Al Rajhi Bank - Aljazira Capital
Al Rajhi Bank Investment Update
April 2016
Please read Disclaimer on the back
Bank AlRajhi: Above expectation, primarily due to higher operational revenue, we maintain our price target and “Neutral” recommendation. Amount in SAR mn; unless specified Total Operating income Net profit EPS (SAR)
Forecasts 1Q-16 3471.0 1,830.0 1.13
Actual 1Q-16 3,695.0 2,017.0 1.24
Deviation (%) 6.5% 10.2%
Recommendation
‘Neutral’
Current Price* (SAR)
57.4
Target Price (SAR)
61.5
Upside / (Downside)
8.6% *prices as of 19th of April 2016
Price Performance
Our position a) Bank Alrajhi announced its’ 1Q-2016 result. According to the press release the company posted SAR 2,017.0mn; against our expectation of SAR 1,830.0mn, depicting a deviation of
70
10000 9500 9000 8500 8000 7500 7000 6500 6000 5500 5000
65 60
10.2% from our forecast. b) Net financing and investing activity showed a deviation of 1.1% from our estimates .
55
c) We maintain our “Neutral” recommendation, and our price target of SAR 61.5/share
50
On the expense front, total operating expenses showed a decline of 11.9% YoY against our estimate of a 13.8% YoY decline, primarily driven by fall in salaries expense, which was due to the two extra salaries paid in Q1-2015 resulting in a comparatively lower expense in Q1-2016.
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98,020 16.6% 79.50 48.40 16,250 Source: Bloomberg, Aljazira Capital
Valuation: Bank alrajhi is the biggest Sharia compliant bank in the Kingdom. Along with heavy reliance on retail loans, the bank has one of the highest NIMs in the Industry. The bank in the last couple of quarters have shown a revival in its earnings. The bank has had been facing a number of challenges like declining NIMs, low ADR, and declining market share . However as mention earlier ADR has shown an improvement to 82%. We maintain our 12 month price target of SAR 61.5/share with ”Neutral” recommendation This indicates the stock, at a current market price , is trading at a discount of 8.6 % and prospective 2016 PE and PBV of 12.4x and 1.9x, respectively.
SARmn (unless specified)
Q12015
Q22015
Q32015
Q42015
Q12016
2,551
2,587
2,557
2,563
2,574
Total operating income
3,422
3,535
3,195
3,594
3,695
Total operating expenses
1,904
1,593
1,474
1,645
1,678
Net income for the year
1,519
1,941
1,721
1,949
2,017
EPS
0.93
1.19
1.06
1.20
1.24
Source: Company reports, Aljazira Capital
© All rights reserved
Se p
Key Market Data Market Cap (mn) YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
SARmn (unless specified)
Net financing and investments income
TASI-RHS
Source: Bloomberg
The banks deposit book towards the end of 1Q-2016 stood at SAR 264.8bn, depicting a fall of -0.3%YoY and a jump 3.3% QoQ. Loan book on the other hand improved, by 5.5% YoY and 2.9%QoQ, to SAR 216.4bn. The ADR showed an improvement to 82% from 77% in Q1-2015. This is still below the regulatory ceiling of 90%.The low ADR ratio is limiting the bank in realizing its full potential. The inability of the bank to extend new loans is the result of the tight competition. However the growth in loans in Q1-2016, showed signs of recovery for the bank, this we believe was due to the increase in regulatory ADR requirement, which was increased from 85% to 90%.
Amount in SARmn; unless specified
Ju
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Alrajhi-LHS
Key Financials
Loan book shows improvement, ADR improves to 82%
1
No
A positive surprise, driven by higher fee income and lower expenses: Alrajhi in 1Q-2016 posted earnings of SAR 2.17bn, depicting a jump of 32.8% YoY, and 3.5%QoQ. Operating income for 1Q-2016 stood at 3.7bn, translating into jump of 8.0% YoY 2.8% QoQ. As discussed above operating income and net profit were 6.5% and 10.2% above our estimates; which is due to higher than expected fee and commission income.
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Revenues Growth % Net Income Growth % EPS
FY15
FY16E
FY17E
10,258 0.4% 7,130 4.3% 4.39
10,590 3.2% 7,503 5.2% 4.62
11,305 6.7% 8,058 7.4% 4.96
Source: Company reports, Aljazira Capital
Key Ratios FY15
FY16E
FY17E
NIMS Operating Margins Net Margins PE (x) PB (x)
1.74% 73.10% 73.10% 13.1 2.0
1.74% 68.70% 68.70% 12.4 1.9
1.58% 68.70% 68.70% 11.6 1.8
Dividend Yield Return On Assets Return On Equity Gross Loans (growth)
3% 2% 15% 2.6%
2% 2% 15% 0.2%
2% 2% 16% 6.5%
Source: Company reports, Aljazira Capital
Acting Head of Research - Senior Analyst
Talha Nazar +966 11 2256115 [email protected]
RESEARCH DIVISION
Acting Head of Research
RESEARCH DIVISION
BROKERAGE AND INVESTMENT CENTERS DIVISION
Talha Nazar
Sultan Al Kadi
Analyst
Jassim Al-Jubran
+966 11 2256115 [email protected]
+966 11 2256374 [email protected]
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
sales
brokerage
Brokerage
Alaa Al-Yousef
Luay Jawad Al-Motawa
Abdullah Q. Al-Misbani
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618400 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
Central Region
Abdullah Al-Rahit
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
+966 11 2256364 [email protected]
+966 11 2256248 [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
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.
Asset Management | Brokerage | Corporate Finance | Custody | Advisory Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
April 2016
Please read Disclaimer on the back
Bank AlRajhi: Above expectation, primarily due to higher operational revenue, we maintain our price target and “Neutral” recommendation. Amount in SAR mn; unless specified Total Operating income Net profit EPS (SAR)
Forecasts 1Q-16 3471.0 1,830.0 1.13
Actual 1Q-16 3,695.0 2,017.0 1.24
Deviation (%) 6.5% 10.2%
Recommendation
‘Neutral’
Current Price* (SAR)
57.4
Target Price (SAR)
61.5
Upside / (Downside)
8.6% *prices as of 19th of April 2016
Price Performance
Our position a) Bank Alrajhi announced its’ 1Q-2016 result. According to the press release the company posted SAR 2,017.0mn; against our expectation of SAR 1,830.0mn, depicting a deviation of
70
10000 9500 9000 8500 8000 7500 7000 6500 6000 5500 5000
65 60
10.2% from our forecast. b) Net financing and investing activity showed a deviation of 1.1% from our estimates .
55
c) We maintain our “Neutral” recommendation, and our price target of SAR 61.5/share
50
On the expense front, total operating expenses showed a decline of 11.9% YoY against our estimate of a 13.8% YoY decline, primarily driven by fall in salaries expense, which was due to the two extra salaries paid in Q1-2015 resulting in a comparatively lower expense in Q1-2016.
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M ar
Ja
v15
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No
l-1 5
98,020 16.6% 79.50 48.40 16,250 Source: Bloomberg, Aljazira Capital
Valuation: Bank alrajhi is the biggest Sharia compliant bank in the Kingdom. Along with heavy reliance on retail loans, the bank has one of the highest NIMs in the Industry. The bank in the last couple of quarters have shown a revival in its earnings. The bank has had been facing a number of challenges like declining NIMs, low ADR, and declining market share . However as mention earlier ADR has shown an improvement to 82%. We maintain our 12 month price target of SAR 61.5/share with ”Neutral” recommendation This indicates the stock, at a current market price , is trading at a discount of 8.6 % and prospective 2016 PE and PBV of 12.4x and 1.9x, respectively.
SARmn (unless specified)
Q12015
Q22015
Q32015
Q42015
Q12016
2,551
2,587
2,557
2,563
2,574
Total operating income
3,422
3,535
3,195
3,594
3,695
Total operating expenses
1,904
1,593
1,474
1,645
1,678
Net income for the year
1,519
1,941
1,721
1,949
2,017
EPS
0.93
1.19
1.06
1.20
1.24
Source: Company reports, Aljazira Capital
© All rights reserved
Se p
Key Market Data Market Cap (mn) YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
SARmn (unless specified)
Net financing and investments income
TASI-RHS
Source: Bloomberg
The banks deposit book towards the end of 1Q-2016 stood at SAR 264.8bn, depicting a fall of -0.3%YoY and a jump 3.3% QoQ. Loan book on the other hand improved, by 5.5% YoY and 2.9%QoQ, to SAR 216.4bn. The ADR showed an improvement to 82% from 77% in Q1-2015. This is still below the regulatory ceiling of 90%.The low ADR ratio is limiting the bank in realizing its full potential. The inability of the bank to extend new loans is the result of the tight competition. However the growth in loans in Q1-2016, showed signs of recovery for the bank, this we believe was due to the increase in regulatory ADR requirement, which was increased from 85% to 90%.
Amount in SARmn; unless specified
Ju
-1 5
-1 5
M ay
M ar
n15 Ja
Alrajhi-LHS
Key Financials
Loan book shows improvement, ADR improves to 82%
1
No
A positive surprise, driven by higher fee income and lower expenses: Alrajhi in 1Q-2016 posted earnings of SAR 2.17bn, depicting a jump of 32.8% YoY, and 3.5%QoQ. Operating income for 1Q-2016 stood at 3.7bn, translating into jump of 8.0% YoY 2.8% QoQ. As discussed above operating income and net profit were 6.5% and 10.2% above our estimates; which is due to higher than expected fee and commission income.
v14
45
Revenues Growth % Net Income Growth % EPS
FY15
FY16E
FY17E
10,258 0.4% 7,130 4.3% 4.39
10,590 3.2% 7,503 5.2% 4.62
11,305 6.7% 8,058 7.4% 4.96
Source: Company reports, Aljazira Capital
Key Ratios FY15
FY16E
FY17E
NIMS Operating Margins Net Margins PE (x) PB (x)
1.74% 73.10% 73.10% 13.1 2.0
1.74% 68.70% 68.70% 12.4 1.9
1.58% 68.70% 68.70% 11.6 1.8
Dividend Yield Return On Assets Return On Equity Gross Loans (growth)
3% 2% 15% 2.6%
2% 2% 15% 0.2%
2% 2% 16% 6.5%
Source: Company reports, Aljazira Capital
Acting Head of Research - Senior Analyst
Talha Nazar +966 11 2256115 [email protected]
RESEARCH DIVISION
Acting Head of Research
RESEARCH DIVISION
BROKERAGE AND INVESTMENT CENTERS DIVISION
Talha Nazar
Sultan Al Kadi
Analyst
Jassim Al-Jubran
+966 11 2256115 [email protected]
+966 11 2256374 [email protected]
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
sales
brokerage
Brokerage
Alaa Al-Yousef
Luay Jawad Al-Motawa
Abdullah Q. Al-Misbani
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618400 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
Central Region
Abdullah Al-Rahit
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
+966 11 2256364 [email protected]
+966 11 2256248 [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
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.
Asset Management | Brokerage | Corporate Finance | Custody | Advisory Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
