Banque Saudi Fransi 31 July 2016 PDF
July 31, 2016 Rating 12- Month Target Price
Buy SAR 34.00
BANQUE SAUDI FRANSI (BSF) 2Q2016 First Look
LDR Edges Higher Expected Total Return Price as on Jul-28, 2016
22.04
Upside to Target Price
54.3%
Expected Dividend Yield
4.5%
Expected Total Return
58.8%
Market Data 34.00/20.70
52 Week H/L
SAR 26,566 mln
Market Capitalization
1,205 mln
Shares Outstanding
2.40%
Free Float
217,911
12-Month ADTV
1-Year Price Performance 110 100
Banque Saudi Fransi (BSF) reported 2Q results missing our expectations. Net income of SAR 1.05 billion (EPS SAR 0.87) was lower than our forecast of SAR 1.09 billion as we believe BSF has faced higher funding costs with the structure of deposits shifting towards an increasing proportion of interest bearing deposits. Net loans have performed well this quarter rising some SAR 4.7 billion leading the loan to deposit ratio (LDR) very close to the revised 90% limit. Deposits, on the other hand, have not done so well, declining SAR 3.0 billion Q/Q to SAR 139 billion as tight liquidity in the sector has led to an uphill task to protect deposit base. Trading at par with 2016E book value, we maintain our SAR 34.00 target price and Buy recommendation
LDR touching limit Net special commissions income grew by +4% Y/Y to SAR 1.05 billion but was flat Q/Q and lower than our estimates. Lending has continued to pick up in 2Q as well with net advances increasing by SAR 4.7 billion to almost SAR 130 billion raising LDR to over 89%, almost at the 90% SAMA limit. The tight liquidity situation is amply illustrated at BSF with loans growing but deposits falling SAR 3.0 billion over the quarter to SAR 139 billion. Deposits are down substantially from their high of SAR 150 billion in 1Q2015. At first look, we believe the structure is also changing towards a higher proportion of interest bearing deposits resulting in downward pressure on net interest margins (NIMs). We would be closely following this trend in order to discern profitability impact going forward.
Opex in check, other income declines Y/Y
90 80
Operating expenses have been restricted to SAR 550 million as compared to SAR 564 million last year on the back of lower employee expenses and a recovery in impairment charges for investments. Concurrently, other income has also witnessed a -3% Y/Y fall to SAR 544 million on the back of a reduction in trading income and gains in non-trading investments.
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EPS rises +3% Y/Y
Source: Bloomberg 6M
1Y
We would like to highlight that investments have reversed the declining trend in 2Q as they grew by SAR 1.7 billion Q/Q to SAR 23.9 billion, likely due to greater investments in government bonds. EPS has risen +3% Y/Y to SAR 0.87 but is down -3% on a Q/Q basis. For now, we maintain our Buy call and SAR 34.00 target price.
2Y
10%
0%
SAR 0.55 1H DPS BSF announced a SAR 0.55 DPS for 1H2016. At full year SAR 1.00 DPS estimate, dividend yield is decent at 4.5% at current prices. A dividend surprise to SAR 1.10 for 2016 would make yields even more enticing.
-10% -20% -30% -40% BSFR
TASI
TBFSI
Key Financial Figures 2Q2016E (SAR mln)
Actual
RC Forecast
Net Comm Income
1,054
1,081
Total Op Income
1,598
1,702
Net Income
1,048
1,093
Loans & Advances
129,637
125,601
Deposits
138,810
141,110
FY Dec31 (SARmln) Net Comm Inc Prov for cred loss Net Income EPS (SAR) DPS (SAR)
2015A 4,055 181 4,036 3.35 1.05
Key Financial Ratios 2016E 4,383 585 3,907 3.24 1.00
2017E 4,506 648 3,901 3.24 1.00
Muhammad Faisal Potrik
Mansour A. Al-Ammari
[email protected] +966-11-203-6807
[email protected] +966-11-203-6815
FY Dec31 NIM ROAE ROAA CAR P/E
2015A 2.2% 15.0% 2.2% 17.2% 7.6x
2016E 2.4% 13.4% 2.1% 17.4% 7.9x
2017E 2.4% 12.1% 2.0% 17.0% 7.9x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
BANQUE SAUDI FRANSI 2Q2016 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
Buy SAR 34.00
BANQUE SAUDI FRANSI (BSF) 2Q2016 First Look
LDR Edges Higher Expected Total Return Price as on Jul-28, 2016
22.04
Upside to Target Price
54.3%
Expected Dividend Yield
4.5%
Expected Total Return
58.8%
Market Data 34.00/20.70
52 Week H/L
SAR 26,566 mln
Market Capitalization
1,205 mln
Shares Outstanding
2.40%
Free Float
217,911
12-Month ADTV
1-Year Price Performance 110 100
Banque Saudi Fransi (BSF) reported 2Q results missing our expectations. Net income of SAR 1.05 billion (EPS SAR 0.87) was lower than our forecast of SAR 1.09 billion as we believe BSF has faced higher funding costs with the structure of deposits shifting towards an increasing proportion of interest bearing deposits. Net loans have performed well this quarter rising some SAR 4.7 billion leading the loan to deposit ratio (LDR) very close to the revised 90% limit. Deposits, on the other hand, have not done so well, declining SAR 3.0 billion Q/Q to SAR 139 billion as tight liquidity in the sector has led to an uphill task to protect deposit base. Trading at par with 2016E book value, we maintain our SAR 34.00 target price and Buy recommendation
LDR touching limit Net special commissions income grew by +4% Y/Y to SAR 1.05 billion but was flat Q/Q and lower than our estimates. Lending has continued to pick up in 2Q as well with net advances increasing by SAR 4.7 billion to almost SAR 130 billion raising LDR to over 89%, almost at the 90% SAMA limit. The tight liquidity situation is amply illustrated at BSF with loans growing but deposits falling SAR 3.0 billion over the quarter to SAR 139 billion. Deposits are down substantially from their high of SAR 150 billion in 1Q2015. At first look, we believe the structure is also changing towards a higher proportion of interest bearing deposits resulting in downward pressure on net interest margins (NIMs). We would be closely following this trend in order to discern profitability impact going forward.
Opex in check, other income declines Y/Y
90 80
Operating expenses have been restricted to SAR 550 million as compared to SAR 564 million last year on the back of lower employee expenses and a recovery in impairment charges for investments. Concurrently, other income has also witnessed a -3% Y/Y fall to SAR 544 million on the back of a reduction in trading income and gains in non-trading investments.
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BSF
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TBFSI
EPS rises +3% Y/Y
Source: Bloomberg 6M
1Y
We would like to highlight that investments have reversed the declining trend in 2Q as they grew by SAR 1.7 billion Q/Q to SAR 23.9 billion, likely due to greater investments in government bonds. EPS has risen +3% Y/Y to SAR 0.87 but is down -3% on a Q/Q basis. For now, we maintain our Buy call and SAR 34.00 target price.
2Y
10%
0%
SAR 0.55 1H DPS BSF announced a SAR 0.55 DPS for 1H2016. At full year SAR 1.00 DPS estimate, dividend yield is decent at 4.5% at current prices. A dividend surprise to SAR 1.10 for 2016 would make yields even more enticing.
-10% -20% -30% -40% BSFR
TASI
TBFSI
Key Financial Figures 2Q2016E (SAR mln)
Actual
RC Forecast
Net Comm Income
1,054
1,081
Total Op Income
1,598
1,702
Net Income
1,048
1,093
Loans & Advances
129,637
125,601
Deposits
138,810
141,110
FY Dec31 (SARmln) Net Comm Inc Prov for cred loss Net Income EPS (SAR) DPS (SAR)
2015A 4,055 181 4,036 3.35 1.05
Key Financial Ratios 2016E 4,383 585 3,907 3.24 1.00
2017E 4,506 648 3,901 3.24 1.00
Muhammad Faisal Potrik
Mansour A. Al-Ammari
[email protected] +966-11-203-6807
[email protected] +966-11-203-6815
FY Dec31 NIM ROAE ROAA CAR P/E
2015A 2.2% 15.0% 2.2% 17.2% 7.6x
2016E 2.4% 13.4% 2.1% 17.4% 7.9x
2017E 2.4% 12.1% 2.0% 17.0% 7.9x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
BANQUE SAUDI FRANSI 2Q2016 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
