SAMBA 02 August 2016 PDF
August 02, 2016 Rating 12- Month Target Price
Buy SAR 31.00
SAMBA FINANCIAL GROUP 2Q2016 First Look
Value Buy Expected Total Return Price as on August-01, 2016
SAR 18.10
Upside to Target Price
71.1%
Expected Dividend Yield
5.0%
Expected Total Return
76.1%
Market Data 27.00/17.55
52 Week H/L
SAR 36,240 mln
Market Capitalization
2,000 mln
Shares Outstanding Free Float
50.27%
12-Month ADTV
737,191
1-Year Price Performance
Samba’s 2Q results came in marginally below our expectations with an EPS of SAR 0.66 versus our forecast of SAR 0.68. Bloomberg consensus was lower at SAR 0.64. While operating expenses increased +6% Y/Y, they were below expectations. Non-operating income has declined substantially this quarter at SAR 631 million as compared to SAR 786 million last year and even below 1Q as fee income and gains on non-trading investments took a beating. While investments continued their sequential decrease, both net loans and deposits have also weakened Q/Q leading to a lower balance sheet size. Trading at below book value (2016E P/B of 0.90x) and offering a 5% dividend yield, we recommend a Buy at these depressed prices with a target of SAR 31.00
NSCI at multi-year highs Net special commission income (NSCI) has increased +15% Y/Y and +7% Q/Q to SAR 1.34 billion, a multi-year high for Samba. Rising interest rates (SAIBOR at 2.22% by 2Qend) raised the yield on earnings assets while liabilities are tilted in favor of noninterest bearing benefitting the bank. Tight market liquidity led to -3% Q/Q lower deposits to SAR 172 billion reversing a good incline in the preceding quarter. SAR 6 billion fall in deposits over the quarter may reflect more competitive rates offered by peers to bigger ticket clients.
Surprise drop in net loans Sequential decrease in the investments portfolio is being observed since 3Q2015, with a -7% Q/Q fall to SAR 58.6 billion in 2Q. However, the SAR 1.5 billion drop in net advances is astounding given plentiful credit demand in the market and an LDR ratio much below peers. LDR for 2Q is now at 76% from 74% in 1Q but is nowhere near the 90% SAMA limit. Samba continues to follow an extremely conservative approach to lending, which does reduce the possibility of NPLs but also means the bank will miss out on higher yields in a rising interest rate environment.
110
100 90 80 70 60
50 40 30 A
S
O
N
D
J
SAMBA
F
M
A
M
TASI
J
J
Opex rises +6% Y/Y
A
TBFSI
Non-operating income has shrunk -20% Y/Y to SAR 631 million and even -6% Q/Q on the back of decline in fee based income and decrease in gains on non-trading investments. At the same time operating expenses grew +6% Y/Y to SAR 656 million on the back of growth in salaries related expenses as well higher provisions for credit losses, according to the Company. We believe a higher provision at this time is a wise decision, with the quantum for 2Q likely to be close to our SAR 50 million estimate.
Source: Bloomberg
6M
1Y
2Y
10% 0%
It can only get better
-10%
The stock has not performed well at the Tadawul falling -6% versus a +6% rise in the index during the last 6 months. Trading below book value (0.90x 2016E BV), there is only one way to go for the stock from here. SAR 0.45 DPS for 1H is in line with last year, we revise our full year DPS estimate to SAR 0.90 from SAR 1.10. The stock still offers a 5% yield, we recommend a Buy.
-20% -30% -40%
-50% SAMBA
TASI
TBFSI
2Q2016E (SAR mln)
Actual
RC Forecast
Net Comm Income
1,339
1,268
Total Op Income
1,970
2,037
Net Income
1,314
1,355
Loans & Advances
130,820
134,344
Deposits
172,121
179,224
Key Financial Figures FY Dec31 (SAR mln) Net Comm Inc Prov for cred loss Net Income EPS DPS
2015A 4,663 142 5,214 2.61 0.90
Key Financial Ratios 2016E 5,123 321 5,506 2.75 0.90
2017E 5,476 339 5,835 2.92 1.10
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 2.1% 13.2% 2.3% 20.1% 7.0x
2016E 2.2% 13.1% 2.3% 18.4% 6.7x
2017E 2.3% 12.7% 2.4% 18.7% 6.3x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAMBA FINANCIAL GROUP 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 31.00
SAMBA FINANCIAL GROUP 2Q2016 First Look
Value Buy Expected Total Return Price as on August-01, 2016
SAR 18.10
Upside to Target Price
71.1%
Expected Dividend Yield
5.0%
Expected Total Return
76.1%
Market Data 27.00/17.55
52 Week H/L
SAR 36,240 mln
Market Capitalization
2,000 mln
Shares Outstanding Free Float
50.27%
12-Month ADTV
737,191
1-Year Price Performance
Samba’s 2Q results came in marginally below our expectations with an EPS of SAR 0.66 versus our forecast of SAR 0.68. Bloomberg consensus was lower at SAR 0.64. While operating expenses increased +6% Y/Y, they were below expectations. Non-operating income has declined substantially this quarter at SAR 631 million as compared to SAR 786 million last year and even below 1Q as fee income and gains on non-trading investments took a beating. While investments continued their sequential decrease, both net loans and deposits have also weakened Q/Q leading to a lower balance sheet size. Trading at below book value (2016E P/B of 0.90x) and offering a 5% dividend yield, we recommend a Buy at these depressed prices with a target of SAR 31.00
NSCI at multi-year highs Net special commission income (NSCI) has increased +15% Y/Y and +7% Q/Q to SAR 1.34 billion, a multi-year high for Samba. Rising interest rates (SAIBOR at 2.22% by 2Qend) raised the yield on earnings assets while liabilities are tilted in favor of noninterest bearing benefitting the bank. Tight market liquidity led to -3% Q/Q lower deposits to SAR 172 billion reversing a good incline in the preceding quarter. SAR 6 billion fall in deposits over the quarter may reflect more competitive rates offered by peers to bigger ticket clients.
Surprise drop in net loans Sequential decrease in the investments portfolio is being observed since 3Q2015, with a -7% Q/Q fall to SAR 58.6 billion in 2Q. However, the SAR 1.5 billion drop in net advances is astounding given plentiful credit demand in the market and an LDR ratio much below peers. LDR for 2Q is now at 76% from 74% in 1Q but is nowhere near the 90% SAMA limit. Samba continues to follow an extremely conservative approach to lending, which does reduce the possibility of NPLs but also means the bank will miss out on higher yields in a rising interest rate environment.
110
100 90 80 70 60
50 40 30 A
S
O
N
D
J
SAMBA
F
M
A
M
TASI
J
J
Opex rises +6% Y/Y
A
TBFSI
Non-operating income has shrunk -20% Y/Y to SAR 631 million and even -6% Q/Q on the back of decline in fee based income and decrease in gains on non-trading investments. At the same time operating expenses grew +6% Y/Y to SAR 656 million on the back of growth in salaries related expenses as well higher provisions for credit losses, according to the Company. We believe a higher provision at this time is a wise decision, with the quantum for 2Q likely to be close to our SAR 50 million estimate.
Source: Bloomberg
6M
1Y
2Y
10% 0%
It can only get better
-10%
The stock has not performed well at the Tadawul falling -6% versus a +6% rise in the index during the last 6 months. Trading below book value (0.90x 2016E BV), there is only one way to go for the stock from here. SAR 0.45 DPS for 1H is in line with last year, we revise our full year DPS estimate to SAR 0.90 from SAR 1.10. The stock still offers a 5% yield, we recommend a Buy.
-20% -30% -40%
-50% SAMBA
TASI
TBFSI
2Q2016E (SAR mln)
Actual
RC Forecast
Net Comm Income
1,339
1,268
Total Op Income
1,970
2,037
Net Income
1,314
1,355
Loans & Advances
130,820
134,344
Deposits
172,121
179,224
Key Financial Figures FY Dec31 (SAR mln) Net Comm Inc Prov for cred loss Net Income EPS DPS
2015A 4,663 142 5,214 2.61 0.90
Key Financial Ratios 2016E 5,123 321 5,506 2.75 0.90
2017E 5,476 339 5,835 2.92 1.10
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 2.1% 13.2% 2.3% 20.1% 7.0x
2016E 2.2% 13.1% 2.3% 18.4% 6.7x
2017E 2.3% 12.7% 2.4% 18.7% 6.3x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAMBA FINANCIAL GROUP 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
