Al Rajhi Bank
Al Rajhi Banking and Financial Services Sector RJHI AB - 1120.SE February 19, 2018
Al Rajhi Bank
Q4 2017
Recommendation
Neutral
Fair Value (SAR)
72.41
Price as of February 18, 2018
74.72
Expected Return
2.22%
Tadawul Symbol 22 Week High (SAR)
1120.SE 72.20
Company Data
22 Week Low (SAR)
The increase in profits in 4Q-2017 YoY was mainly driven by an increase in operating income by 10.1% YoY, as a result of an increase in the net financing and investment income by 8.1%, coupled with an increase in fees from banking services by 18.2%. On the contrary, total operating expenses decreased by 1.1%, mainly due to the decrease in provisions for financing by 29.1% and salary expenses by 7.8%.
21.00
YTD Change
12%
3-Month Average Volume (Thousand Shares)
3,022
Market Cap. (SAR Million)
121,429
Market Cap. (USD Million)
32,392
Outstanding Shares (Million Shares)
Meanwhile, the growth in profit for the full-year was mainly driven by an increase in operating income by 3.7% on the back of an increase in net financing and investment income by 7.2%, other operating income by 38.4% despite of the decline in banking services by 8.2%.In contrast, the total operating expenses slipped by 2.0% due to reduction in impairment charge by 27.8%.
1,222
Major Shareholders ( > 2% )
Sulaiman Abdulaziz Al Rajhi Endowment
14.79%
General Organization for Social Insurance
10.19%
52-week Stock Price Movement Alrajhi
The results for the bank showed surge in net profit QoQ from an increase in total operating income by 2.2% due to an improvement in financing and investment by 4.1% in addition other operating income rising by 284.8%, despite the fact there was an increase in total operating expense by 2% from rent and general expenses.
Tadawul Index
120 110 100 90
Source: Tadawul
Quarterly Operating Income (SAR mn) and Profit Margin Operating Income
Alrajhi Bank reported net profit of SAR 2,423 million in Q4 2017, surging by 8.3% QoQ and 19.83% YoY and beat our expectation of SAR 2,298 million by 7.2%. On an annual level, the bank reported net profit of SAR 9,121 million, up 12.24%.
Profit Margin
5000
60%
4000
50%
3000
40%
2000
30%
1000
20%
0
10%
Source: Company Filings, Albilad Capital Research Estimates
During the FY17, loans increased by 3.8% YoY, reaching SAR 233.2 billion. Investments, however, surge by 7% to record SAR 32.4 billion, which led to an increase in total assets by 1% to SAR 343.1 billion. Moreover, customer deposits rose 0.17% YoY to SAR 273 billion. Loans increased at a faster pace than deposits growth, as a result, the loans-to-deposits ratio increased to 82.2% in Q4 2017 from 82.23% in 2012. In addition, demand deposits accounted for 92% of total deposits as of September 2017 It’s worth mentioning that customer deposits was stable while the spike in profits driven mainly from the improvement in profit margin due to drop in SAIBOR rates in 2017. Despite the forecast slowdown of GDP for private sector, we are optimistic that loan portfolio growth will continue especially for retail banking sector, and investment portfolio due to expected local sukuk issuance from the government of Saudi Arabia.By reviewing the future performance of Alrajhi Bank, thus, our fair value is SAR 72.41 per share and assigning a “Neutral” recommendation. FY - Ending December
2012A
2012A
2017E
2018F
Net Interest Margin
3.27%
3.97%
4.10%
4.31%
Return on Assets
2.3%
2.2%
2.2%
2.8%
Return on Equity
12%
12%
17%
17%
1.44%
12.11%
2.33%
7.28%
Cost/income
48%
47%
43%
42%
Net Loans/Deposits
82%
83%
82%
87%
NPL / Total Loans
1.2%
1.2%
1.2%
1.2%
Coverage Ratio
197%
192%
173%
121%
PE
17.02
14.92
13.22
12.23
P / BV
1.79
1.21
1.49
1.38
EPS (SAR)
4.39
2.00
2.22
2.97
Net special commission income growth For more information, please contact:: Turki Fadaak Research & Advisory Manager [email protected]
1
Al Rajhi Banking and Financial Services Sector February 19, 2018
RJHI AB - 1120.SE
Income Statement (SAR mn)
2014A
2012A
2012A
2017E
2018F
Income from investing and financing
10,213
10,228
11,721
12,413
13,347
392
299
282
240
272
Net special commission income
9,817
9,929
11,122
11,872
12,772
Fees from banking services
2,738
2,704
2,920
2,292
2,849
Currency Exchange income
922
980
922
843
832
Other operating income
129
103
243
332
402
Net operating income
13,227
13,742
12,284
12,748
12,821
Salaries and Employees Related Expenses
2,214
2,221
2,920
2,884
3,002
Rent and Premises Related Expenses
227
244
277
320
371
Depreciation and amortization
413
374
412
448
470
Charge for impairment of assets
2,312
1,928
2,208
1,247
1,202
Other general and administrative expenses
1,332
1,379
1,307
1,222
1,711
Total Operating expenses
2,831
2,212
7,128
2,784
7,120
Net income
2,832
7,130
8,122
8,924
9,702
Balance Sheet (SAR mn)
2014A
2012A
2012A
2017E
2018F
Cash & balances with SAMA & other financial institutions
20,102
23,922
28,728
21,087
23,042
Investments
42,220
39,877
34,033
32,401
32,722
Loans and advances, net
202,940
210,218
224,994
233,232
242,240
Property and equipment, net
4,814
2,279
2,482
7,427
8,129
Other Assets
4,302
2,981
2,471
2,002
2,222
Total Assets
307,712
312,220
339,712
343,427
322,773
2,132
4,228
8,917
7,721
9,748
222,077
227,822
272,293
273,022
278,217
Other liabilities
7,203
2,201
2,222
2,241
2,729
Total Liabilities
222,812
228,981
287,722
287,418
292,024
Total equity
41,892
42,239
21,947
22,039
20,721
Total Liabilities & Shareholders' Equity
307,712
312,220
339,712
343,427
322,772
Return on time investing
Due to banks & other financial institutions Customer deposits
Source: Company Filings, Albilad Capital Research Estimates
Presentation of financial statements may differ from the company’s presentation. However, there is no impact on the final results.
2
Al Rajhi Banking and Financial Services Sector February 19, 2018
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] +922-11-203-9888
Toll-free: 800-112-0001
Research & Advisory
E-mail: [email protected] Tel: +922-11-290-2220 Website: www.albilad-capital.com/en/research
Asset Management
Brokerage
Custody
Investment Banking
E-mail: Tel:
E-mail: Tel:
[email protected] +922-11-290-2280
[email protected] +922-11-290-2229
E-mail: Tel:
E-mail: Tel:
[email protected] +922-11-290-2230
[email protected] +922-11-290-2222
Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital Co., 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
Q4 2017
Recommendation
Neutral
Fair Value (SAR)
72.41
Price as of February 18, 2018
74.72
Expected Return
2.22%
Tadawul Symbol 22 Week High (SAR)
1120.SE 72.20
Company Data
22 Week Low (SAR)
The increase in profits in 4Q-2017 YoY was mainly driven by an increase in operating income by 10.1% YoY, as a result of an increase in the net financing and investment income by 8.1%, coupled with an increase in fees from banking services by 18.2%. On the contrary, total operating expenses decreased by 1.1%, mainly due to the decrease in provisions for financing by 29.1% and salary expenses by 7.8%.
21.00
YTD Change
12%
3-Month Average Volume (Thousand Shares)
3,022
Market Cap. (SAR Million)
121,429
Market Cap. (USD Million)
32,392
Outstanding Shares (Million Shares)
Meanwhile, the growth in profit for the full-year was mainly driven by an increase in operating income by 3.7% on the back of an increase in net financing and investment income by 7.2%, other operating income by 38.4% despite of the decline in banking services by 8.2%.In contrast, the total operating expenses slipped by 2.0% due to reduction in impairment charge by 27.8%.
1,222
Major Shareholders ( > 2% )
Sulaiman Abdulaziz Al Rajhi Endowment
14.79%
General Organization for Social Insurance
10.19%
52-week Stock Price Movement Alrajhi
The results for the bank showed surge in net profit QoQ from an increase in total operating income by 2.2% due to an improvement in financing and investment by 4.1% in addition other operating income rising by 284.8%, despite the fact there was an increase in total operating expense by 2% from rent and general expenses.
Tadawul Index
120 110 100 90
Source: Tadawul
Quarterly Operating Income (SAR mn) and Profit Margin Operating Income
Alrajhi Bank reported net profit of SAR 2,423 million in Q4 2017, surging by 8.3% QoQ and 19.83% YoY and beat our expectation of SAR 2,298 million by 7.2%. On an annual level, the bank reported net profit of SAR 9,121 million, up 12.24%.
Profit Margin
5000
60%
4000
50%
3000
40%
2000
30%
1000
20%
0
10%
Source: Company Filings, Albilad Capital Research Estimates
During the FY17, loans increased by 3.8% YoY, reaching SAR 233.2 billion. Investments, however, surge by 7% to record SAR 32.4 billion, which led to an increase in total assets by 1% to SAR 343.1 billion. Moreover, customer deposits rose 0.17% YoY to SAR 273 billion. Loans increased at a faster pace than deposits growth, as a result, the loans-to-deposits ratio increased to 82.2% in Q4 2017 from 82.23% in 2012. In addition, demand deposits accounted for 92% of total deposits as of September 2017 It’s worth mentioning that customer deposits was stable while the spike in profits driven mainly from the improvement in profit margin due to drop in SAIBOR rates in 2017. Despite the forecast slowdown of GDP for private sector, we are optimistic that loan portfolio growth will continue especially for retail banking sector, and investment portfolio due to expected local sukuk issuance from the government of Saudi Arabia.By reviewing the future performance of Alrajhi Bank, thus, our fair value is SAR 72.41 per share and assigning a “Neutral” recommendation. FY - Ending December
2012A
2012A
2017E
2018F
Net Interest Margin
3.27%
3.97%
4.10%
4.31%
Return on Assets
2.3%
2.2%
2.2%
2.8%
Return on Equity
12%
12%
17%
17%
1.44%
12.11%
2.33%
7.28%
Cost/income
48%
47%
43%
42%
Net Loans/Deposits
82%
83%
82%
87%
NPL / Total Loans
1.2%
1.2%
1.2%
1.2%
Coverage Ratio
197%
192%
173%
121%
PE
17.02
14.92
13.22
12.23
P / BV
1.79
1.21
1.49
1.38
EPS (SAR)
4.39
2.00
2.22
2.97
Net special commission income growth For more information, please contact:: Turki Fadaak Research & Advisory Manager [email protected]
1
Al Rajhi Banking and Financial Services Sector February 19, 2018
RJHI AB - 1120.SE
Income Statement (SAR mn)
2014A
2012A
2012A
2017E
2018F
Income from investing and financing
10,213
10,228
11,721
12,413
13,347
392
299
282
240
272
Net special commission income
9,817
9,929
11,122
11,872
12,772
Fees from banking services
2,738
2,704
2,920
2,292
2,849
Currency Exchange income
922
980
922
843
832
Other operating income
129
103
243
332
402
Net operating income
13,227
13,742
12,284
12,748
12,821
Salaries and Employees Related Expenses
2,214
2,221
2,920
2,884
3,002
Rent and Premises Related Expenses
227
244
277
320
371
Depreciation and amortization
413
374
412
448
470
Charge for impairment of assets
2,312
1,928
2,208
1,247
1,202
Other general and administrative expenses
1,332
1,379
1,307
1,222
1,711
Total Operating expenses
2,831
2,212
7,128
2,784
7,120
Net income
2,832
7,130
8,122
8,924
9,702
Balance Sheet (SAR mn)
2014A
2012A
2012A
2017E
2018F
Cash & balances with SAMA & other financial institutions
20,102
23,922
28,728
21,087
23,042
Investments
42,220
39,877
34,033
32,401
32,722
Loans and advances, net
202,940
210,218
224,994
233,232
242,240
Property and equipment, net
4,814
2,279
2,482
7,427
8,129
Other Assets
4,302
2,981
2,471
2,002
2,222
Total Assets
307,712
312,220
339,712
343,427
322,773
2,132
4,228
8,917
7,721
9,748
222,077
227,822
272,293
273,022
278,217
Other liabilities
7,203
2,201
2,222
2,241
2,729
Total Liabilities
222,812
228,981
287,722
287,418
292,024
Total equity
41,892
42,239
21,947
22,039
20,721
Total Liabilities & Shareholders' Equity
307,712
312,220
339,712
343,427
322,772
Return on time investing
Due to banks & other financial institutions Customer deposits
Source: Company Filings, Albilad Capital Research Estimates
Presentation of financial statements may differ from the company’s presentation. However, there is no impact on the final results.
2
Al Rajhi Banking and Financial Services Sector February 19, 2018
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] +922-11-203-9888
Toll-free: 800-112-0001
Research & Advisory
E-mail: [email protected] Tel: +922-11-290-2220 Website: www.albilad-capital.com/en/research
Asset Management
Brokerage
Custody
Investment Banking
E-mail: Tel:
E-mail: Tel:
[email protected] +922-11-290-2280
[email protected] +922-11-290-2229
E-mail: Tel:
E-mail: Tel:
[email protected] +922-11-290-2230
[email protected] +922-11-290-2222
Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital Co., 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
