investment account increased from 58.9% in 2007 to 68.2% in 2008, whereas the banks and financial institutions’ contribution, although increasing in absolute terms by 20%, in percentage terms it declined from 40.5% in 2007 to 31.4% in 2008. Going forward, we believe the bank will be able to increase its funding base with strong relationships, which will further support the loan growth.
Bahrain Islamic Bank
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Chart 02: Unrestricted Investment Accounts – Category wise break up 2008
700 600 500 BD mn
Banks and other Fis 31%
Profit equalisati on reserve 0%
400 300 200 100
Customers 69%
2005 Customers
2006 Banks and other Fis
2007 2008 Profit equalisation reserve
Source: Company Reports
Receivables portfolio – healthy growth… BISB receivables portfolio grew at a CAGR of 25.8% from BD157.3mn in 2004 to BD394.0mn in 2008. During 2008, the receivables portfolio grew by 12.7% over BD339.0mn at the end of 2007. Chart 03: Receivables Portfolio – Sector wise break up 2008
400 350
Others including retail 47.2%
Financial Institutions 39.8%
250 BD mn
Secured by Real Estate 3.8%
300
Commercial 9.2%
200 150 100 50 Commercial
2005 2006 2007 Financial Institutions Secured by Real Estate
2008 Others including retail
Source: Company Reports
Lending to financial institutions accounted for almost 40% of the total receivables portfolio in 2008, which has come down from 50.6% at the end of 2007. In absolute terms, lending to financial institution has come down from BD176.8mn in 2007 to BD156.7mn in 2008, representing a decrease of 11.4%. Lending to commercial sector increased to BD36.4mn in 2008 from BD30.5mn at the end of 2007, representing an increase of 19.1%, whereas in terms of contribution it increased from 8.7% in 2007 to 9.2% at the end of 2008. Other murabaha receivables including retail jumped 50.4% to reach BD185.9mn and accounted for 47.2% of the receivables portfolio. This surge in other receivables was mainly instrumental to the growth witnessed in receivables portfolio in 2008.
Bahrain Islamic Bank
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Asset quality likely to take a hit… The bank’s asset quality showed a marginal improvement in 2008. Non-Performing Loans (NPLs) as a percentage of gross loans declined from 1.6% in 2007 to 1.5% in 2008. However the provisioning of BD15.9mn in the fourth quarter of 2008 and the prevailing macroeconomic environment indicate that things are likely to worsen at the same time raising questions regarding the actual level of deterioration.
BD mn
Chart 04: NPLs to Gross Receivables 650 600 550 500 450 400 350 300 250 200 150 100
4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 2006
2007 2008 Gross Receivables (LHS)
2009(F) 2010(F) 2011(F) 2012(F) NPLs as a % of Gross Receivables (RHS)
1.0%
Source: Company Reports
We believe, there would be a significant jump in NPLs in 2009 as a result of which NPL ratio may jump upto 4.0% in 2009 and then remaining high in the range of around 3.5% for the projected period. Asset - strong growth but likely to come down… BISB’s total assets grew at a CAGR of 36.1% during the period 2004-2008, from BD320.7mn in 2004 to BD874.0mn at the end of 2008. In the year 2008, the balance sheet size increased by 32.6% over BD659.0mn at the end of 2007. Around 43.2% of the assets were deployed in receivables and 15.2% of assets were classified as non-trading investment. About 56.8% of nontrading investments was in the form of Sukuks, whereas the remaining 43.2% was in equities. Majority of BISB’s assets are in the Middle East region (92.6% at the end of 2008), but the bank is also increasing its presence in Europe and Asia. As such during 2008, the share of the Europe and Asia has gone up to 5.5% and 1.2% respectively from 3.0% and 0.1% in 2007. Assets in the Middle East witnessed an increase of 28.0% in 2008 and stood at BD809.1mn. Going forward, we believe that BISB will continue to increase its market presence in the Middle East markets especially where it has a strong foothold. Income & Profitability –showing signs of moderation…. Income from Islamic finances grew at a CAGR of 48.1% during the period 2004-2008, from BD8.3mn in 2004 to BD36.9mn in 2008. During 2008, income from Islamic finances increased by 17.4% to reach BD36.9mn as compared to BD31.5mn recorded in the previous year. Income from Islamic finances includes income from Murahaba receivables, Mudaraba investing, Musharaka investments, investments in Sukuk, and Ijarah muntahia bittamleek. The income from Murabaha receivables of the bank grew at a CAGR of 48.1% during the period 2004-2008, from BD5.6mn in 2004 to BD20.5mn in 2008. In the year 2008, income Bahrain Islamic Bank
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from murahaba receivables increased by 7.7% to BD20.5mn as compared to BD19.0mn recorded in the previous year and accounted for 55.4% of the total income from Islamic finances and 27.9% of the total operating income of the bank in 2008. Investment income of the bank continued to register significant increase recording a jump of 56.3% to reach BD18.3mn in 2008. It is important to note that this has come on the back of Y-o-Y growth of 112.0% and 146.6% achieved in 2007 and 2006 respectively. This has come mainly due to the bank realizing attractive returns on its various investment activities. As a result, the operating income of the bank grew at a CAGR of 68.3% during the period 20042008, from BD9.1mn in 2004 to BD73.3mn in 2008 with the growth for 2008 in operating income at 39.3%. The return on unrestricted investment accounts witnessed an increase of 13.4% to reach BD17.7mn in 2008 as compared to BD15.6mn recorded in the previous year. Chart 05: Operating Efficiency 27.0
40.0%
24.0 38.0%
21.0
BD mn
18.0
36.0%
15.0 12.0
34.0%
9.0 6.0
32.0%
3.0 0.0
30.0% 2006
2007 2008 Operating Expenses (LHS)
2009(F) 2010(F) 2011(F) As a % of Operating Income (RHS)
2012(F)
Source: Company Reports
On the efficiency front, the ratio of operating expense to operating income (bank’s share in operating income) decreased from 56.3% in 2004 to 32.4% in 2007 and further down to 31.3% in 2008. Although, the total operating expenses in 2008 have grown by 45.2% mainly on account of substantial increase in staff and other operating costs, the operating income has grown at a higher rate than the operating expenses and consequently the operating expense to operating income ratio has marginally come down. However in 2009, we believe that the ratio is likely to register a significant jump as operating expenses are likely to continue with its uptrend and operating income likely to shrink in 2009. Nonetheless post 2009, we are of the opinion that the bank would be able to bring down the operating expense ratio to around 34% levels. Chart 06: Return Ratios 5.0%
24.0%
4.0%
20.0%
3.0%
16.0%
2.0%
12.0%
1.0%
8.0%
0.0%
4.0% 2006
2007 2008 2009(F) Return on Average Assets (LHS)
2010(F) 2011(F) 2012(F) Return on Average Equity (RHS)
Source: Company Reports
Bahrain Islamic Bank
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BISB’s net profit grew at a CAGR of 56.7%, from BD3.7mn in 2004 to BD22.3mn in 2008. For 2008, the bank registered a decline of 10.8%, in its net income mainly on account of the BD15.9mn of provisioning during the fourth quarter of 2008. Consequently the EPS of the bank came down from 55.8fils in 2007 to 33.7fils in 2008. As a result, the return ratios also took significant hit with the return on average assets declining to 2.9% in 2008 from 4.6% in 2007 and return on average equity coming down to 12.6% in 2008 from 19.1% in 2007. We believe, the provisioning provided will be less in 2009 and as such the bank would be able to register a growth in its profitability which would lead to improving return ratios. Capital Adequacy maintained far beyond efficient requirements… The Capital Adequacy Ratio of the bank although coming down from 39.2% in 2007 to 29.3% in 2008 due to many reasons including significant jump in credit risk weighted assets, it still remains much higher than the required 12% by the Central Bank. Although this makes the bank more resilient to major delinquencies, the reduction in riskiness comes at a cost paid by its shareholders in the form of capital that remains unutilized due to surplus capital adequacy maintenance.
Bahrain Islamic Bank
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Financial Performance – First Quarter of 2009 The total operating income of the bank came down for the quarter and recorded a Y-oY decline of 18.6% in 1Q-2009 and stood at BD14.5mn. Income from Islamic finances, however, showed a marginal increase of 0.5% to BD8.3mn in 1Q-2009. Investment income, which until recently was the main driver of growth came down significantly and stood at BD3.0mn for the quarter less than half of BD6.2mn recorded in 1Q-2008. However, gains on fair value adjustment for investments in properties jumped significantly and helped cushion the fall in operating income a little. BISB’s total operating expenses grew by 11.3% in 1Q-2009 over the corresponding period of the previous year. The bank again made a provision of BD1.6mn in the first quarter of 2009. What is noteworthy is this provision has come on the back of BD15.9mn that the bank has provided during the fourth quarter of 2008 and is a reflection of the deteriorating asset quality. Consequently, the earnings of the bank took a significant hit with the bank reporting net profit for 1Q-2009 at BD6.0mn, a decline of 40.3% over BD10.1mn reported for 1Q-2008. Table 02: 1Q-2009 Performance INCOME STATEMENT Amount in BD’000 Income from Islamic Finances Gain on fair value adjustment for investments in properties Income from investments Bank’s share in the associates Other income Operating Income Return on unrestricted investment accounts Total Income Operating Expenses Net Income before provision for impairment Provision for impairment Net Profit for the quarter
1Q 2008 8,295 1,396 6,169 489 1,506 17,855 3,816 14,039 3,678 10,361 (300) 10,061
1Q 2009 8,337 2,345 2,954 (602) 1,498 14,532 2,882 11,650 4,092 7,558 (1,553) 6,005
% Change 0.5% 68.0% -52.1% -223.1% -0.5% -18.6% -24.5% -17.0% 11.3% -27.1% 417.7% -40.3%
Source: Company Reports
BISB’s balance sheet size increased by a marginal 2.5% Q-o-Q to reach BD895.5mn at the end of 1Q-2009 as compared to BD874.0mn at the end 2008. On the funding side, the total funding for the bank increased by 3.5% to reach BD732.2mn at the end of 1Q2009 as compared with BD707.5mn at the end of year 2008. During the quarter, the bank distributed 10% bonus shares as a result of which the share capital increased to BD72.9mn. The customers’ current account increased by 4.4% during 1Q-2009 from BD69.5mn at end of 2008 to BD72.6mn. However other liabilities jumped 31.0% and reached BD18.3mn at the end of 1Q-2008 as compared to BD13.9mn at the end of 2008. On the assets side, Murabaha Receivables of the bank increased by 8.8% to BD401.0mn at the end of 1Q-2009 as compared to BD368.6mn as the end of 2008 and accounted for 44.8% of the total assets. Both Mudarba and Musharaka investments too increased by 2.5% and 6.7% respectively. Investment in properties too increased by 3.1% and stood at BD100.8mn as compared to BD97.8mn at the end of 2008. The non-trading investments portfolio of the bank, however, declined by 6.6% Q-o-Q to reach BD118.7mn at the end of 1Q-2009.
Bahrain Islamic Bank
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Outlook BISB is operating in a country where operating conditions have seen a major shake-up. The global financial crisis has brought an end to a prolonged oil boom in the Gulf including Bahrain and has reversed years of strong economic performance and massive fiscal surpluses. Financial services sector currently is facing the heat and is likely to be negatively impacted. The slump in the regional property markets is adding to the woes of the sector as Bahrain’s banks has significant exposure to regional property investments. Coupled with this severe liquidity crunch, plummeting equity markets, rising NPLs will significantly impact the asset growth trajectory of the banks in much of the GCC. The Islamic banking sector, which had been growing at a rapid pace, too is showing signs of moderation impacted by the global financial crisis. We are of the opinion that the era of super-growth in assets is over. The 4-yr CAGR of 36% in assets that we have seen lately may drop down to the early double-digits; for BISB we see a 4-yr CAGR of 12% for the forecast period. The banks super profitability growths that it had witnessed until recently (4-yr CAGR of 57% in profitability) also would slowdown and we expect the profits would grow at a much lesser CAGR of around 22% in the next 4-yr period. Though the bank does face significant risks of deterioration in asset quality (loan and investment portfolio) given the expected slowdown in economic growth and fall in real estate prices in GCC, we are of the opinion the 40% fall the stock has seen since end August-2008 is overdone and therefore see value in the stock.
Bahrain Islamic Bank
Global Research - Bahrain
Global Investment House
Valuation & Recommendation For arriving at the fair value of BISB, we have used two valuation methods: 1. Cash flow approach represented by the Dividend Discounting Model 2. P/BV target multiple approach using an adaption of the Gordon Growth Model. Dividend Discounting Model – DDM The DDM model is based on a 4-year forecast of dividends as cash flows (2009-12). The dividends for the forecasted period and the terminal value are then discounted back at the cost of equity to arrive at the total net present value (NPV) of the bank. In our calculations, we have made the following assumptions in order to arrive at the equity value of BISB: 1. Cost of Equity derived using Capital Asset Pricing Model. a. Risk free rate of 6.5% (yield of Bahrain government bond maturing 20/07/2014). b. Equity risk premium of 6.0%. c. Beta of 1.1. (Adjusted monthly Beta of 5 years) 2. Terminal growth rate of 3.5%. Table 03: DDM Sensitivity (BD mn) Dividends Expected NPV of dividends expected NPV of Terminal Value Estimated Fair Value of Equity No of Outstanding Shares (mn) DDM Value per share (fils)
61.9 174.3 236.2 728.6 324
2009 F 15.7
2010 F 18.5
2011 F 22.5
2012 F 25.4
Terminal Value 273.7
Source: Global Research
Sensitivity – DDM We have also prepared a sensitivity analysis for the estimated fair price based on various terminal growth rates and COE. Table 04: DDM Sensitivity (fils)
Cost of Equity
Terminal Growth rate 2.0%
3.0%
3.5%
4.0%
5.0%
11.1%
354
390
411
435
496
12.1%
318
346
363
381
426
13.1%
289
311
324
339
373
14.1%
264
283
293
305
331
15.1%
244
259
267
277
298
Source: Global Research
10
Bahrain Islamic Bank
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Gordon Growth Model - GGM The adaptation of the Gordon Growth model uses the sustainable return on average equity (ROAE), cost of equity (COE) and expected growth in earnings (g) to calculate the target P/BV of the bank using the formula: P/BV = (ROE - g) / (COE - g) This P/BV is then multiplied with the BVPS of the bank at the next full year, in our case the BVPS at December 31, 2009, to arrive at the fair value of the bank over a medium term investment horizon. In our calculations, we have made the following assumptions in order to arrive at the equity value of BISB: 1. Sustainable ROE calculated as the average ROAE of the forecasted 4 years. 2. Cost of Equity derived using Capital Asset Pricing Model taking the same assumptions as in the DDM. 3. Terminal growth rate of 3.5%, similar to the DDM. Table 05: Gordon Growth Model 20.3% 13.1% 3.5% 1.8 234 410
(fils)
Sustainable ROE COE Terminal Growth Rate (g) 2009: P/BV target multiple (x) 2009: BV/share GGM Value of BISB per share Source: Global Research
Sensitivity – GGM We have also prepared a sensitivity analysis for the estimated fair price based on various terminal growth rates and COE. Table 06: GGM Sensitivity (fils)
Cost of Equity
11.1% 12.1% 13.1% 14.1% 15.1%
2.0% 471 424 386 354 327
Terminal Growth Rate 3.0% 3.5% 4.0% 500 518 538 445 458 471 401 410 420 365 371 378 335 339 344
5.0% 588 505 443 394 355
Source: Global Research
This sensitivity shows the movement in fair value as a consequence of different ROE and COE assumptions.
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Table 07: GGM Sensitivity (fils)
Cost of Equity
11.1% 12.1% 13.1% 14.1% 15.1%
18.3% 456 403 361 327 299
19.3% 487 430 386 349 319
ROE 20.3% 518 458 410 371 339
21.3% 549 485 434 393 359
22.3% 579 512 459 415 380
Source: Global Research
This sensitivity shows the movement in fair value as a consequence of different ROE and various terminal growth rates. Table 08: GGM Sensitivity (fils)
ROE
18.3% 19.3% 20.3% 21.3% 22.3%
2.0% 344 365 386 407 428
Terminal Growth rate 3.0% 3.5% 4.0% 355 361 368 378 386 394 401 410 420 424 434 445 448 459 471
5.0% 385 414 443 471 500
Source: Global Research
Valuation As the book value multiples vary with time and are dependent on several factors such as market sentiment and other qualitative factors, we have provided 20% weightage to the target P/BV multiple arrived using the adaptation of the GGM method and 80% to the DDM method. Table 09: Valuation As per DDM method GGM method Weighted Price (fils)
Fair Value per share (fils) 324 410
Weighted Value Weight (fils) 0.80 259 0.20 82 341
Source: Global Research
Based on the current market price of 304 fils/share (as on April 30, 2009), BISB is trading at a 2009E P/E and P/BV multiple of 8.4x and 1.3x respectively. Our estimated value for BISB scrip is worked out to be 341fils based on DDM (80%) and adaptation of the Gordon Growth Model (20%). According to our fair value the banking scrip offers an upside of 12.3% on the closing price of 304fils per share; we therefore recommend a BUY on the scrip.
12
Bahrain Islamic Bank
Amount in BD ‘000 Assets: Cash and Balances with the CBB and other Banks Murabaha Receivables Mudaraba Investments Musharaka Investments Non-trading investments Investments in associates Investments in Ijarah Assets Ijarah Muntahia Bittamleek Investments in Properties Ijarah rental receivables Other assets Less: Provision Total Assets Liabilities, Unrestricted Investment Accounts and Equity Liabilities: Customers’ current accounts Other liabilities Total Liabilities Unrestricted Investment Accounts Equity: Share Capital Share Premium Statutory Reserve General Reserve Investments fair value reserve Cumulative changes in fair values Retained Earnings Proposed Appropriations Total Equity Total Liabilities, Unrestricted investment accounts & Equity
BALANCE SHEET 2007 18,349 338,970 36,372 39,476 156,353 7,045 5,893 13,574 34,950 2,963 6,989 (1,965) 658,969
60,963 7,615 68,578 403,215 60,214 50,869 8,037 1,000 7,133 30,217 16,073 13,633 187,176 658,969
2006 15,469 243,625 22,180 14,004 97,418 6,652 4,998 15,486 9,985 2,315 6,309 (1,965) 436,476
51,393 6,041 57,434 304,118
Bahrain Islamic Bank 28,336 5,534 1,000 3,255 21,860 5,350 9,589 74,924 436,476
66,235 43,936 10,268 1,000 18,093 (4,688) 17,714 13,889 166,447 873,967
69,466 13,935 83,401 624,119
49,579 377,430 58,857 80,576 133,017 7,423 9,901 67,960 97,829 1,469 8,088 (18,162) 873,967
72,859 43,936 12,891 1,000 18,093 (4,688) 18,960 7,265 170,317 988,122
77,802 16,025 93,827 723,978
32,303 452,916 69,451 95,080 146,319 7,794 10,891 73,397 112,503 1,645 8,735 (22,913) 988,122
Bahrain Islamic Bank 2008 2009(F)
72,859 43,936 16,584 1,000 18,093 (4,688) 33,731 7,265 188,780 1,110,886
85,582 18,429 104,011 818,095
31,375 520,853 80,563 109,342 153,635 8,184 11,980 78,535 129,379 1,810 9,434 (24,203) 1,110,886
2010(F)
72,859 43,936 21,092 1,000 18,093 (4,688) 51,763 7,265 211,320 1,248,038
92,429 19,842 112,270 924,448
37,026 588,564 91,037 122,463 168,998 8,593 13,178 82,461 148,786 1,991 10,189 (25,248) 1,248,038
2011(F)
72,859 43,936 26,170 1,000 18,093 (4,688) 72,073 7,265 236,707 1,384,030
99,823 21,363 121,186 1,026,137
46,437 647,421 100,140 135,934 185,898 9,023 14,496 86,584 171,104 2,190 11,004 (26,200) 1,384,030
2012(F)
Global Research - Bahrain Global Investment House
13
14 25,433 (9,824) 15,609 37,024
20,049 (7,389) 12,660 21,558 3,855 539 2,315 221 248 1,177 8,355 13,203 (150) 13,053
Return on Unrestricted Investment Accounts before Bank’s share as a Mudarib Bank’s share as a Mudarib Return on Unrestricted Investment Accounts Total Income
Staff costs Depreciation Depreciation on Ijarah Muntahia Bittamleek Expenses on Ijarah assets Expenses on Premises and Equipment Other Operating Expenses Operating Expenses
Operating Profit before Other Income and Zakah Provisions
Net Profit for the year
Bahrain Islamic Bank
25,025
25,025 -
7,082 1,079 294 275 3,269 11,999
52,633
34,218
Gross Operating Income
2007 31,463 18,999 3,181 2,290 4,973 2,020 5,328 11,698 3,586 558
2006 24,705 15,779 1,126 974 3,058 3,768 2,098 5,518 1,288 609
Amount in BD ‘000 Income from jointly financed sales and investments Income from Murahaba Receivables Income from Mudaraba Investments Income from Musharaka Investments Income from Investments in Securities Ijarah Muntahia Bittamleek Income Gain on fair value adjustment for Investments in Properties Income from investments Net Fee, Commission Income & Other Income Bank’s share in the Associates
INCOME STATEMENT
22,313
38,210 (15,897)
10,528 929 506 676 4,789 17,428
55,638
30,885 (13,183) 17,702
73,340
26,234
30,985 (4,751)
11,949 1,191 545 799 4,469 18,953
49,938
34,751 (15,928) 18,823
68,761
36,927
38,217 (1,290)
13,503 1,330 539 853 4,937 21,162
59,379
39,269 (16,362) 22,907
82,285
Bahrain Islamic Bank 2008 2009(F) 2010(F) 36,934 40,313 46,409 20,455 24,005 27,084 2,250 2,778 3,223 6,678 5,324 6,451 4,012 4,536 5,331 3,539 3,670 4,319 11,436 13,151 14,861 18,279 7,765 12,736 6,028 6,932 7,625 663 600 655
45,080
46,124 (1,045)
15,258 1,478 593 905 5,701 23,935
70,060
43,449 (18,489) 24,960
95,020
2011(F) 53,708 31,194 4,097 7,470 5,999 4,948 16,347 15,889 8,388 687
50,775
51,728 (953)
17,242 1,646 652 1,040 6,014 26,594
78,322
47,715 (20,523) 27,193
105,514
2012(F) 59,553 34,961 4,506 8,292 6,599 5,195 17,982 17,850 9,227 902
Global Research - Bahrain Global Investment House
Amount in BD ‘000 Operating Activities Net profit Adjustments for non-cash items: Depreciation Provisions for Impairment Share of results of associate Gain on sale of Investments Fair value gain on Investments in Properties Gain on sale of investments in Properties Operating profit before changes in Op. Assets & Liabilities Changes in: Mandatory reserve with CBB Murabaha Receivables Mudaraba Financing Musharaka Financing Ijarah Rental Receivables Other Assets Customer’ Current Accounts Other Liabilities Net Cash From Operating Activities Investing Activities Purchase of Investments in Ijarah Assets Ijarah Muntahia Bittamleek Net Purchase of Investment Properties Purchase of Investments Investment in Associates Net Cash (used in) Investing activities Financing Activities Increase in Capital Share Premium Increase (decrease) in Unrestricted Investment Accounts Dividends Paid Current year Dividends Directors Remuneration Zakah/Charitable Contributions paid Net Cash (used in) Financing activities Net Increase (Decrease) In Cash Cash & Balances with the CBB & other Banks at the beginning of the year Mandatory Reserve at 31 Dec Cash and Balances with the CBB and other Banks at the end of the year
CASH FLOW STATEMENT 2007 25,025 1,079 (558) (8,141) (5,328) (190) 11,887 (4,770) (95,345) (21,429) (25,472) (648) (377) 9,570 1,574 (125,010) (719) 2,324 (19,447) (37,005) (54,847) 28,336 56,581 99,097 (5,667) (210) (170) 177,967 (1,890) 20,239 12,285 18,349
2006 13,053 2,854 150 (609) (2,098) (948) 12,402 (1,550) (85,439) 7,279 (4,065) (1,377) (3,430) 4,048 2,479 (69,653)
Bahrain Islamic Bank (5,049) 1,305 (22,527) (2,714) (28,985) 106,237 (3,795) (120) (213) 102,109 3,471 11,998 7,515 15,469
220,904 (7,535) (264) 213,105 12,267 6,064 31,248 49,579
(4,143) (54,386) (49,836) 653 480 (107,232)
(18,963) (38,460) (22,485) (41,100) 1,494 (1,893) 8,503 5,772 (93,606)
929 15,897 (663) (11,907) (11,436) (1,607) 13,526
22,313
99,859 (6,624) (15,740) 77,495 (17,276) 49,579 32,303
(2,357) (5,437) (1,523) (13,302) (371) (22,990)
(75,486) (10,594) (14,504) (647) 8,336 2,090 (71,781)
1,191 4,751 (13,151) 19,024
26,234
94,117 (18,463) 75,654 (928) 32,303 31,375
(2,584) (5,138) (2,014) (7,316) (390) (17,442)
(67,937) (11,112) (14,262) (699) 7,780 2,404 (59,140)
1,330 1,290 (14,861) 24,686
36,927
Bahrain Islamic Bank 2008 2009(F) 2010(F)
106,352 (22,540) 83,813 5,651 31,375 37,026
(2,857) (3,927) (3,060) (15,363) (409) (25,617)
(67,711) (10,473) (13,121) (755) 6,847 1,413 (52,545)
1,478 1,045 (16,347) 31,256
45,080
2011(F)
101,689 (25,388) 76,302 9,411 37,026 46,437
(3,163) (4,123) (4,336) (16,900) (430) (28,952)
(58,856) (9,104) (13,471) (815) 7,394 1,521 (37,939)
1,646 953 (17,982) 35,392
50,775
2012(F)
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15
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FACT SHEET Profitability - Return on Average Assets - Return on Average Equity - Net profit sharing income/ Gross Income - Dividend payout ratio - Operating Expenses / Gross Income - Operating Expenses / Profit Sharing - Operating Expenses / Assets
2006
2007
3.4% 17.8% 72.2% 52.6% 24.4% 33.8% 0.6%
4.6% 19.1% 59.8% 30.4% 22.8% 38.1% 0.5%
Bahrain Islamic Bank 2008 2009(F) 2010(F) 2011(F) 2012(F) 2.9% 2.8% 3.5% 3.8% 3.9% 12.6% 15.6% 20.6% 22.5% 22.7% 50.4% 58.6% 56.4% 56.5% 56.4% 29.7% 60.0% 50.0% 50.0% 50.0% 23.8% 27.6% 25.7% 25.2% 25.2% 47.2% 47.0% 45.6% 44.6% 44.7% 0.6% 0.5% 0.5% 0.5% 0.5%
Margins - Depositors Profit Sharing to Profit Sharing Income - Profit Sharing Income to Profit Sharing Income Earning Assets - Depositors Profit Sharing to Depositors Profit Sharing Liabilities - Net Spread - Net Profit Sharing Margin
51.2% 8.2% 3.6% 4.7% 4.7%
49.6% 7.2% 3.4% 3.9% 4.2%
47.9% 6.2% 2.6% 3.7% 3.6%
46.7% 5.7% 2.3% 3.4% 3.3%
49.4% 5.8% 2.5% 3.3% 3.1%
46.5% 6.0% 2.5% 3.5% 3.4%
45.7% 6.0% 2.4% 3.6% 3.5%
Efficiency - Cost to total operating income - Operating Expenses to Gross Income - Staff Expense to Gross Income - Operating Expenses to Average Total Assets
38.8% 24.4% 11.3% 2.2%
32.4% 22.8% 13.5% 2.2%
31.3% 23.8% 14.4% 2.3%
38.0% 27.6% 17.4% 2.0%
35.6% 25.7% 16.4% 2.0%
34.2% 25.2% 16.1% 2.0%
34.0% 25.2% 16.3% 2.0%
78.7% 474.5%
89.4% 248.0%
64.2% 416.7%
77.0% 470.8%
78.7% 478.7%
78.9% 481.2%
78.5% 475.7%
Credit Quality - Non Performing Loans BD ‘000 - Loan Loss Reserve BD ‘000 - NPL’s to Gross Loans - Loan Loss Reserve to Gross Loans - Provisions to NPL
2,744 1,915 1.1% 0.8% 69.8%
5,304 1,965 1.6% 0.6% 37.0%
5,661 18,162 1.5% 4.8% 320.8%
18,117 22,913 4.0% 5.1% 126.5%
19,792 24,203 3.8% 4.6% 122.3%
21,188 25,248 3.6% 4.3% 119.2%
22,660 26,200 3.5% 4.0% 115.6%
Capital Adequacy - Equity to Total Assets - Equity to Gross Loans
17.2% 26.8%
28.4% 45.1%
19.0% 32.2%
17.2% 27.6%
17.0% 26.6%
16.9% 26.3%
17.1% 26.8%
283 17.9 24% 102.8 345 251.4 19.3 3.4
602 34.3 13% 256.9 425 309.7 12.4 1.7
662 30.6 10% 228.5 264 192.3 8.6 1.2
729 36.0 22% 233.8 304 221.5 8.4 1.3
729 50.7 25% 259.1 304 221.5 6.0 1.2
729 61.9 31% 290.0 304 221.5 4.9 1.0
729 69.7 35% 324.9 304 221.5 4.4 0.9
Liquidity - Gross Loans to Total Deposits - Deposits to Equity
RATIOS USED FOR VALUATION - Shares in Issue (mn) - Adjusted EPS (fils) - Dividend - Book Value Per Share (fils) - Market Price Year End (fils)* - Market Capitalization (BD mn) - P/E - P/BV
* Market Price for 2009 onwards is price as of April 30, 2009. Historical P/E & P/BV multiples pertain to respective year -end prices, while those for future years are based on closing prices on the BSE as of April 30, 2009.
16
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The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure.
Disclosure Checklist Company
Recommendation
Bahrain Islamic Bank
Buy
Ticker BISB.BH (Reuters) BISB BI (Bloomberg)
Price
Disclosure
304 fils
1, 10
1. Global Investment House did not receive and will not receive any compensation from the company or anyone else for the preparation of this report. 2. The company being researched holds more than 5% stake in Global Investment House. 3. Global Investment House makes a market in securities issued by this company. 4. Global Investment House acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company. 6. An employee of Global Investment House serves on the board of directors of this company. 7. Within the past year , Global Investment House has managed or co-managed a public offering for this company, for which it received fees. 8. Global Investment House has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. Global Investment House expects to receive or intends to seek compensation for investment banking services from this company in the next three month. 10. Please see special footnote below for other relevant disclosures.
Global Research: Equity Ratings Definitions Global Rating Definition Buy
Fair value of the stock is >10% from the current market price
Hold
Fair value of the stock is between +10% and -10% from the current market price
Reduce
Fair value of the stock is between -10% and -20% from the current market price
Sell
Fair value of the stock is < -20% from the current market price
This material was produced by Global Investment House KSCC (‘Global’),a firm regulated by the Central Bank of Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time,to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities (‘securities’), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. 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 document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgement. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or ommission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice.Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait 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 you agree to be bound by the foregoing limitations.
Bahrain Islamic Bank
17
Bahrain
Investment Update
Bahrain Islamic Bank Tickers: BISB.BH (Reuters) BISB BI (Bloomberg)
May, 2009
Buy
Listing: Bahrain Stock Exchange Current Price: 304 fils (As on April 30, 2009)
Investment Summary • Bahrain Islamic Bank (BISB) was able to achieve decent returns in 2008, as the bank reported net profit of BD22.3mn, a decrease of 10.8% as compared to the previous year. The decline was mainly on account of BD15.9mn provisioning during the fourth quarter of 2008 as the global financial crisis hit the GCC countries with tumbling real estate prices and fall in equity markets. • The balance sheet size of the bank increased by 32.6% to BD874.0mn in 2008 as compared to BD659.0mn in 2007 with the total assets having grown at a CAGR of 36.1% during the period 2004-2008, from BD320.7mn in 2004. • Income from Islamic finances increased by 17.4% to reach BD36.9mn as compared to BD31.5mn recorded in the previous year. Income from Islamic finances includes income from Murahaba receivables, Mudaraba investing, Musharaka investments, investments in Sukuk, and Ijarah muntahia bittamleek. • In 2008, the operating income registered a significant increase of 39.3%, from BD52.6mn in 2007 to BD73.3mn. The return on unrestricted investment accounts witnessed an increase of 13.4% to reach BD17.7mn in 2008 as compared to BD15.6mn recorded in the previous year. • Due to the decline in net profits, return ratios took a significant hit with the return on average assets declining to 2.9% in 2008 from 4.6% in 2007 and return on average equity coming down to 12.6% in 2008 from 19.1% in 2007.
Faisal Hasan, CFA Head of Research
[email protected] Phone No:(965) 22951270
Digvijay Tanwar Financial Analyst
[email protected] Phone No:(965) 22951275
• During 1Q-2009, the total operating income of the bank came down and recorded a Yo-Y decline of 18.6% and stood at BD14.5mn. Income from Islamic finances, however, showed a marginal increase of 0.5% to BD8.3mn. Investment income, which until recently was the main driver of growth came down significantly and stood at BD3.0mn for the quarter less than half of BD6.2mn recorded in 1Q-2008. However, gains on fair value adjustment for investments in properties jumped significantly and helped cushion the fall in operating income a little.
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1
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• Earnings of the bank took a significant hit with the bank reporting net profit for 1Q-2009 at BD6.0mn, a decline of 40.3% over BD10.1mn reported for 1Q-2008. • BISB’s balance sheet size increased by a marginal 2.5% Q-o-Q to reach BD895.5mn at the end of 1Q-2009 as compared to BD874.0mn at the end 2008. • We are of the opinion that the era of super-growth in assets is over. The 4-yr CAGR of 36% in assets that we have seen lately may drop down to the early double-digits; for BISB we see a 4-yr CAGR of 12% for the forecast period. The banks super profitability growths that it had witnessed until recently (4-yr CAGR of 57% in profitability) also would slowdown and we expect the profits would grow at a much lesser CAGR of around 22% in the next 4-yr period. • We have assigned an 80% weight to the DDM valuation and 20% to the adaptation of the Gordon Growth Model. Based on the weighted average valuation approach, we have reached a fair value for BISB of 341fils. Given a current market price of 304fils (as of April 30, 2009), the stock currently has an upside potential of 12.3% from current levels. Therefore, we recommend a "BUY” on BISB’s stock. Table 01: Investment Indicators Price (April 30, 2009) (fils) 304 Operating Revenues Year (BD mn) 2010F 82.3 2009F 68.8 2008A 73.3 2007A 52.6
Shares in issue (mn) 728.6 Operating Profit Net Profit (BD mn) (BD mn) 59.4 36.9 49.9 26.2 55.6 22.3 37.0 25.0
Market Cap (BD mn) 221.5
52 - week price range 236 - 506fils
EPS BVPS ROAA ROAE (fils) (fils) (%) (%) 51 259 3.5% 20.6% 36 234 2.8% 15.6% 31 228 2.9% 12.6% 34 257 4.6% 19.1%
P/E (x) 6.0 8.4 8.6 12.4
P/BV (x) 1.2 1.3 1.2 1.7
Source: Global Research. Historical P/E & P/BV multiples pertain to respective year -end prices, while those for future years are based on closing prices on the BSE as of April 30, 2009.
Chart 01: Performance of BISB vs Bahrain Indices 450 500
350
400
300
300 Fils
Index (Points)
400
250
200
200 100
"Global" Bahrain Index (LHS)
"Global" Bahrain Bank Index (LHS)
Apr-09
Mar-09
Feb-09
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
0
Jun-08
Apr-08
100
May-08
150
BISB (RHS)
Source: Global Research
Bahrain Islamic Bank
Global Research - Bahrain
Global Investment House
Bahrain Islamic Bank - Recent Developments • The bank acquired a 31% stake in Islamic Bank of Yemen in June-2008 and increased its stake in the latter to 33%. • During June-2008, the bank along with Abu Dhabi Water & Electricity Authority, Tasameem Real Estate, Gulf Finance House, Dubai Investments, Emirates Islamic Bank, Capital Management House, Khaleeji Commercial Bank, Al Jabr Trading Company and other investors, has invested in the First Energy Bank to increase the latter's capital from US$750mn to US$1.0bn. • The bank in May-08, along with a consortium of banks, arranged a US$100mn syndicated Morabaha Facility for Rasameel Structured Finance Company (Kuwait). • BISB was assigned “Baa1” long-term and “Prime-2” short-term local and foreign currency issuer ratings as well as a “D+” bank financial strength rating (BFSR) by Moody’s Investor Services in Feb-2009. According to Moody's report, the “D+” BFSR, which maps to a baseline credit assessment of Ba1 under Moody's joint default analysis methodology, reflects BISB's growing franchise as Bahrain's leading Islamic commercial bank, strong financial metrics across the board, good asset quality, strong capitalization and ample liquidity.
Financial Performance – 2008 Despite the credit turmoil and international financial crisis, BISB was able to achieve decent returns in 2008, as the bank reported net profit of BD22.3mn, a decrease of 10.8% as compared to the previous year. The decline was mainly on account of BD15.9mn provisioning during the fourth quarter of 2008 as the global financial crisis hit the GCC countries with tumbling real estate prices and fall in equity markets. The balance sheet size of the bank increased Y-o-Y by 32.6% to reach BD874.0mn at the end of 2008 as compared to BD659.0mn in the previous year. Growing deposit base… BISB has been increasing its deposits using its technological innovations and aggressive marketing strategies. The bank has benefited from customers’ changing preference and migration from the conventional banking products towards Islamic banking products. Customers’ current account grew at a CAGR of 23.0%, from BD30.4mn in 2004 to reach BD69.5mn at the end of 2008. For 2008, the rate of growth was 13.9%. In addition, the bank was also able to increase its external funding through the unrestricted investments accounts, which grew at a CAGR of 38.7% from BD168.8mn in 2004 to reach BD624.1mn in 2008. In 2008, the unrestricted investment accounts increased by 54.8% over BD403.2mn in 2007. Customer’s contribution to the total unrestricted investment account increased from 58.9% in 2007 to 68.2% in 2008, whereas the banks and financial institutions’ contribution, although increasing in absolute terms by 20%, in percentage terms it declined from 40.5% in 2007 to 31.4% in 2008. Going forward, we believe the bank will be able to increase its funding base with strong relationships, which will further support the loan growth.
Bahrain Islamic Bank
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Chart 02: Unrestricted Investment Accounts – Category wise break up 2008
700 600 500 BD mn
Banks and other Fis 31%
Profit equalisati on reserve 0%
400 300 200 100
Customers 69%
2005 Customers
2006 Banks and other Fis
2007 2008 Profit equalisation reserve
Source: Company Reports
Receivables portfolio – healthy growth… BISB receivables portfolio grew at a CAGR of 25.8% from BD157.3mn in 2004 to BD394.0mn in 2008. During 2008, the receivables portfolio grew by 12.7% over BD339.0mn at the end of 2007. Chart 03: Receivables Portfolio – Sector wise break up 2008
400 350
Others including retail 47.2%
Financial Institutions 39.8%
250 BD mn
Secured by Real Estate 3.8%
300
Commercial 9.2%
200 150 100 50 Commercial
2005 2006 2007 Financial Institutions Secured by Real Estate
2008 Others including retail
Source: Company Reports
Lending to financial institutions accounted for almost 40% of the total receivables portfolio in 2008, which has come down from 50.6% at the end of 2007. In absolute terms, lending to financial institution has come down from BD176.8mn in 2007 to BD156.7mn in 2008, representing a decrease of 11.4%. Lending to commercial sector increased to BD36.4mn in 2008 from BD30.5mn at the end of 2007, representing an increase of 19.1%, whereas in terms of contribution it increased from 8.7% in 2007 to 9.2% at the end of 2008. Other murabaha receivables including retail jumped 50.4% to reach BD185.9mn and accounted for 47.2% of the receivables portfolio. This surge in other receivables was mainly instrumental to the growth witnessed in receivables portfolio in 2008.
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Asset quality likely to take a hit… The bank’s asset quality showed a marginal improvement in 2008. Non-Performing Loans (NPLs) as a percentage of gross loans declined from 1.6% in 2007 to 1.5% in 2008. However the provisioning of BD15.9mn in the fourth quarter of 2008 and the prevailing macroeconomic environment indicate that things are likely to worsen at the same time raising questions regarding the actual level of deterioration.
BD mn
Chart 04: NPLs to Gross Receivables 650 600 550 500 450 400 350 300 250 200 150 100
4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 2006
2007 2008 Gross Receivables (LHS)
2009(F) 2010(F) 2011(F) 2012(F) NPLs as a % of Gross Receivables (RHS)
1.0%
Source: Company Reports
We believe, there would be a significant jump in NPLs in 2009 as a result of which NPL ratio may jump upto 4.0% in 2009 and then remaining high in the range of around 3.5% for the projected period. Asset - strong growth but likely to come down… BISB’s total assets grew at a CAGR of 36.1% during the period 2004-2008, from BD320.7mn in 2004 to BD874.0mn at the end of 2008. In the year 2008, the balance sheet size increased by 32.6% over BD659.0mn at the end of 2007. Around 43.2% of the assets were deployed in receivables and 15.2% of assets were classified as non-trading investment. About 56.8% of nontrading investments was in the form of Sukuks, whereas the remaining 43.2% was in equities. Majority of BISB’s assets are in the Middle East region (92.6% at the end of 2008), but the bank is also increasing its presence in Europe and Asia. As such during 2008, the share of the Europe and Asia has gone up to 5.5% and 1.2% respectively from 3.0% and 0.1% in 2007. Assets in the Middle East witnessed an increase of 28.0% in 2008 and stood at BD809.1mn. Going forward, we believe that BISB will continue to increase its market presence in the Middle East markets especially where it has a strong foothold. Income & Profitability –showing signs of moderation…. Income from Islamic finances grew at a CAGR of 48.1% during the period 2004-2008, from BD8.3mn in 2004 to BD36.9mn in 2008. During 2008, income from Islamic finances increased by 17.4% to reach BD36.9mn as compared to BD31.5mn recorded in the previous year. Income from Islamic finances includes income from Murahaba receivables, Mudaraba investing, Musharaka investments, investments in Sukuk, and Ijarah muntahia bittamleek. The income from Murabaha receivables of the bank grew at a CAGR of 48.1% during the period 2004-2008, from BD5.6mn in 2004 to BD20.5mn in 2008. In the year 2008, income Bahrain Islamic Bank
Global Research - Bahrain
Global Investment House
from murahaba receivables increased by 7.7% to BD20.5mn as compared to BD19.0mn recorded in the previous year and accounted for 55.4% of the total income from Islamic finances and 27.9% of the total operating income of the bank in 2008. Investment income of the bank continued to register significant increase recording a jump of 56.3% to reach BD18.3mn in 2008. It is important to note that this has come on the back of Y-o-Y growth of 112.0% and 146.6% achieved in 2007 and 2006 respectively. This has come mainly due to the bank realizing attractive returns on its various investment activities. As a result, the operating income of the bank grew at a CAGR of 68.3% during the period 20042008, from BD9.1mn in 2004 to BD73.3mn in 2008 with the growth for 2008 in operating income at 39.3%. The return on unrestricted investment accounts witnessed an increase of 13.4% to reach BD17.7mn in 2008 as compared to BD15.6mn recorded in the previous year. Chart 05: Operating Efficiency 27.0
40.0%
24.0 38.0%
21.0
BD mn
18.0
36.0%
15.0 12.0
34.0%
9.0 6.0
32.0%
3.0 0.0
30.0% 2006
2007 2008 Operating Expenses (LHS)
2009(F) 2010(F) 2011(F) As a % of Operating Income (RHS)
2012(F)
Source: Company Reports
On the efficiency front, the ratio of operating expense to operating income (bank’s share in operating income) decreased from 56.3% in 2004 to 32.4% in 2007 and further down to 31.3% in 2008. Although, the total operating expenses in 2008 have grown by 45.2% mainly on account of substantial increase in staff and other operating costs, the operating income has grown at a higher rate than the operating expenses and consequently the operating expense to operating income ratio has marginally come down. However in 2009, we believe that the ratio is likely to register a significant jump as operating expenses are likely to continue with its uptrend and operating income likely to shrink in 2009. Nonetheless post 2009, we are of the opinion that the bank would be able to bring down the operating expense ratio to around 34% levels. Chart 06: Return Ratios 5.0%
24.0%
4.0%
20.0%
3.0%
16.0%
2.0%
12.0%
1.0%
8.0%
0.0%
4.0% 2006
2007 2008 2009(F) Return on Average Assets (LHS)
2010(F) 2011(F) 2012(F) Return on Average Equity (RHS)
Source: Company Reports
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Global Research - Bahrain
Global Investment House
BISB’s net profit grew at a CAGR of 56.7%, from BD3.7mn in 2004 to BD22.3mn in 2008. For 2008, the bank registered a decline of 10.8%, in its net income mainly on account of the BD15.9mn of provisioning during the fourth quarter of 2008. Consequently the EPS of the bank came down from 55.8fils in 2007 to 33.7fils in 2008. As a result, the return ratios also took significant hit with the return on average assets declining to 2.9% in 2008 from 4.6% in 2007 and return on average equity coming down to 12.6% in 2008 from 19.1% in 2007. We believe, the provisioning provided will be less in 2009 and as such the bank would be able to register a growth in its profitability which would lead to improving return ratios. Capital Adequacy maintained far beyond efficient requirements… The Capital Adequacy Ratio of the bank although coming down from 39.2% in 2007 to 29.3% in 2008 due to many reasons including significant jump in credit risk weighted assets, it still remains much higher than the required 12% by the Central Bank. Although this makes the bank more resilient to major delinquencies, the reduction in riskiness comes at a cost paid by its shareholders in the form of capital that remains unutilized due to surplus capital adequacy maintenance.
Bahrain Islamic Bank
Global Research - Bahrain
Global Investment House
Financial Performance – First Quarter of 2009 The total operating income of the bank came down for the quarter and recorded a Y-oY decline of 18.6% in 1Q-2009 and stood at BD14.5mn. Income from Islamic finances, however, showed a marginal increase of 0.5% to BD8.3mn in 1Q-2009. Investment income, which until recently was the main driver of growth came down significantly and stood at BD3.0mn for the quarter less than half of BD6.2mn recorded in 1Q-2008. However, gains on fair value adjustment for investments in properties jumped significantly and helped cushion the fall in operating income a little. BISB’s total operating expenses grew by 11.3% in 1Q-2009 over the corresponding period of the previous year. The bank again made a provision of BD1.6mn in the first quarter of 2009. What is noteworthy is this provision has come on the back of BD15.9mn that the bank has provided during the fourth quarter of 2008 and is a reflection of the deteriorating asset quality. Consequently, the earnings of the bank took a significant hit with the bank reporting net profit for 1Q-2009 at BD6.0mn, a decline of 40.3% over BD10.1mn reported for 1Q-2008. Table 02: 1Q-2009 Performance INCOME STATEMENT Amount in BD’000 Income from Islamic Finances Gain on fair value adjustment for investments in properties Income from investments Bank’s share in the associates Other income Operating Income Return on unrestricted investment accounts Total Income Operating Expenses Net Income before provision for impairment Provision for impairment Net Profit for the quarter
1Q 2008 8,295 1,396 6,169 489 1,506 17,855 3,816 14,039 3,678 10,361 (300) 10,061
1Q 2009 8,337 2,345 2,954 (602) 1,498 14,532 2,882 11,650 4,092 7,558 (1,553) 6,005
% Change 0.5% 68.0% -52.1% -223.1% -0.5% -18.6% -24.5% -17.0% 11.3% -27.1% 417.7% -40.3%
Source: Company Reports
BISB’s balance sheet size increased by a marginal 2.5% Q-o-Q to reach BD895.5mn at the end of 1Q-2009 as compared to BD874.0mn at the end 2008. On the funding side, the total funding for the bank increased by 3.5% to reach BD732.2mn at the end of 1Q2009 as compared with BD707.5mn at the end of year 2008. During the quarter, the bank distributed 10% bonus shares as a result of which the share capital increased to BD72.9mn. The customers’ current account increased by 4.4% during 1Q-2009 from BD69.5mn at end of 2008 to BD72.6mn. However other liabilities jumped 31.0% and reached BD18.3mn at the end of 1Q-2008 as compared to BD13.9mn at the end of 2008. On the assets side, Murabaha Receivables of the bank increased by 8.8% to BD401.0mn at the end of 1Q-2009 as compared to BD368.6mn as the end of 2008 and accounted for 44.8% of the total assets. Both Mudarba and Musharaka investments too increased by 2.5% and 6.7% respectively. Investment in properties too increased by 3.1% and stood at BD100.8mn as compared to BD97.8mn at the end of 2008. The non-trading investments portfolio of the bank, however, declined by 6.6% Q-o-Q to reach BD118.7mn at the end of 1Q-2009.
Bahrain Islamic Bank
Global Research - Bahrain
Global Investment House
Outlook BISB is operating in a country where operating conditions have seen a major shake-up. The global financial crisis has brought an end to a prolonged oil boom in the Gulf including Bahrain and has reversed years of strong economic performance and massive fiscal surpluses. Financial services sector currently is facing the heat and is likely to be negatively impacted. The slump in the regional property markets is adding to the woes of the sector as Bahrain’s banks has significant exposure to regional property investments. Coupled with this severe liquidity crunch, plummeting equity markets, rising NPLs will significantly impact the asset growth trajectory of the banks in much of the GCC. The Islamic banking sector, which had been growing at a rapid pace, too is showing signs of moderation impacted by the global financial crisis. We are of the opinion that the era of super-growth in assets is over. The 4-yr CAGR of 36% in assets that we have seen lately may drop down to the early double-digits; for BISB we see a 4-yr CAGR of 12% for the forecast period. The banks super profitability growths that it had witnessed until recently (4-yr CAGR of 57% in profitability) also would slowdown and we expect the profits would grow at a much lesser CAGR of around 22% in the next 4-yr period. Though the bank does face significant risks of deterioration in asset quality (loan and investment portfolio) given the expected slowdown in economic growth and fall in real estate prices in GCC, we are of the opinion the 40% fall the stock has seen since end August-2008 is overdone and therefore see value in the stock.
Bahrain Islamic Bank
Global Research - Bahrain
Global Investment House
Valuation & Recommendation For arriving at the fair value of BISB, we have used two valuation methods: 1. Cash flow approach represented by the Dividend Discounting Model 2. P/BV target multiple approach using an adaption of the Gordon Growth Model. Dividend Discounting Model – DDM The DDM model is based on a 4-year forecast of dividends as cash flows (2009-12). The dividends for the forecasted period and the terminal value are then discounted back at the cost of equity to arrive at the total net present value (NPV) of the bank. In our calculations, we have made the following assumptions in order to arrive at the equity value of BISB: 1. Cost of Equity derived using Capital Asset Pricing Model. a. Risk free rate of 6.5% (yield of Bahrain government bond maturing 20/07/2014). b. Equity risk premium of 6.0%. c. Beta of 1.1. (Adjusted monthly Beta of 5 years) 2. Terminal growth rate of 3.5%. Table 03: DDM Sensitivity (BD mn) Dividends Expected NPV of dividends expected NPV of Terminal Value Estimated Fair Value of Equity No of Outstanding Shares (mn) DDM Value per share (fils)
61.9 174.3 236.2 728.6 324
2009 F 15.7
2010 F 18.5
2011 F 22.5
2012 F 25.4
Terminal Value 273.7
Source: Global Research
Sensitivity – DDM We have also prepared a sensitivity analysis for the estimated fair price based on various terminal growth rates and COE. Table 04: DDM Sensitivity (fils)
Cost of Equity
Terminal Growth rate 2.0%
3.0%
3.5%
4.0%
5.0%
11.1%
354
390
411
435
496
12.1%
318
346
363
381
426
13.1%
289
311
324
339
373
14.1%
264
283
293
305
331
15.1%
244
259
267
277
298
Source: Global Research
10
Bahrain Islamic Bank
Global Research - Bahrain
Global Investment House
Gordon Growth Model - GGM The adaptation of the Gordon Growth model uses the sustainable return on average equity (ROAE), cost of equity (COE) and expected growth in earnings (g) to calculate the target P/BV of the bank using the formula: P/BV = (ROE - g) / (COE - g) This P/BV is then multiplied with the BVPS of the bank at the next full year, in our case the BVPS at December 31, 2009, to arrive at the fair value of the bank over a medium term investment horizon. In our calculations, we have made the following assumptions in order to arrive at the equity value of BISB: 1. Sustainable ROE calculated as the average ROAE of the forecasted 4 years. 2. Cost of Equity derived using Capital Asset Pricing Model taking the same assumptions as in the DDM. 3. Terminal growth rate of 3.5%, similar to the DDM. Table 05: Gordon Growth Model 20.3% 13.1% 3.5% 1.8 234 410
(fils)
Sustainable ROE COE Terminal Growth Rate (g) 2009: P/BV target multiple (x) 2009: BV/share GGM Value of BISB per share Source: Global Research
Sensitivity – GGM We have also prepared a sensitivity analysis for the estimated fair price based on various terminal growth rates and COE. Table 06: GGM Sensitivity (fils)
Cost of Equity
11.1% 12.1% 13.1% 14.1% 15.1%
2.0% 471 424 386 354 327
Terminal Growth Rate 3.0% 3.5% 4.0% 500 518 538 445 458 471 401 410 420 365 371 378 335 339 344
5.0% 588 505 443 394 355
Source: Global Research
This sensitivity shows the movement in fair value as a consequence of different ROE and COE assumptions.
Bahrain Islamic Bank
11
Global Research - Bahrain
Global Investment House
Table 07: GGM Sensitivity (fils)
Cost of Equity
11.1% 12.1% 13.1% 14.1% 15.1%
18.3% 456 403 361 327 299
19.3% 487 430 386 349 319
ROE 20.3% 518 458 410 371 339
21.3% 549 485 434 393 359
22.3% 579 512 459 415 380
Source: Global Research
This sensitivity shows the movement in fair value as a consequence of different ROE and various terminal growth rates. Table 08: GGM Sensitivity (fils)
ROE
18.3% 19.3% 20.3% 21.3% 22.3%
2.0% 344 365 386 407 428
Terminal Growth rate 3.0% 3.5% 4.0% 355 361 368 378 386 394 401 410 420 424 434 445 448 459 471
5.0% 385 414 443 471 500
Source: Global Research
Valuation As the book value multiples vary with time and are dependent on several factors such as market sentiment and other qualitative factors, we have provided 20% weightage to the target P/BV multiple arrived using the adaptation of the GGM method and 80% to the DDM method. Table 09: Valuation As per DDM method GGM method Weighted Price (fils)
Fair Value per share (fils) 324 410
Weighted Value Weight (fils) 0.80 259 0.20 82 341
Source: Global Research
Based on the current market price of 304 fils/share (as on April 30, 2009), BISB is trading at a 2009E P/E and P/BV multiple of 8.4x and 1.3x respectively. Our estimated value for BISB scrip is worked out to be 341fils based on DDM (80%) and adaptation of the Gordon Growth Model (20%). According to our fair value the banking scrip offers an upside of 12.3% on the closing price of 304fils per share; we therefore recommend a BUY on the scrip.
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Bahrain Islamic Bank
Amount in BD ‘000 Assets: Cash and Balances with the CBB and other Banks Murabaha Receivables Mudaraba Investments Musharaka Investments Non-trading investments Investments in associates Investments in Ijarah Assets Ijarah Muntahia Bittamleek Investments in Properties Ijarah rental receivables Other assets Less: Provision Total Assets Liabilities, Unrestricted Investment Accounts and Equity Liabilities: Customers’ current accounts Other liabilities Total Liabilities Unrestricted Investment Accounts Equity: Share Capital Share Premium Statutory Reserve General Reserve Investments fair value reserve Cumulative changes in fair values Retained Earnings Proposed Appropriations Total Equity Total Liabilities, Unrestricted investment accounts & Equity
BALANCE SHEET 2007 18,349 338,970 36,372 39,476 156,353 7,045 5,893 13,574 34,950 2,963 6,989 (1,965) 658,969
60,963 7,615 68,578 403,215 60,214 50,869 8,037 1,000 7,133 30,217 16,073 13,633 187,176 658,969
2006 15,469 243,625 22,180 14,004 97,418 6,652 4,998 15,486 9,985 2,315 6,309 (1,965) 436,476
51,393 6,041 57,434 304,118
Bahrain Islamic Bank 28,336 5,534 1,000 3,255 21,860 5,350 9,589 74,924 436,476
66,235 43,936 10,268 1,000 18,093 (4,688) 17,714 13,889 166,447 873,967
69,466 13,935 83,401 624,119
49,579 377,430 58,857 80,576 133,017 7,423 9,901 67,960 97,829 1,469 8,088 (18,162) 873,967
72,859 43,936 12,891 1,000 18,093 (4,688) 18,960 7,265 170,317 988,122
77,802 16,025 93,827 723,978
32,303 452,916 69,451 95,080 146,319 7,794 10,891 73,397 112,503 1,645 8,735 (22,913) 988,122
Bahrain Islamic Bank 2008 2009(F)
72,859 43,936 16,584 1,000 18,093 (4,688) 33,731 7,265 188,780 1,110,886
85,582 18,429 104,011 818,095
31,375 520,853 80,563 109,342 153,635 8,184 11,980 78,535 129,379 1,810 9,434 (24,203) 1,110,886
2010(F)
72,859 43,936 21,092 1,000 18,093 (4,688) 51,763 7,265 211,320 1,248,038
92,429 19,842 112,270 924,448
37,026 588,564 91,037 122,463 168,998 8,593 13,178 82,461 148,786 1,991 10,189 (25,248) 1,248,038
2011(F)
72,859 43,936 26,170 1,000 18,093 (4,688) 72,073 7,265 236,707 1,384,030
99,823 21,363 121,186 1,026,137
46,437 647,421 100,140 135,934 185,898 9,023 14,496 86,584 171,104 2,190 11,004 (26,200) 1,384,030
2012(F)
Global Research - Bahrain Global Investment House
13
14 25,433 (9,824) 15,609 37,024
20,049 (7,389) 12,660 21,558 3,855 539 2,315 221 248 1,177 8,355 13,203 (150) 13,053
Return on Unrestricted Investment Accounts before Bank’s share as a Mudarib Bank’s share as a Mudarib Return on Unrestricted Investment Accounts Total Income
Staff costs Depreciation Depreciation on Ijarah Muntahia Bittamleek Expenses on Ijarah assets Expenses on Premises and Equipment Other Operating Expenses Operating Expenses
Operating Profit before Other Income and Zakah Provisions
Net Profit for the year
Bahrain Islamic Bank
25,025
25,025 -
7,082 1,079 294 275 3,269 11,999
52,633
34,218
Gross Operating Income
2007 31,463 18,999 3,181 2,290 4,973 2,020 5,328 11,698 3,586 558
2006 24,705 15,779 1,126 974 3,058 3,768 2,098 5,518 1,288 609
Amount in BD ‘000 Income from jointly financed sales and investments Income from Murahaba Receivables Income from Mudaraba Investments Income from Musharaka Investments Income from Investments in Securities Ijarah Muntahia Bittamleek Income Gain on fair value adjustment for Investments in Properties Income from investments Net Fee, Commission Income & Other Income Bank’s share in the Associates
INCOME STATEMENT
22,313
38,210 (15,897)
10,528 929 506 676 4,789 17,428
55,638
30,885 (13,183) 17,702
73,340
26,234
30,985 (4,751)
11,949 1,191 545 799 4,469 18,953
49,938
34,751 (15,928) 18,823
68,761
36,927
38,217 (1,290)
13,503 1,330 539 853 4,937 21,162
59,379
39,269 (16,362) 22,907
82,285
Bahrain Islamic Bank 2008 2009(F) 2010(F) 36,934 40,313 46,409 20,455 24,005 27,084 2,250 2,778 3,223 6,678 5,324 6,451 4,012 4,536 5,331 3,539 3,670 4,319 11,436 13,151 14,861 18,279 7,765 12,736 6,028 6,932 7,625 663 600 655
45,080
46,124 (1,045)
15,258 1,478 593 905 5,701 23,935
70,060
43,449 (18,489) 24,960
95,020
2011(F) 53,708 31,194 4,097 7,470 5,999 4,948 16,347 15,889 8,388 687
50,775
51,728 (953)
17,242 1,646 652 1,040 6,014 26,594
78,322
47,715 (20,523) 27,193
105,514
2012(F) 59,553 34,961 4,506 8,292 6,599 5,195 17,982 17,850 9,227 902
Global Research - Bahrain Global Investment House
Amount in BD ‘000 Operating Activities Net profit Adjustments for non-cash items: Depreciation Provisions for Impairment Share of results of associate Gain on sale of Investments Fair value gain on Investments in Properties Gain on sale of investments in Properties Operating profit before changes in Op. Assets & Liabilities Changes in: Mandatory reserve with CBB Murabaha Receivables Mudaraba Financing Musharaka Financing Ijarah Rental Receivables Other Assets Customer’ Current Accounts Other Liabilities Net Cash From Operating Activities Investing Activities Purchase of Investments in Ijarah Assets Ijarah Muntahia Bittamleek Net Purchase of Investment Properties Purchase of Investments Investment in Associates Net Cash (used in) Investing activities Financing Activities Increase in Capital Share Premium Increase (decrease) in Unrestricted Investment Accounts Dividends Paid Current year Dividends Directors Remuneration Zakah/Charitable Contributions paid Net Cash (used in) Financing activities Net Increase (Decrease) In Cash Cash & Balances with the CBB & other Banks at the beginning of the year Mandatory Reserve at 31 Dec Cash and Balances with the CBB and other Banks at the end of the year
CASH FLOW STATEMENT 2007 25,025 1,079 (558) (8,141) (5,328) (190) 11,887 (4,770) (95,345) (21,429) (25,472) (648) (377) 9,570 1,574 (125,010) (719) 2,324 (19,447) (37,005) (54,847) 28,336 56,581 99,097 (5,667) (210) (170) 177,967 (1,890) 20,239 12,285 18,349
2006 13,053 2,854 150 (609) (2,098) (948) 12,402 (1,550) (85,439) 7,279 (4,065) (1,377) (3,430) 4,048 2,479 (69,653)
Bahrain Islamic Bank (5,049) 1,305 (22,527) (2,714) (28,985) 106,237 (3,795) (120) (213) 102,109 3,471 11,998 7,515 15,469
220,904 (7,535) (264) 213,105 12,267 6,064 31,248 49,579
(4,143) (54,386) (49,836) 653 480 (107,232)
(18,963) (38,460) (22,485) (41,100) 1,494 (1,893) 8,503 5,772 (93,606)
929 15,897 (663) (11,907) (11,436) (1,607) 13,526
22,313
99,859 (6,624) (15,740) 77,495 (17,276) 49,579 32,303
(2,357) (5,437) (1,523) (13,302) (371) (22,990)
(75,486) (10,594) (14,504) (647) 8,336 2,090 (71,781)
1,191 4,751 (13,151) 19,024
26,234
94,117 (18,463) 75,654 (928) 32,303 31,375
(2,584) (5,138) (2,014) (7,316) (390) (17,442)
(67,937) (11,112) (14,262) (699) 7,780 2,404 (59,140)
1,330 1,290 (14,861) 24,686
36,927
Bahrain Islamic Bank 2008 2009(F) 2010(F)
106,352 (22,540) 83,813 5,651 31,375 37,026
(2,857) (3,927) (3,060) (15,363) (409) (25,617)
(67,711) (10,473) (13,121) (755) 6,847 1,413 (52,545)
1,478 1,045 (16,347) 31,256
45,080
2011(F)
101,689 (25,388) 76,302 9,411 37,026 46,437
(3,163) (4,123) (4,336) (16,900) (430) (28,952)
(58,856) (9,104) (13,471) (815) 7,394 1,521 (37,939)
1,646 953 (17,982) 35,392
50,775
2012(F)
Global Research - Bahrain Global Investment House
15
Global Research - Bahrain
Global Investment House
FACT SHEET Profitability - Return on Average Assets - Return on Average Equity - Net profit sharing income/ Gross Income - Dividend payout ratio - Operating Expenses / Gross Income - Operating Expenses / Profit Sharing - Operating Expenses / Assets
2006
2007
3.4% 17.8% 72.2% 52.6% 24.4% 33.8% 0.6%
4.6% 19.1% 59.8% 30.4% 22.8% 38.1% 0.5%
Bahrain Islamic Bank 2008 2009(F) 2010(F) 2011(F) 2012(F) 2.9% 2.8% 3.5% 3.8% 3.9% 12.6% 15.6% 20.6% 22.5% 22.7% 50.4% 58.6% 56.4% 56.5% 56.4% 29.7% 60.0% 50.0% 50.0% 50.0% 23.8% 27.6% 25.7% 25.2% 25.2% 47.2% 47.0% 45.6% 44.6% 44.7% 0.6% 0.5% 0.5% 0.5% 0.5%
Margins - Depositors Profit Sharing to Profit Sharing Income - Profit Sharing Income to Profit Sharing Income Earning Assets - Depositors Profit Sharing to Depositors Profit Sharing Liabilities - Net Spread - Net Profit Sharing Margin
51.2% 8.2% 3.6% 4.7% 4.7%
49.6% 7.2% 3.4% 3.9% 4.2%
47.9% 6.2% 2.6% 3.7% 3.6%
46.7% 5.7% 2.3% 3.4% 3.3%
49.4% 5.8% 2.5% 3.3% 3.1%
46.5% 6.0% 2.5% 3.5% 3.4%
45.7% 6.0% 2.4% 3.6% 3.5%
Efficiency - Cost to total operating income - Operating Expenses to Gross Income - Staff Expense to Gross Income - Operating Expenses to Average Total Assets
38.8% 24.4% 11.3% 2.2%
32.4% 22.8% 13.5% 2.2%
31.3% 23.8% 14.4% 2.3%
38.0% 27.6% 17.4% 2.0%
35.6% 25.7% 16.4% 2.0%
34.2% 25.2% 16.1% 2.0%
34.0% 25.2% 16.3% 2.0%
78.7% 474.5%
89.4% 248.0%
64.2% 416.7%
77.0% 470.8%
78.7% 478.7%
78.9% 481.2%
78.5% 475.7%
Credit Quality - Non Performing Loans BD ‘000 - Loan Loss Reserve BD ‘000 - NPL’s to Gross Loans - Loan Loss Reserve to Gross Loans - Provisions to NPL
2,744 1,915 1.1% 0.8% 69.8%
5,304 1,965 1.6% 0.6% 37.0%
5,661 18,162 1.5% 4.8% 320.8%
18,117 22,913 4.0% 5.1% 126.5%
19,792 24,203 3.8% 4.6% 122.3%
21,188 25,248 3.6% 4.3% 119.2%
22,660 26,200 3.5% 4.0% 115.6%
Capital Adequacy - Equity to Total Assets - Equity to Gross Loans
17.2% 26.8%
28.4% 45.1%
19.0% 32.2%
17.2% 27.6%
17.0% 26.6%
16.9% 26.3%
17.1% 26.8%
283 17.9 24% 102.8 345 251.4 19.3 3.4
602 34.3 13% 256.9 425 309.7 12.4 1.7
662 30.6 10% 228.5 264 192.3 8.6 1.2
729 36.0 22% 233.8 304 221.5 8.4 1.3
729 50.7 25% 259.1 304 221.5 6.0 1.2
729 61.9 31% 290.0 304 221.5 4.9 1.0
729 69.7 35% 324.9 304 221.5 4.4 0.9
Liquidity - Gross Loans to Total Deposits - Deposits to Equity
RATIOS USED FOR VALUATION - Shares in Issue (mn) - Adjusted EPS (fils) - Dividend - Book Value Per Share (fils) - Market Price Year End (fils)* - Market Capitalization (BD mn) - P/E - P/BV
* Market Price for 2009 onwards is price as of April 30, 2009. Historical P/E & P/BV multiples pertain to respective year -end prices, while those for future years are based on closing prices on the BSE as of April 30, 2009.
16
Bahrain Islamic Bank
Global Research - Bahrain
Global Investment House
The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure.
Disclosure Checklist Company
Recommendation
Bahrain Islamic Bank
Buy
Ticker BISB.BH (Reuters) BISB BI (Bloomberg)
Price
Disclosure
304 fils
1, 10
1. Global Investment House did not receive and will not receive any compensation from the company or anyone else for the preparation of this report. 2. The company being researched holds more than 5% stake in Global Investment House. 3. Global Investment House makes a market in securities issued by this company. 4. Global Investment House acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company. 6. An employee of Global Investment House serves on the board of directors of this company. 7. Within the past year , Global Investment House has managed or co-managed a public offering for this company, for which it received fees. 8. Global Investment House has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. Global Investment House expects to receive or intends to seek compensation for investment banking services from this company in the next three month. 10. Please see special footnote below for other relevant disclosures.
Global Research: Equity Ratings Definitions Global Rating Definition Buy
Fair value of the stock is >10% from the current market price
Hold
Fair value of the stock is between +10% and -10% from the current market price
Reduce
Fair value of the stock is between -10% and -20% from the current market price
Sell
Fair value of the stock is < -20% from the current market price
This material was produced by Global Investment House KSCC (‘Global’),a firm regulated by the Central Bank of Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time,to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities (‘securities’), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. 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 document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgement. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or ommission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice.Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait 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 you agree to be bound by the foregoing limitations.
Bahrain Islamic Bank
17
