Bank Al-Bilad - Aljazira Capital
Bank Al-Bilad Investment Note
May 2015
Please read Disclaimer on the back
Summary • A well diversified loan book, decreases concentration risk. • Almost 50:50 contribution from core and other income sources. • NIMs under pressure due to low deposit penetration. 2
•
Underweight
Recommendation
• Weak market share in deposits, along with low ADR1 hindering growth.
Increase in discount rate will be reflected fairly quickly on the income statement, given almost 65% floating rate based corporate and other loans.
Previous Target Price (SAR)
33.1
Current Price* (SAR)
39.1
New 12 Months Target Price (SAR)
34.3 -12.3%
Upside / (Downside)
*prices as of 21st of May
Valuation Bank Albilad has one of the most diversified revenue source, as the bank has been
Key Financials
able to generate strong revenues from other income source (fee and commissions,
SARmn (unless specified)
FY14
FY15E
FY16E
exchange income). However on the other hand its commercial banking operations
Revenues; Fin & Inv Growth % Net Income Growth % EPS
1,073 10% 864 18% 2.16
1,292 20% 945 9% 1.89
1,644 27% 1,130 20% 2.26
have not been able to find its’ footing, which has resulted in stagnated weak market share. By employing residual income valuation methodology, we arrived at a 12-month price target of SAR34.3/share for Bank AlBilad. This indicates the stock at current market price is trading at a premium of 12.3%. The stock is currently trading at prospective 2015 PE and PBV of 20.5x and 2.9x, respectively . We maintain our “Underweight” recommendation. Deposits market share on the lower side In 2014, Albilad deposits stood at SAR 36.7bn, as compared to SAR 29.1bn in 2013, depicting a rise of 26.2%. The market share, in 2014, stood at 2.6%, showing an insignificant improvement of 27bps, from 2.33% in 2013. However, it should be noted that the banks deposit book has shown healthy growth , as 6-year CAGR, from 20092015, stood at 21%.In the same time period market share improved from 1.5% to 2.6%. The inability of the bank to aggressively lend is weighting heavy on the profitability. ADR in 2014, stood at 77% as compared to 80% in 2013. The low ADR in our view is a cause of concern, which is even below the industry average of around 80%.The bank needs to come out with a clear strategy to enhance it loans off-take, along with that the banks needs to make a conscious effort to increase its deposits market share.
Source: Company reports, Aljazira Capital
Key Ratios SARmn (unless specified)
FY14
FY15E
FY16E
NIMS Operating Margins Net Margins PE (x) PB (x)
3.4% 80.5% 80.5% 16.53 2.42
3.6% 73.1% 73.1% 20.67 2.94
3.9% 68.7% 68.7% 17.29 2.58
Dividend Yield
0%
1%
1%
Return On Assets
2%
2%
2%
Return On Equity
15%
14%
15%
Gross Loans
20%
16%
17%
Source: Company reports, Aljazira Capital
Albilad Deposits 2.5%
40
Diversified loans book mitigating concentration risk
35
The bank’s loan book shows a well diversified portfolio. In 2013 and 2012, almost 50% were corporate loans, 40% retails and 10% were others. However in 2014, concentration in corporate loans increased to 56%, whereas, retails loans share decreased to 35%. What is quite evident, is the bank’s focus on corporate loans seems to be increasing, as they have shown the fastest growth, posting 2Yr CAGR of 30%. Whereas, growth in retail loans is slowing down, as it posted 2 Yr CAGR of 15%.
25
In addition, the bank’s corporate loans generally have shown higher NPLs3 as compared 1
Advances to Deposits ratio 2 Net Interest Margins
Bn SAR
1.5%
20
1.0%
15 10
0.5%
5 -
2009
2010
2011
Deposits-LHS
2012
2013
2014
Albilad ADR ratio 90%
40
80%
35
70%
30
60%
25
50%
20
40%
15
30%
10
+966 11 2256115
1
[email protected]
© All rights reserved
20%
5
Senior Analyst
Talha Nazar
0.0%
Market Share-RHS
Bn SAR
In our view, the current loan book still looks diversified, which also mitigates the concentration risk. However an increase in share of corporate loans, can result in higher concentration risk.
2.0%
30
-
10% 2009
2010
ADR_RHS
2011
2012
Deposits-LHS
2013
2014
0%
Loans-LHS
Source: Company reports, Aljazira Capital
Bank Al-Bilad Investment Note
May 2015
to retails loans. NPL ratio for retail loans in 2014 stood at 1.1%, as compared to 1.5% for corporate loans. NPL ratio for retail loans peaked at 1.3% in 2013, whereas, NPLs for corporate loans in 2010 stood at 7.3%. A higher concentration of corporate loans can also result in higher absolute NPLs. The other area of concern in the loan portfolio are the others loans, which constituted almost 8.4% of the total loans in 2014 ( 10% in 2013). They have the highest NPL ratio of 2.5% ( 8% in 2013). However due to a write down, in other loans, in 2014, the share of other loans and the NPLs also showed a decline.
Please read Disclaimer on the back
AlBilad Loans Portfolio 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
12%
11%
12%
10%
10%
8%
54%
50%
50%
50%
56%
35%
38%
40%
40%
35%
2011
2012
2013
2014
63%
26%
2009
2010
Retail
The bank has been able to show strong earnings from its fee and commission earnings along with remittance income. In 2014 more than 50% of the income was generated through other income sources. The bank’s remittance services has shown strong growth as it has increased its share from 8% in 2009 to 14% in 2014. With the banks focus towards remittance and investment banking services, the bank looks set to capitalize on the future opportunities. We believe this provides Albilad the support that it needs to maintain a healthy ROE4.
NIMs under pressure In 2014, return on deposits increased by 91%YoY, consequently, net financing margins from financing & investment activity dropped from 97% in 2013 to 95% in 2014, this we believe is due to the following reasons; • Increase in share of time deposits from 9% to 16%; • Whereas, share of demand deposits dropped to 73% in 2014, as compared to 78% in 2013: • This phenomena, we believe, is due to the fact that the bank is trying to capture12% higher market share, which is pushing its hand towards increasing the deposit10% rate, this is quite evident from the fact that deposit rates have increased from 0.1% in 2013 to 0.15% in 2014. The bank’s lending rates have also showed a decline, this, we believe, is due to the following reasons; • The bank has low loans off-take, which it is trying to correct by lending aggressively at the cost of its profit rate; • The higher share of corporate loans are also compressing the profit rates. The above reason have resulted in lower NIMs, as they have fallen from 3.8% in 2013 to 3.4% in 2014. We believe, going forward given that the US Federal reserve is expected to increase the discount rate during 2H-2014. The banks margin are expected to improve, given the healthy share of corporate loans, which are generally issued at floating rates.
Others
AlBilad NPLs 0.6
14%
0.5
12% 10%
0.4
Bn SAR
Other income sources supporting profitability
Corporate
8%
0.3
6%
0.2
4%
0.1 -
2% 2009
2010
2011
Retail NPLs-LHS NPL ratio-Retail (%)-RHS
2012
2013
Corporate NPLs-LHS NPL ratio-Corporate (%)-RHS
2014
NPL ratio-Other (%)-RHS
Income Source (% Share) 100% 90% 80% 70%
8%
1%
11%
31%
1%
14%
31%
60%
2%
13%
1% 13%
3%
37%
35%
34%
40% 30%
60%
57%
51%
48%
49%
49%
2009
2010
2011
2012
2013
2014
2%
2%
20% 10% 0%
Financ. & investing
Fee & Commision Exchange income Others
AlBilad Loans Portfolio 100%
90% 80%
1%
7%
22%
70%
2%
1%
16%
13%
5%
7%
9%
13%
11%
15%
40% 30%
69%
67%
2009
2010
81%
78%
78%
73%
2013
2014
20% 10% 0%
Demand
2011
Saving
2012
Time
Others
Growth in Albilad NIMs 6.0% 5.0%
0.0%
2009
2010
Lending Rate-LHS
2
9%
50%
1.0%
© All rights reserved
2%
16%
60%
2.0%
Non-performing loans Return on Equity
3%
50%
3.0%
4
14%
33%
4.0%
3
0%
Other NPLs-LHS
2011
2012
NIM-LHS
2013
2014
0.20% 0.18% 0.16% 0.14% 0.12% 0.10% 0.08% 0.06% 0.04% 0.02% 0.00%
Deposit Rate-RHS
Bank Al-Bilad Investment Note
May 2015
Please read Disclaimer on the back
Key Financials Income Statement in SAR mn
2012A
2013A
2014A
2015E
2016E
2017E
2018E
Income from investing and financing assets YoY Growth (%) Return on deposits and financial liabilities Net income from investing and financing assets YoY Growth (%) Fee and commission income, net YoY Growth (%) Exchange income, net YoY Growth (%) Dividend income Gains on non-trading investments, net Other operating income Total operating income YoY Growth (%) EXPENSES: Salaries and employee related benefits Rent and premises related expenses Depreciation and amortization Other general and administrative expenses Impairment charge for financing, net Reversal of impairment charge on other financial assets Total operating expenses Net operating income for the year Non-operating income Net income for the year YoY Growth (%) EPS EPS (diluted)
861 18% (21) 840 19% 645 41% 234 24% 12 5 2 1,737 26%
975 13% (28) 947 13% 666 3% 245 5% 14 22 24 1,917 10%
1,073 10% (54) 1,019 8% 719 8% 293 20% 14 39 13 2,097 9%
1,292 20% (60) 1,232 21% 851 18% 320 9% 19 21 15 2,459 17%
1,644 27% (95) 1,549 26% 990 16% 352 10% 22 22 25 2,960 20%
2,045 24% (132) 1,913 24% 1,140 15% 387 10% 25 23 15 3,503 18%
2,537 24% (183) 2,354 23% 1,303 14% 426 10% 27 24 27 4,161 19%
517 134 88 154 275 1,169 569 373 942 186% 3.1 2.4
582 177 89 170 175 (5) 1,188 729 729 -23% 1.8 1.8
742 199 96 204 (8) 1,233 864 864 18% 2.2 2.2
819 238 102 244 110 1,513 945 945 9% 1.9 2.4
906 275 110 254 284 1,830 1,130 1,130 20% 2.3 2.8
1,002 315 119 285 225 1,947 1,556 1,556 38% 3.1 3.9
1,099 358 129 317 235 2,138 2,023 2,023 30% 4.0 5.1
2,933 6,575 1,537 62% 18,256 32% 336 141 29,778 7%
4,187 6,155 1,667 8% 23,415 28% 762 136 36,323 22%
4,468 8,785 2,635 58% 28,355 21% 798 189 45,230 25%
8,066 6,600 4,838 84% 32,887 16% 822 138 53,350 18%
10,173 6,700 5,081 5% 38,494 17% 848 139 61,435 15%
12,970 6,800 5,528 9% 44,077 15% 876 139 70,390 15%
15,713 6,900 5,952 8% 50,765 15% 906 140 80,377 14%
571 23,742 3% 1,094 25,407 5%
976 29,108 23% 1,139 31,222 23%
1,191 36,724 26% 1,424 39,339 26%
1,200 43,978 20% 1,515 46,693 19%
1,200 50,812 16% 1,862 53,874 15%
1,200 58,185 15% 2,200 61,585 14%
1,200 66,135 14% 2,619 69,954 14%
3,000 370 15 1,023 (37) 4,371 28% 29,778
4,000 552 43 548 (42) 5,101 17% 36,323
4,000 768 23 1,196 (95) 5,891 15% 45,230
5,000 1,005 43 705 (95) 6,657 13% 53,350
5,000 1,287 43 1,326 (95) 7,561 14% 61,435
5,000 1,676 43 2,181 (95) 8,805 16% 70,390
5,000 2,182 43 3,293 (95) 10,423 18% 80,377
Balance Sheet in mn SAR ASSETS Cash and balances with SAMA Due from banks and other financial institutions, net Investments, net YoY Growth (%) Financing, net YoY Growth (%) Property and equipment, net Other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Due to banks and other financial institutions Customers’ deposits YoY Growth (%) Other liabilities Total liabilities YoY Growth (%) Shareholders’ equity Share capital Statutory reserve Other reserves Retained earnings Employee share plan Total shareholders’ equity YoY Growth (%) Total liabilities and shareholders’ equity
Source: Company Financials, Aljazira Research
3
© All rights reserved
Bank Al-Bilad Investment Note
May 2015
Please read Disclaimer on the back
Ratios Analysis Ratios
2012A
2013A
2014A
2015E
2016E
2017E
2018E
32%
26%
20%
16%
17%
15%
15%
Asset Quality Ratios Growth of Gross Loans Impaired Loans(NPLs)/ Gross Loans
4%
2%
1%
2%
2%
2%
2%
Reserves for Impaired Loans/ Gross loans
6%
4%
3%
3%
3%
3%
3%
Reserves for Impaired Loans/ Impaired Loans
145%
194%
192%
149%
148%
157%
146%
Impaired Loans less Reserves for Imp Loans/ Equity
-8%
-9%
-7%
-5%
-5%
-5%
-5%
3.1%
2.9%
2.6%
2.8%
3.2%
3.5%
3.9%
Profitability Ratios Interest Income/ Earning Assets Interest Expense/ Interest-bearing Liabilities
0.1%
0.1%
0.1%
0.1%
0.2%
0.2%
0.3%
Net Interest Income/Earning Assets
3.0%
2.8%
2.4%
2.7%
3.0%
3.3%
3.6%
Non-Interest Income/ Gross Revenues
52%
51%
51%
50%
48%
45%
43%
Non-Interest Expense/ Gross Revenues
67%
62%
59%
62%
62%
56%
51%
Loans and securities impairment charges/ Preimpairment Operating profit
33%
19%
-1%
10%
20%
13%
10%
Return On Assets (ROA)
3%
2%
2%
2%
2%
2%
3%
Return On Equity (ROE)
22%
14%
15%
14%
15%
18%
19%
Leverage ratio (ROE/ROA)
6.81
7.12
7.68
8.01
8.13
7.99
7.71
Operating Profit / Risk Weighted Assets
2%
2%
2%
2%
2%
3%
3%
Capital Ratios Equity/ Total Assets
15%
14%
13%
12%
12%
13%
13%
Cash Dividends Paid & Declared/ Net Income
0%
0%
0%
21%
20%
20%
20%
Net Income - Cash Dividends/ Total Equity
13%
14%
15%
17%
18%
21%
23%
77%
80%
77%
75%
76%
76%
77%
Funding Ratios Loans/ Customer Deposits Liquid Assets / Total Assets
37%
33%
35%
37%
36%
36%
36%
Net Loans / Tot Assets
61%
64%
63%
62%
63%
63%
63%
0%
0%
0%
1%
1%
2%
2%
Valuation Ratios Dividend Yield
15
13
15
13
15
18
21
Market Capitalization(in SAR Mn)
Book Value Per Share (BVPS)
6,139
18,160
14,280
19,540
19,540
19,540
19,540
PE (x)
6.52
24.91
16.53
20.67
17.29
12.56
9.66
PB (x)
1.40
3.56
2.42
2.94
2.58
2.22
1.87
EPS
3.1
1.8
2.2
1.9
2.3
3.1
4.0
Current Price
20
45
36
39
39
39
39
No of Shares
300
400
400
500
500
500
500
Source: Aljazira Research
4
© All rights reserved
RESEARCH DIVISION
AGM - Head of Research
Abdullah Alawi +966 11 2256250 [email protected]
Analyst
Sultan Al Kadi
+966 11 2256115 [email protected]
+966 11 2256374 [email protected]
General manager - brokerage services and sales
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
Ala’a Al-Yousef
brokerage
Brokerage
+966 11 2256000 [email protected]
Luay Jawad Al-Motawa
Abdullah Q. Al-Misbani
+966 11 2256277 [email protected]
+966 12 6618400 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
AGM - Head of Institutional Brokerage
Central Region
Abdullah Al-Rahit
Samer Al- Joauni
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
+966 1 225 6352 [email protected]
Jassim Al-Jubran +966 11 2256248 [email protected]
BROKERAGE AND INVESTMENT CENTERS DIVISION RESEARCH DIVISION
Talha Nazar
Analyst
+966 11 2256364 [email protected]
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 1.
RATING TERMINOLOGY
Senior Analyst
2. 3. 4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Aljazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Aljazira Capital. Funds managed by Aljazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Aljazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Aljazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Aljazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
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Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
May 2015
Please read Disclaimer on the back
Summary • A well diversified loan book, decreases concentration risk. • Almost 50:50 contribution from core and other income sources. • NIMs under pressure due to low deposit penetration. 2
•
Underweight
Recommendation
• Weak market share in deposits, along with low ADR1 hindering growth.
Increase in discount rate will be reflected fairly quickly on the income statement, given almost 65% floating rate based corporate and other loans.
Previous Target Price (SAR)
33.1
Current Price* (SAR)
39.1
New 12 Months Target Price (SAR)
34.3 -12.3%
Upside / (Downside)
*prices as of 21st of May
Valuation Bank Albilad has one of the most diversified revenue source, as the bank has been
Key Financials
able to generate strong revenues from other income source (fee and commissions,
SARmn (unless specified)
FY14
FY15E
FY16E
exchange income). However on the other hand its commercial banking operations
Revenues; Fin & Inv Growth % Net Income Growth % EPS
1,073 10% 864 18% 2.16
1,292 20% 945 9% 1.89
1,644 27% 1,130 20% 2.26
have not been able to find its’ footing, which has resulted in stagnated weak market share. By employing residual income valuation methodology, we arrived at a 12-month price target of SAR34.3/share for Bank AlBilad. This indicates the stock at current market price is trading at a premium of 12.3%. The stock is currently trading at prospective 2015 PE and PBV of 20.5x and 2.9x, respectively . We maintain our “Underweight” recommendation. Deposits market share on the lower side In 2014, Albilad deposits stood at SAR 36.7bn, as compared to SAR 29.1bn in 2013, depicting a rise of 26.2%. The market share, in 2014, stood at 2.6%, showing an insignificant improvement of 27bps, from 2.33% in 2013. However, it should be noted that the banks deposit book has shown healthy growth , as 6-year CAGR, from 20092015, stood at 21%.In the same time period market share improved from 1.5% to 2.6%. The inability of the bank to aggressively lend is weighting heavy on the profitability. ADR in 2014, stood at 77% as compared to 80% in 2013. The low ADR in our view is a cause of concern, which is even below the industry average of around 80%.The bank needs to come out with a clear strategy to enhance it loans off-take, along with that the banks needs to make a conscious effort to increase its deposits market share.
Source: Company reports, Aljazira Capital
Key Ratios SARmn (unless specified)
FY14
FY15E
FY16E
NIMS Operating Margins Net Margins PE (x) PB (x)
3.4% 80.5% 80.5% 16.53 2.42
3.6% 73.1% 73.1% 20.67 2.94
3.9% 68.7% 68.7% 17.29 2.58
Dividend Yield
0%
1%
1%
Return On Assets
2%
2%
2%
Return On Equity
15%
14%
15%
Gross Loans
20%
16%
17%
Source: Company reports, Aljazira Capital
Albilad Deposits 2.5%
40
Diversified loans book mitigating concentration risk
35
The bank’s loan book shows a well diversified portfolio. In 2013 and 2012, almost 50% were corporate loans, 40% retails and 10% were others. However in 2014, concentration in corporate loans increased to 56%, whereas, retails loans share decreased to 35%. What is quite evident, is the bank’s focus on corporate loans seems to be increasing, as they have shown the fastest growth, posting 2Yr CAGR of 30%. Whereas, growth in retail loans is slowing down, as it posted 2 Yr CAGR of 15%.
25
In addition, the bank’s corporate loans generally have shown higher NPLs3 as compared 1
Advances to Deposits ratio 2 Net Interest Margins
Bn SAR
1.5%
20
1.0%
15 10
0.5%
5 -
2009
2010
2011
Deposits-LHS
2012
2013
2014
Albilad ADR ratio 90%
40
80%
35
70%
30
60%
25
50%
20
40%
15
30%
10
+966 11 2256115
1
[email protected]
© All rights reserved
20%
5
Senior Analyst
Talha Nazar
0.0%
Market Share-RHS
Bn SAR
In our view, the current loan book still looks diversified, which also mitigates the concentration risk. However an increase in share of corporate loans, can result in higher concentration risk.
2.0%
30
-
10% 2009
2010
ADR_RHS
2011
2012
Deposits-LHS
2013
2014
0%
Loans-LHS
Source: Company reports, Aljazira Capital
Bank Al-Bilad Investment Note
May 2015
to retails loans. NPL ratio for retail loans in 2014 stood at 1.1%, as compared to 1.5% for corporate loans. NPL ratio for retail loans peaked at 1.3% in 2013, whereas, NPLs for corporate loans in 2010 stood at 7.3%. A higher concentration of corporate loans can also result in higher absolute NPLs. The other area of concern in the loan portfolio are the others loans, which constituted almost 8.4% of the total loans in 2014 ( 10% in 2013). They have the highest NPL ratio of 2.5% ( 8% in 2013). However due to a write down, in other loans, in 2014, the share of other loans and the NPLs also showed a decline.
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AlBilad Loans Portfolio 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
12%
11%
12%
10%
10%
8%
54%
50%
50%
50%
56%
35%
38%
40%
40%
35%
2011
2012
2013
2014
63%
26%
2009
2010
Retail
The bank has been able to show strong earnings from its fee and commission earnings along with remittance income. In 2014 more than 50% of the income was generated through other income sources. The bank’s remittance services has shown strong growth as it has increased its share from 8% in 2009 to 14% in 2014. With the banks focus towards remittance and investment banking services, the bank looks set to capitalize on the future opportunities. We believe this provides Albilad the support that it needs to maintain a healthy ROE4.
NIMs under pressure In 2014, return on deposits increased by 91%YoY, consequently, net financing margins from financing & investment activity dropped from 97% in 2013 to 95% in 2014, this we believe is due to the following reasons; • Increase in share of time deposits from 9% to 16%; • Whereas, share of demand deposits dropped to 73% in 2014, as compared to 78% in 2013: • This phenomena, we believe, is due to the fact that the bank is trying to capture12% higher market share, which is pushing its hand towards increasing the deposit10% rate, this is quite evident from the fact that deposit rates have increased from 0.1% in 2013 to 0.15% in 2014. The bank’s lending rates have also showed a decline, this, we believe, is due to the following reasons; • The bank has low loans off-take, which it is trying to correct by lending aggressively at the cost of its profit rate; • The higher share of corporate loans are also compressing the profit rates. The above reason have resulted in lower NIMs, as they have fallen from 3.8% in 2013 to 3.4% in 2014. We believe, going forward given that the US Federal reserve is expected to increase the discount rate during 2H-2014. The banks margin are expected to improve, given the healthy share of corporate loans, which are generally issued at floating rates.
Others
AlBilad NPLs 0.6
14%
0.5
12% 10%
0.4
Bn SAR
Other income sources supporting profitability
Corporate
8%
0.3
6%
0.2
4%
0.1 -
2% 2009
2010
2011
Retail NPLs-LHS NPL ratio-Retail (%)-RHS
2012
2013
Corporate NPLs-LHS NPL ratio-Corporate (%)-RHS
2014
NPL ratio-Other (%)-RHS
Income Source (% Share) 100% 90% 80% 70%
8%
1%
11%
31%
1%
14%
31%
60%
2%
13%
1% 13%
3%
37%
35%
34%
40% 30%
60%
57%
51%
48%
49%
49%
2009
2010
2011
2012
2013
2014
2%
2%
20% 10% 0%
Financ. & investing
Fee & Commision Exchange income Others
AlBilad Loans Portfolio 100%
90% 80%
1%
7%
22%
70%
2%
1%
16%
13%
5%
7%
9%
13%
11%
15%
40% 30%
69%
67%
2009
2010
81%
78%
78%
73%
2013
2014
20% 10% 0%
Demand
2011
Saving
2012
Time
Others
Growth in Albilad NIMs 6.0% 5.0%
0.0%
2009
2010
Lending Rate-LHS
2
9%
50%
1.0%
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2%
16%
60%
2.0%
Non-performing loans Return on Equity
3%
50%
3.0%
4
14%
33%
4.0%
3
0%
Other NPLs-LHS
2011
2012
NIM-LHS
2013
2014
0.20% 0.18% 0.16% 0.14% 0.12% 0.10% 0.08% 0.06% 0.04% 0.02% 0.00%
Deposit Rate-RHS
Bank Al-Bilad Investment Note
May 2015
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Key Financials Income Statement in SAR mn
2012A
2013A
2014A
2015E
2016E
2017E
2018E
Income from investing and financing assets YoY Growth (%) Return on deposits and financial liabilities Net income from investing and financing assets YoY Growth (%) Fee and commission income, net YoY Growth (%) Exchange income, net YoY Growth (%) Dividend income Gains on non-trading investments, net Other operating income Total operating income YoY Growth (%) EXPENSES: Salaries and employee related benefits Rent and premises related expenses Depreciation and amortization Other general and administrative expenses Impairment charge for financing, net Reversal of impairment charge on other financial assets Total operating expenses Net operating income for the year Non-operating income Net income for the year YoY Growth (%) EPS EPS (diluted)
861 18% (21) 840 19% 645 41% 234 24% 12 5 2 1,737 26%
975 13% (28) 947 13% 666 3% 245 5% 14 22 24 1,917 10%
1,073 10% (54) 1,019 8% 719 8% 293 20% 14 39 13 2,097 9%
1,292 20% (60) 1,232 21% 851 18% 320 9% 19 21 15 2,459 17%
1,644 27% (95) 1,549 26% 990 16% 352 10% 22 22 25 2,960 20%
2,045 24% (132) 1,913 24% 1,140 15% 387 10% 25 23 15 3,503 18%
2,537 24% (183) 2,354 23% 1,303 14% 426 10% 27 24 27 4,161 19%
517 134 88 154 275 1,169 569 373 942 186% 3.1 2.4
582 177 89 170 175 (5) 1,188 729 729 -23% 1.8 1.8
742 199 96 204 (8) 1,233 864 864 18% 2.2 2.2
819 238 102 244 110 1,513 945 945 9% 1.9 2.4
906 275 110 254 284 1,830 1,130 1,130 20% 2.3 2.8
1,002 315 119 285 225 1,947 1,556 1,556 38% 3.1 3.9
1,099 358 129 317 235 2,138 2,023 2,023 30% 4.0 5.1
2,933 6,575 1,537 62% 18,256 32% 336 141 29,778 7%
4,187 6,155 1,667 8% 23,415 28% 762 136 36,323 22%
4,468 8,785 2,635 58% 28,355 21% 798 189 45,230 25%
8,066 6,600 4,838 84% 32,887 16% 822 138 53,350 18%
10,173 6,700 5,081 5% 38,494 17% 848 139 61,435 15%
12,970 6,800 5,528 9% 44,077 15% 876 139 70,390 15%
15,713 6,900 5,952 8% 50,765 15% 906 140 80,377 14%
571 23,742 3% 1,094 25,407 5%
976 29,108 23% 1,139 31,222 23%
1,191 36,724 26% 1,424 39,339 26%
1,200 43,978 20% 1,515 46,693 19%
1,200 50,812 16% 1,862 53,874 15%
1,200 58,185 15% 2,200 61,585 14%
1,200 66,135 14% 2,619 69,954 14%
3,000 370 15 1,023 (37) 4,371 28% 29,778
4,000 552 43 548 (42) 5,101 17% 36,323
4,000 768 23 1,196 (95) 5,891 15% 45,230
5,000 1,005 43 705 (95) 6,657 13% 53,350
5,000 1,287 43 1,326 (95) 7,561 14% 61,435
5,000 1,676 43 2,181 (95) 8,805 16% 70,390
5,000 2,182 43 3,293 (95) 10,423 18% 80,377
Balance Sheet in mn SAR ASSETS Cash and balances with SAMA Due from banks and other financial institutions, net Investments, net YoY Growth (%) Financing, net YoY Growth (%) Property and equipment, net Other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Due to banks and other financial institutions Customers’ deposits YoY Growth (%) Other liabilities Total liabilities YoY Growth (%) Shareholders’ equity Share capital Statutory reserve Other reserves Retained earnings Employee share plan Total shareholders’ equity YoY Growth (%) Total liabilities and shareholders’ equity
Source: Company Financials, Aljazira Research
3
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Bank Al-Bilad Investment Note
May 2015
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Ratios Analysis Ratios
2012A
2013A
2014A
2015E
2016E
2017E
2018E
32%
26%
20%
16%
17%
15%
15%
Asset Quality Ratios Growth of Gross Loans Impaired Loans(NPLs)/ Gross Loans
4%
2%
1%
2%
2%
2%
2%
Reserves for Impaired Loans/ Gross loans
6%
4%
3%
3%
3%
3%
3%
Reserves for Impaired Loans/ Impaired Loans
145%
194%
192%
149%
148%
157%
146%
Impaired Loans less Reserves for Imp Loans/ Equity
-8%
-9%
-7%
-5%
-5%
-5%
-5%
3.1%
2.9%
2.6%
2.8%
3.2%
3.5%
3.9%
Profitability Ratios Interest Income/ Earning Assets Interest Expense/ Interest-bearing Liabilities
0.1%
0.1%
0.1%
0.1%
0.2%
0.2%
0.3%
Net Interest Income/Earning Assets
3.0%
2.8%
2.4%
2.7%
3.0%
3.3%
3.6%
Non-Interest Income/ Gross Revenues
52%
51%
51%
50%
48%
45%
43%
Non-Interest Expense/ Gross Revenues
67%
62%
59%
62%
62%
56%
51%
Loans and securities impairment charges/ Preimpairment Operating profit
33%
19%
-1%
10%
20%
13%
10%
Return On Assets (ROA)
3%
2%
2%
2%
2%
2%
3%
Return On Equity (ROE)
22%
14%
15%
14%
15%
18%
19%
Leverage ratio (ROE/ROA)
6.81
7.12
7.68
8.01
8.13
7.99
7.71
Operating Profit / Risk Weighted Assets
2%
2%
2%
2%
2%
3%
3%
Capital Ratios Equity/ Total Assets
15%
14%
13%
12%
12%
13%
13%
Cash Dividends Paid & Declared/ Net Income
0%
0%
0%
21%
20%
20%
20%
Net Income - Cash Dividends/ Total Equity
13%
14%
15%
17%
18%
21%
23%
77%
80%
77%
75%
76%
76%
77%
Funding Ratios Loans/ Customer Deposits Liquid Assets / Total Assets
37%
33%
35%
37%
36%
36%
36%
Net Loans / Tot Assets
61%
64%
63%
62%
63%
63%
63%
0%
0%
0%
1%
1%
2%
2%
Valuation Ratios Dividend Yield
15
13
15
13
15
18
21
Market Capitalization(in SAR Mn)
Book Value Per Share (BVPS)
6,139
18,160
14,280
19,540
19,540
19,540
19,540
PE (x)
6.52
24.91
16.53
20.67
17.29
12.56
9.66
PB (x)
1.40
3.56
2.42
2.94
2.58
2.22
1.87
EPS
3.1
1.8
2.2
1.9
2.3
3.1
4.0
Current Price
20
45
36
39
39
39
39
No of Shares
300
400
400
500
500
500
500
Source: Aljazira Research
4
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RESEARCH DIVISION
AGM - Head of Research
Abdullah Alawi +966 11 2256250 [email protected]
Analyst
Sultan Al Kadi
+966 11 2256115 [email protected]
+966 11 2256374 [email protected]
General manager - brokerage services and sales
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
Ala’a Al-Yousef
brokerage
Brokerage
+966 11 2256000 [email protected]
Luay Jawad Al-Motawa
Abdullah Q. Al-Misbani
+966 11 2256277 [email protected]
+966 12 6618400 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
AGM - Head of Institutional Brokerage
Central Region
Abdullah Al-Rahit
Samer Al- Joauni
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
+966 1 225 6352 [email protected]
Jassim Al-Jubran +966 11 2256248 [email protected]
BROKERAGE AND INVESTMENT CENTERS DIVISION RESEARCH DIVISION
Talha Nazar
Analyst
+966 11 2256364 [email protected]
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 1.
RATING TERMINOLOGY
Senior Analyst
2. 3. 4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Aljazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Aljazira Capital. Funds managed by Aljazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Aljazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Aljazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Aljazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
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