Al Rajhi Bank
Al Rajhi Banking and Financial Services Sector RJHI AB - 1120.SE October 23, 2017
Al Rajhi Bank
Q3 2017
Recommendation
Neutral
Fair Value (SAR)
67.25
Price as of October 22, 2017
64.63
Expected Return
%4.05
Tadawul Symbol 52 Week High (SAR)
1120.SE 71.70
YTD Change
%2.99
Company Data
52 Week Low (SAR)
From a profit perspective, net special commission income drove most of the operating income advance, aided by loan growth and a benign interest climate, alongside a growth of 2.2% in fees and commission income. The lower cost of deposits also had a positive impact on profitability margins. However, weakness was concentrated in other operating income, which experienced a decline of 47% YoY. All told, September-period results exceeded both our estimate and analysts’ consensus of SAR 2,219 million and SAR 2,204 million, respectively.
53.50
3-Month Average Volume (Thousand Shares)
3,865
Market Cap. (SAR Million)
105,024
Market Cap. (USD Million)
28,006
Outstanding Shares (Million Shares)
1,625
Major Shareholders ( > 5% )
General Organization for Social Insurance
Meanwhile, total operating expenses slipped 8.4% over the same-quarter last year, which were held back by a decline of 24.3% in impairment charge for financing and 3.8% in salaries expenses. In contrast, expenses rose slightly 0.9% on a quarterly basis, due to a jump in rent, general, and salaries expenses.
10.19%
52-week Stock Price Movement Alrajhi
Al Rajhi Bank registered better-than-expected results in Q3 2017. Net profit hit SAR 2,265 million, up 12.7% YoY and 3.8% QoQ. Accordingly, the nine-month bottom-line reached SAR 6,668 million, edging up 9.7% YoY.
Additional details of the September-quarter included a 0.9% decrease in customer deposits. Demand deposits (without cost) represented 90% of total deposits. On the other hand, the bank expanded its loan portfolio by 3.2% YoY, as a result, the loans-to-deposits ratio increased from 82.8% to 86.3%.
Tad awu l In dex
140 130
Looking ahead to the December quarter, we expect that Al Rajhi bank's positive performance will continue, driven by growth in retail banking sector. Moreover, we foresee that the recent concentration of the bank on real estate sector and the interest-rate hikes should help loan growth, as well as lift net interest income further to a new level.
120 110 100 90
Source: Tadawul
Quarterly Operating Income (SAR mn) and Profit Margin Operati ng Income
Profit Margin
400 0
60%
350 0
55%
300 0
50%
250 0
45%
200 0
40%
150 0
35%
100 0
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
3.98%
4.31%
4.37%
4.43%
Return on Assets
2.29%
2.48%
2.62%
2.68%
Return on Equity
16.11%
16.49%
16.24%
14.87%
Net Special Commission Growth
1.44%
12.11%
6.69%
5.13%
Expenses to Income
33.88%
32.38%
32.15%
32.15%
Net Loans / Deposits
81.54%
82.54%
86.45%
88.08%
NPL / Total Loans
1.51%
1.24%
0.69%
0.82%
176.72%
231.30%
311.75%
278.53%
PE
14.73
12.92
11.71
11.10
P / BV
2.25
2.02
1.80
1.53
EPS (SAR)
4.39
5.00
5.52
5.82
Coverage Ratio
Source: Company Filings, Albilad Capital Research Estimates
1
Al Rajhi Banking and Financial Services Sector October 23, 2017
RJHI AB - 1120.SE Summary of Q, Results Income Statement (SAR mn)
Q3 2016
Q3 2017
Change
Q2 2017
Change
Special Commission Income
3,075
3,178
%3.35
3,097
%2.62
Special Commission Expense
161
146
(%9.32)
143
%2.10
Net Special Commission Income
4,9,2
,,0,4
%2.04
4,942
%4..2
Other Incomes
964
944
(%2.07)
923
%2.28
Total Operating Income
,,3,3
,,9,.
%4.4,
,,3,,
%4.44
Total Operating Expenses
1,869
1,711
(%8.45)
1,695
%0.94
Net Income
4,009
4,4.4
%,4.,2
4,,34
%,.30
EPS (SAR)
1.24
1.39
Balance Sheet (SAR mn)
Q3 2016
Q3 2017
Change
Q2 2017
Change
Investments
33,753
35,692
%5.74
31,578
%13.03
Loans and advances, net
225,863
233,181
%3.24
232,797
%0.16
Total Assets
330,516
338,030
%2.27
345,597
(%2.19)
Customer Deposits
272,600
270,102
(%0.92)
285,390
(%5.36)
Loans / Deposits
%82.86
%86.33
1.34
%81.57
Summary of Financial Statements & Forecasts Income Statement (SAR mn)
2014A
2015A
2016A
Special Commission Income
10,213
10,258
11,751
12,490
13,149
Special Commission Expense
395
299
586
578
626
Net Special Commission Income
9,3,,
9,949
,,,,.4
,,,9,4
,4,44,
Fees & Commission Income, net
2,738
2,704
2,950
2,748
3,287
Foreign Exchange Income, net
952
980
925
937
986
Other Income
159
103
243
258
272
Total Operating Income
,,,..,
,,,,2.
,4,432
,4,344
,,,0.3
Salaries & Employee-related Expense
2,514
2,661
2,950
2,917
3,141
Rent & Premises-related Expense
1,335
1,379
1,307
1,427
1,536
Other expenses
670
618
693
753
811
Total Operating Expenses
2,4,9
2,.43
2,929
4,09,
4,233
Impairment Charge for Credit Losses, net
2,312
1,958
2,208
1,792
2,122
Net Income
.,3,.
,,,,0
3,,4.
3,9..
9,243
Balance Sheet (SAR mn)
2014A
2015A
2016A
Cash & Balances with SAMA & Other Fin. Institutions
50,102
53,965
68,728
59,445
63,387
Investments, net
42,550
39,877
34,033
38,883
41,993
Loans & Advances, net
205,940
210,218
224,994
233,995
241,020
Property & Equipment, net
4,814
5,579
6,485
7,539
8,763
Other Assets
4,306
5,981
5,471
5,012
4,603
Total Assets
,0,,,,4
,,4,.40
,,9,,,4
,22,3,2
,49,,..
Due to Banks & Other Financial Institutions
2,135
4,558
8,917
9,809
11,770
Customer Deposits
256,077
257,822
272,593
270,662
273,632
Other Liabilities
7,603
6,601
6,255
5,927
5,617
Total Liabilities
4.4,3,4
4.3,93,
43,,,.4
43.,,93
49,,0,9
Total Equity
41,896
46,639
51,947
58,476
68,747
Total Liabilities & Shareholders' Equity
,0,,,,4
,,4,.40
,,9,,,4
,22,3,2
,49,,..
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 October 23, 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
Q3 2017
Recommendation
Neutral
Fair Value (SAR)
67.25
Price as of October 22, 2017
64.63
Expected Return
%4.05
Tadawul Symbol 52 Week High (SAR)
1120.SE 71.70
YTD Change
%2.99
Company Data
52 Week Low (SAR)
From a profit perspective, net special commission income drove most of the operating income advance, aided by loan growth and a benign interest climate, alongside a growth of 2.2% in fees and commission income. The lower cost of deposits also had a positive impact on profitability margins. However, weakness was concentrated in other operating income, which experienced a decline of 47% YoY. All told, September-period results exceeded both our estimate and analysts’ consensus of SAR 2,219 million and SAR 2,204 million, respectively.
53.50
3-Month Average Volume (Thousand Shares)
3,865
Market Cap. (SAR Million)
105,024
Market Cap. (USD Million)
28,006
Outstanding Shares (Million Shares)
1,625
Major Shareholders ( > 5% )
General Organization for Social Insurance
Meanwhile, total operating expenses slipped 8.4% over the same-quarter last year, which were held back by a decline of 24.3% in impairment charge for financing and 3.8% in salaries expenses. In contrast, expenses rose slightly 0.9% on a quarterly basis, due to a jump in rent, general, and salaries expenses.
10.19%
52-week Stock Price Movement Alrajhi
Al Rajhi Bank registered better-than-expected results in Q3 2017. Net profit hit SAR 2,265 million, up 12.7% YoY and 3.8% QoQ. Accordingly, the nine-month bottom-line reached SAR 6,668 million, edging up 9.7% YoY.
Additional details of the September-quarter included a 0.9% decrease in customer deposits. Demand deposits (without cost) represented 90% of total deposits. On the other hand, the bank expanded its loan portfolio by 3.2% YoY, as a result, the loans-to-deposits ratio increased from 82.8% to 86.3%.
Tad awu l In dex
140 130
Looking ahead to the December quarter, we expect that Al Rajhi bank's positive performance will continue, driven by growth in retail banking sector. Moreover, we foresee that the recent concentration of the bank on real estate sector and the interest-rate hikes should help loan growth, as well as lift net interest income further to a new level.
120 110 100 90
Source: Tadawul
Quarterly Operating Income (SAR mn) and Profit Margin Operati ng Income
Profit Margin
400 0
60%
350 0
55%
300 0
50%
250 0
45%
200 0
40%
150 0
35%
100 0
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
3.98%
4.31%
4.37%
4.43%
Return on Assets
2.29%
2.48%
2.62%
2.68%
Return on Equity
16.11%
16.49%
16.24%
14.87%
Net Special Commission Growth
1.44%
12.11%
6.69%
5.13%
Expenses to Income
33.88%
32.38%
32.15%
32.15%
Net Loans / Deposits
81.54%
82.54%
86.45%
88.08%
NPL / Total Loans
1.51%
1.24%
0.69%
0.82%
176.72%
231.30%
311.75%
278.53%
PE
14.73
12.92
11.71
11.10
P / BV
2.25
2.02
1.80
1.53
EPS (SAR)
4.39
5.00
5.52
5.82
Coverage Ratio
Source: Company Filings, Albilad Capital Research Estimates
1
Al Rajhi Banking and Financial Services Sector October 23, 2017
RJHI AB - 1120.SE Summary of Q, Results Income Statement (SAR mn)
Q3 2016
Q3 2017
Change
Q2 2017
Change
Special Commission Income
3,075
3,178
%3.35
3,097
%2.62
Special Commission Expense
161
146
(%9.32)
143
%2.10
Net Special Commission Income
4,9,2
,,0,4
%2.04
4,942
%4..2
Other Incomes
964
944
(%2.07)
923
%2.28
Total Operating Income
,,3,3
,,9,.
%4.4,
,,3,,
%4.44
Total Operating Expenses
1,869
1,711
(%8.45)
1,695
%0.94
Net Income
4,009
4,4.4
%,4.,2
4,,34
%,.30
EPS (SAR)
1.24
1.39
Balance Sheet (SAR mn)
Q3 2016
Q3 2017
Change
Q2 2017
Change
Investments
33,753
35,692
%5.74
31,578
%13.03
Loans and advances, net
225,863
233,181
%3.24
232,797
%0.16
Total Assets
330,516
338,030
%2.27
345,597
(%2.19)
Customer Deposits
272,600
270,102
(%0.92)
285,390
(%5.36)
Loans / Deposits
%82.86
%86.33
1.34
%81.57
Summary of Financial Statements & Forecasts Income Statement (SAR mn)
2014A
2015A
2016A
Special Commission Income
10,213
10,258
11,751
12,490
13,149
Special Commission Expense
395
299
586
578
626
Net Special Commission Income
9,3,,
9,949
,,,,.4
,,,9,4
,4,44,
Fees & Commission Income, net
2,738
2,704
2,950
2,748
3,287
Foreign Exchange Income, net
952
980
925
937
986
Other Income
159
103
243
258
272
Total Operating Income
,,,..,
,,,,2.
,4,432
,4,344
,,,0.3
Salaries & Employee-related Expense
2,514
2,661
2,950
2,917
3,141
Rent & Premises-related Expense
1,335
1,379
1,307
1,427
1,536
Other expenses
670
618
693
753
811
Total Operating Expenses
2,4,9
2,.43
2,929
4,09,
4,233
Impairment Charge for Credit Losses, net
2,312
1,958
2,208
1,792
2,122
Net Income
.,3,.
,,,,0
3,,4.
3,9..
9,243
Balance Sheet (SAR mn)
2014A
2015A
2016A
Cash & Balances with SAMA & Other Fin. Institutions
50,102
53,965
68,728
59,445
63,387
Investments, net
42,550
39,877
34,033
38,883
41,993
Loans & Advances, net
205,940
210,218
224,994
233,995
241,020
Property & Equipment, net
4,814
5,579
6,485
7,539
8,763
Other Assets
4,306
5,981
5,471
5,012
4,603
Total Assets
,0,,,,4
,,4,.40
,,9,,,4
,22,3,2
,49,,..
Due to Banks & Other Financial Institutions
2,135
4,558
8,917
9,809
11,770
Customer Deposits
256,077
257,822
272,593
270,662
273,632
Other Liabilities
7,603
6,601
6,255
5,927
5,617
Total Liabilities
4.4,3,4
4.3,93,
43,,,.4
43.,,93
49,,0,9
Total Equity
41,896
46,639
51,947
58,476
68,747
Total Liabilities & Shareholders' Equity
,0,,,,4
,,4,.40
,,9,,,4
,22,3,2
,49,,..
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 October 23, 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
