Al Rajhi Bank
Al Rajhi Banking and Financial Services Sector RJHI AB - 1120.SE July 30, 2017
Al Rajhi Bank
Q2 2017
Recommendation
Neutral
Fair Value (SAR)
67.25
Price as of July 27, 2017
62.64
Expected Return
7.36%
Tadawul Symbol 52 Week High (SAR)
1120.SE 71.50
YTD Change
(0.18%)
Market Cap. (SAR Million)
101,790
Company Data
52 Week Low (SAR)
The second-quarter saw a mixed operating performance for the bank, which drove strong interest income, while constraining fee-based activity. Weakness was concentrated in non-interest income, which experienced a decline of 19.3% YoY and 4.6% QoQ, despite a significant advance in other operating income by 41.3%. This was led by a steep drop in fees and commission income in Q2 2017 on the back of limited market activity during the period.
48.60
3-Month Average Volume (Thousand Shares)
3,343
Market Cap. (USD Million)
27,144
Outstanding Shares (Million Shares)
1,625
Major Shareholders ( > 5% )
General Organization for Social Insurance
On the bright side, net income skyrocketed 6.3% YoY, driven mainly by higher net special commission income and other operating income. Meanwhile, total operating expenses slipped 9.5% over the same-quarter last year, which were held back by a decline in impairment charge for financing and salaries expenses.
10.19%
Sulaiman Abdulaziz Al Rajhi Endowment
7.9%
52-week Stock Price Movement Alrajhi
Al Rajhi Bank reported second-quarter financial results that were on par with our estimates. Net profit hit SAR 2.18 billion versus our SAR 2.20 billion estimate, up 6.3% YoY, but was still down 1.8% on a QoQ basis.
Additional details of the June-quarter included a 4.7% increase in customer deposits. This was mostly attributed to reinstated all allowances, financial benefits, and bonuses to public sector employees, as the retail sector is the bank’s largest business segment. However, the bank expanded its loan portfolio at a slower pace of 3.7%, as a result, the loans-to-deposits ratio fell from 82.3% to 81.2%.
Tad awu l In dex
130 120 110
Looking ahead, we still expect that Al Rajhi bank's positive performance will continue, driven by growth in retail banking sector. Moreover, we foresee the impact of restoring financial allowances and benefits to state employees to appear on results in the second-half of this year. Thus, deposits are likely to grow 5.6% YoY, while loan growth and interest-rate hikes should help lift net interest income further to a new level.
100
90 80
Source: Tadawul
Quarterly Operating Income (SAR mn) and Profit Margin Operating Income
Profit Margin
4000
60%
3500
55%
3000
50%
2500
45%
2000
40%
1500
35%
1000
30%
Source: Company Filings, Albilad Capital Research Estimates
For more information, please contact: Turki Fadaak Research & Advisory Manager [email protected]
Abdulrahman S. Aljarboua, MSF Financial Analyst [email protected]
Therefore, we are leaving our valuation unchanged at SAR 67.25 per share with assigning a “Neutral” recommendation.
FY - Ending December
2015A
2016A
2017E
2018F
Net Interest Margin
3.96%
4.29%
4.31%
4.34%
Return on Assets
2.29%
2.48%
2.47%
2.44%
Return on Equity
16.11%
16.49%
16.21%
15.89%
Net Special Commission Growth
1.44%
12.11%
5.23%
5.65%
Expenses to Income
33.88%
32.38%
32.57%
32.58%
Net Loans / Deposits
81.54%
82.54%
82.63%
82.36%
NPL / Total Loans
1.51%
1.24%
1.16%
1.10%
176.72%
231.30%
240.32%
251.76%
PE
14.28
12.53
11.82
11.39
P / BV
2.18
1.96
1.88
1.75
EPS (SAR)
4.39
5.00
5.30
5.50
Coverage Ratio
Source: Company Filings, Albilad Capital Research Estimates
1
Al Rajhi Banking and Financial Services Sector July 30, 2017
RJHI AB - 1120.SE Summary of Q1 Results Income Statement (SAR mn)
Q2 2016
Q2 2017
Change
Q1 2017
Change
Special Commission Income
2,891
3,097
7.13%
3,024
2.41%
Special Commission Expense
110
143
30.00%
138
3.62%
Net Special Commission Income
1,7,2
1,9,2
6.22%
1,,,2
2.36%
Other Incomes
1,143
923
(19.25%)
967
(4.55%)
Total Operating Income
4,912
4,,77
(1.20%)
4,,,4
0.62%
Total Operating Expenses
1,872
1,695
(9.46%)
1,632
3.86%
Net Income
1,0,1
1,2,1
6.34%
1,112
(1.76%)
EPS (SAR)
1.26
1.34
Balance Sheet (SAR mn)
Q2 2016
Q2 2017
Change
Q1 2017
Change
Investments
359922
319578
(12.09%)
25,843
22.19%
Loans and advances, net
2249523
2329797
3.69%
229,421
1.47%
Total Assets
3319381
3459597
4.29%
337,230
2.48%
Customer Deposits
2729650
2859390
4.67%
271,290
5.20%
Loans / Deposits
82.35%
81.57%
(0.78%)
84.57%
(3.00%)
1.37
Summary of Financial Statements & Forecasts Income Statement (SAR mn)
2014A
2015A
2016A
Special Commission Income
10,213
10,258
11,751
12,344
13,037
Special Commission Expense
395
299
586
595
624
Net Special Commission Income
9,,27
9,9,9
22,22,
22,729
21,224
Fees & Commission Income, net
2,738
2,704
2,950
2,716
2,934
Foreign Exchange Income, net
952
980
925
886
932
Other Income
159
103
243
370
345
Total Operating Income
24,227
24,722
2,,1,2
2,,712
22,212
Salaries & Employee-related Expense
2,514
2,661
2,950
3,064
3,242
Rent & Premises-related Expense
1,335
1,379
1,307
1,344
1,421
Other expenses
670
618
693
713
754
Total Operating Expenses
2,,29
2,2,,
2,929
,,212
,,227
Impairment Charge for Credit Losses, net
2,312
1,958
2,208
1,989
2,270
Net Income
2,,42
7,240
,,212
,,222
,,947
Balance Sheet (SAR mn)
2014A
2015A
2016A
Cash & Balances with SAMA & Other Fin. Institutions
50,102
53,965
68,728
73,012
77,592
Investments, net
42,550
39,877
34,033
33,846
35,918
Loans & Advances, net
205,940
210,218
224,994
237,747
248,777
Property & Equipment, net
4,814
5,579
6,485
7,084
7,721
Other Assets
4,306
5,981
5,471
5,705
6,100
Total Assets
407,721
42,,210
449,721
4,7,492
472,20,
Due to Banks & Other Financial Institutions
2,135
4,558
8,917
8,716
8,520
Customer Deposits
256,077
257,822
272,593
287,741
302,055
Other Liabilities
7,603
6,601
6,255
6,658
7,324
Total Liabilities
12,,,2,
12,,9,2
1,7,72,
404,22,
427,900
Total Equity
41,896
46,639
51,947
54,279
58,209
Total Liabilities & Shareholders' Equity
407,721
42,,210
449,721
4,7,492
472,20,
2017E
2017E
2018F
2018F
Source: Company Filings, Albilad Capital Research Estimates
A: Actual. E: Albilad Capital Research Estimates. F: Albilad Capital Research Forecasts.
2
Al Rajhi Banking and Financial Services Sector July 30, 2017
RJHI AB - 1120.SE
Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight:
The Target share price exceeds the current share price by ≥ 10%.
Neutral:
The Target share price is either more or less than the current share price by < 10%.
Underweight:
The Target share price is less than the current share price by ≥ 10%.
To be Revised:
No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials , waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research.
Albilad Capital Client Services E-mail: Tel:
[email protected] +966-11-203-9888
Toll-free: 800-116-0001
Research & Advisory
E-mail: [email protected] Tel: +966-11-290-6250 Website: www.albilad-capital.com
Asset Management
Brokerage
Custody
Investment Banking
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6280
[email protected] +966-11-290-6259
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6230
[email protected] +966-11-290-6256
Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital, its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Capital. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recommend consulting a qualified investment advisor before investing in these investment tools. AlBilad Capital preserves all rights associated with this report.
CMA Authorization Number 08100-37
3
Al Rajhi Bank
Q2 2017
Recommendation
Neutral
Fair Value (SAR)
67.25
Price as of July 27, 2017
62.64
Expected Return
7.36%
Tadawul Symbol 52 Week High (SAR)
1120.SE 71.50
YTD Change
(0.18%)
Market Cap. (SAR Million)
101,790
Company Data
52 Week Low (SAR)
The second-quarter saw a mixed operating performance for the bank, which drove strong interest income, while constraining fee-based activity. Weakness was concentrated in non-interest income, which experienced a decline of 19.3% YoY and 4.6% QoQ, despite a significant advance in other operating income by 41.3%. This was led by a steep drop in fees and commission income in Q2 2017 on the back of limited market activity during the period.
48.60
3-Month Average Volume (Thousand Shares)
3,343
Market Cap. (USD Million)
27,144
Outstanding Shares (Million Shares)
1,625
Major Shareholders ( > 5% )
General Organization for Social Insurance
On the bright side, net income skyrocketed 6.3% YoY, driven mainly by higher net special commission income and other operating income. Meanwhile, total operating expenses slipped 9.5% over the same-quarter last year, which were held back by a decline in impairment charge for financing and salaries expenses.
10.19%
Sulaiman Abdulaziz Al Rajhi Endowment
7.9%
52-week Stock Price Movement Alrajhi
Al Rajhi Bank reported second-quarter financial results that were on par with our estimates. Net profit hit SAR 2.18 billion versus our SAR 2.20 billion estimate, up 6.3% YoY, but was still down 1.8% on a QoQ basis.
Additional details of the June-quarter included a 4.7% increase in customer deposits. This was mostly attributed to reinstated all allowances, financial benefits, and bonuses to public sector employees, as the retail sector is the bank’s largest business segment. However, the bank expanded its loan portfolio at a slower pace of 3.7%, as a result, the loans-to-deposits ratio fell from 82.3% to 81.2%.
Tad awu l In dex
130 120 110
Looking ahead, we still expect that Al Rajhi bank's positive performance will continue, driven by growth in retail banking sector. Moreover, we foresee the impact of restoring financial allowances and benefits to state employees to appear on results in the second-half of this year. Thus, deposits are likely to grow 5.6% YoY, while loan growth and interest-rate hikes should help lift net interest income further to a new level.
100
90 80
Source: Tadawul
Quarterly Operating Income (SAR mn) and Profit Margin Operating Income
Profit Margin
4000
60%
3500
55%
3000
50%
2500
45%
2000
40%
1500
35%
1000
30%
Source: Company Filings, Albilad Capital Research Estimates
For more information, please contact: Turki Fadaak Research & Advisory Manager [email protected]
Abdulrahman S. Aljarboua, MSF Financial Analyst [email protected]
Therefore, we are leaving our valuation unchanged at SAR 67.25 per share with assigning a “Neutral” recommendation.
FY - Ending December
2015A
2016A
2017E
2018F
Net Interest Margin
3.96%
4.29%
4.31%
4.34%
Return on Assets
2.29%
2.48%
2.47%
2.44%
Return on Equity
16.11%
16.49%
16.21%
15.89%
Net Special Commission Growth
1.44%
12.11%
5.23%
5.65%
Expenses to Income
33.88%
32.38%
32.57%
32.58%
Net Loans / Deposits
81.54%
82.54%
82.63%
82.36%
NPL / Total Loans
1.51%
1.24%
1.16%
1.10%
176.72%
231.30%
240.32%
251.76%
PE
14.28
12.53
11.82
11.39
P / BV
2.18
1.96
1.88
1.75
EPS (SAR)
4.39
5.00
5.30
5.50
Coverage Ratio
Source: Company Filings, Albilad Capital Research Estimates
1
Al Rajhi Banking and Financial Services Sector July 30, 2017
RJHI AB - 1120.SE Summary of Q1 Results Income Statement (SAR mn)
Q2 2016
Q2 2017
Change
Q1 2017
Change
Special Commission Income
2,891
3,097
7.13%
3,024
2.41%
Special Commission Expense
110
143
30.00%
138
3.62%
Net Special Commission Income
1,7,2
1,9,2
6.22%
1,,,2
2.36%
Other Incomes
1,143
923
(19.25%)
967
(4.55%)
Total Operating Income
4,912
4,,77
(1.20%)
4,,,4
0.62%
Total Operating Expenses
1,872
1,695
(9.46%)
1,632
3.86%
Net Income
1,0,1
1,2,1
6.34%
1,112
(1.76%)
EPS (SAR)
1.26
1.34
Balance Sheet (SAR mn)
Q2 2016
Q2 2017
Change
Q1 2017
Change
Investments
359922
319578
(12.09%)
25,843
22.19%
Loans and advances, net
2249523
2329797
3.69%
229,421
1.47%
Total Assets
3319381
3459597
4.29%
337,230
2.48%
Customer Deposits
2729650
2859390
4.67%
271,290
5.20%
Loans / Deposits
82.35%
81.57%
(0.78%)
84.57%
(3.00%)
1.37
Summary of Financial Statements & Forecasts Income Statement (SAR mn)
2014A
2015A
2016A
Special Commission Income
10,213
10,258
11,751
12,344
13,037
Special Commission Expense
395
299
586
595
624
Net Special Commission Income
9,,27
9,9,9
22,22,
22,729
21,224
Fees & Commission Income, net
2,738
2,704
2,950
2,716
2,934
Foreign Exchange Income, net
952
980
925
886
932
Other Income
159
103
243
370
345
Total Operating Income
24,227
24,722
2,,1,2
2,,712
22,212
Salaries & Employee-related Expense
2,514
2,661
2,950
3,064
3,242
Rent & Premises-related Expense
1,335
1,379
1,307
1,344
1,421
Other expenses
670
618
693
713
754
Total Operating Expenses
2,,29
2,2,,
2,929
,,212
,,227
Impairment Charge for Credit Losses, net
2,312
1,958
2,208
1,989
2,270
Net Income
2,,42
7,240
,,212
,,222
,,947
Balance Sheet (SAR mn)
2014A
2015A
2016A
Cash & Balances with SAMA & Other Fin. Institutions
50,102
53,965
68,728
73,012
77,592
Investments, net
42,550
39,877
34,033
33,846
35,918
Loans & Advances, net
205,940
210,218
224,994
237,747
248,777
Property & Equipment, net
4,814
5,579
6,485
7,084
7,721
Other Assets
4,306
5,981
5,471
5,705
6,100
Total Assets
407,721
42,,210
449,721
4,7,492
472,20,
Due to Banks & Other Financial Institutions
2,135
4,558
8,917
8,716
8,520
Customer Deposits
256,077
257,822
272,593
287,741
302,055
Other Liabilities
7,603
6,601
6,255
6,658
7,324
Total Liabilities
12,,,2,
12,,9,2
1,7,72,
404,22,
427,900
Total Equity
41,896
46,639
51,947
54,279
58,209
Total Liabilities & Shareholders' Equity
407,721
42,,210
449,721
4,7,492
472,20,
2017E
2017E
2018F
2018F
Source: Company Filings, Albilad Capital Research Estimates
A: Actual. E: Albilad Capital Research Estimates. F: Albilad Capital Research Forecasts.
2
Al Rajhi Banking and Financial Services Sector July 30, 2017
RJHI AB - 1120.SE
Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight:
The Target share price exceeds the current share price by ≥ 10%.
Neutral:
The Target share price is either more or less than the current share price by < 10%.
Underweight:
The Target share price is less than the current share price by ≥ 10%.
To be Revised:
No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials , waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research.
Albilad Capital Client Services E-mail: Tel:
[email protected] +966-11-203-9888
Toll-free: 800-116-0001
Research & Advisory
E-mail: [email protected] Tel: +966-11-290-6250 Website: www.albilad-capital.com
Asset Management
Brokerage
Custody
Investment Banking
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6280
[email protected] +966-11-290-6259
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6230
[email protected] +966-11-290-6256
Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital, its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Capital. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recommend consulting a qualified investment advisor before investing in these investment tools. AlBilad Capital preserves all rights associated with this report.
CMA Authorization Number 08100-37
3
