Earnings beat consensus; Maintain Buy
`
Alinma Bank Banks | 2Q 2015 Preliminary Results | July 12, 2015
2Q15 review: Earnings beat consensus; Maintain Buy
Rating Summary Recommendation
2Q15 net profit beat consensus: Alinma Bank reported 2Q15 net profit of SAR365mn
BUY
Target price (SAR)
28.0
Upside/ (downside)
23%
(+6.1% QoQ, c.+19% YoY) which has beaten consensus estimate by c.3%. Net financing income (‘NFI’) came in at SAR610mn (+10.9% QoQ, c.+22% YoY), quarterly NFI margin
Stock Details
(calculated on average total assets) is estimated at 2.95%, implying a solid 27bps expansion
Closing price*
on a sequential basis. The bank’s Operating Income grew a healthy c.16% YoY (c.+38%
Market capitalization
SAR Mn
34,170
Shares outstanding
Mn
1,500
52-Week High
SAR
27.8
52-Week Low
SAR
15.5
%
+14.1
QoQ) to SAR 845mn. While disclosures are limited at this stage, we can attribute this to higher Fee Income, a key driver for the bank’s earnings.
SAR
Declines in Net Financing and Deposits QoQ, overall YoY healthy: Net financing portfolio
Price chg. (YTD)
stood at SAR53bn and registered a growth of +8% YoY, customer deposits ended 2Q15 at
EPS 2015E
c.SAR60bn, implying a solid c.23% YoY growth. On a sequential basis, however, we note a
Ticker (Reuters/ Bloomberg)
decline in both the Net Financing (down 3.7% QoQ) and Customer Deposits (down 1.8%
*Market data current as of July 9, 2015
22.8
SAR
1.1 ALINMA AB
1150.SE
QoQ). The decline in Net Financing QoQ is likely the result of competitive pressures as other banks have aggressively sought market share at the cost of pricing. Alinma’s solid 27 bps
Key Shareholding (%)
expansion indicates that it most likely chose to maintain margins even at the cost of a decline
Public Pension Agency
10.7%
in Net Financing. Alinma’s volume growth compares favorably of the system; as per latest
Public Investment Fund
10.0%
SAMA data as at end of May 2015, the system loans/ deposits registered c.10%/10% yoy
GOSI
5.1%
growth. Net Financing/Customer Deposits ratio improved to 88% in 2Q15 (vs. 89% in 1Q15 and 100% in 2Q14). Alinma added 26 new ATMs (10% of new ATMs in the system) and 938 POS terminals (c.9% of new PoS terminals) during the first two months of 2Q 2015.
Valuation (at current price)
2015e
2016e
P/E (x)
21.7
18.0
Trades at 1.8x 2015E P/B; premium to peers is reflective of its superior growth profile:
P/Pre-Provision Profit (x)
19.5
16.2
On a YTD basis, the shares of Alinma (c.+14%) outperformed both the KSA Bank’s index
P/B (x)
1.9
1.7
(c.+12%) and the broader market (c.+11%). The stock currently trades at 2015E P/B of 1.9x which is at a c.39% premium to the Saudi and GCC Banks peer group (KSA: 1.4x & GCC: 1.4x) which we think is justified due to the bank’s superior earnings growth profile.
Stock price movement vs. TASI 220
Mid-term equity story intact; maintain Buy rating: The bank benefits from a strong capital
200
base (Tier 1 as of 1Q 2015: c.24%) which in turn should likely lead to robust growth going
180
forward (SFC 2014-16E EPS CAGR 23%). Furthermore, while the financing portfolio is well
160
diversified (c.18% exposure to low-risk government/quasi government segment), the bank
140
operates at an efficient cost-structure (Cost to Income 1Q 2015: 42.8% vs. c.49.8% for the
120
pure-play Islamic banks), which we see as a positive. An emerging risk is how the bank fares
100
in the face of aggressive price competition from other banks. We will be monitoring this closely over remainder of the year. All in all, we focus on Alinma’s positives (solid capital base, attractive growth outlook, diversified financing portfolio, efficient cost structure and reasonable valuation) and maintain our Buy rating with an unchanged target price of
80 Jan-13
Jul-13
Jan-14 TASI
Jul-14
Jan-15
Jul-15
Alinma Bank
Sources: Tadawul and Saudi Fransi Capital analysis
SAR28.0/share. 2Q15
Cons*
% Dev
1Q15
% qoq
2Q14
% yoy
Net Financing Income
610
na
na
550
10.9%
502
22%
Net Profit
365
355
3%
344
6.1%
308
19%
Total Assets
81,839
na
na
83,685
-2.2%
70,600
16%
Net Financing
52,999
na
na
55,015
-3.7%
49,009
8%
Customer Deposits
60,458
na
na
61,562
-1.8%
48,976
23%
SAR mn
Sector Coverage Dipanjan Ray [email protected] +966-1-12826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Sources: Bloomberg, Tadawul, Company and Saudi Fransi Capital analysis PUBLIC
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Alinma Bank Banks | 2Q 2015 Preliminary Results | July 12, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
PUBLIC
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Alinma Bank Banks | 2Q 2015 Preliminary Results | July 12, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
PUBLIC
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Alinma Bank Banks | 2Q 2015 Preliminary Results | July 12, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the c ompany that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. 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. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and stat ements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. 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.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
PUBLIC
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Alinma Bank Banks | 2Q 2015 Preliminary Results | July 12, 2015
2Q15 review: Earnings beat consensus; Maintain Buy
Rating Summary Recommendation
2Q15 net profit beat consensus: Alinma Bank reported 2Q15 net profit of SAR365mn
BUY
Target price (SAR)
28.0
Upside/ (downside)
23%
(+6.1% QoQ, c.+19% YoY) which has beaten consensus estimate by c.3%. Net financing income (‘NFI’) came in at SAR610mn (+10.9% QoQ, c.+22% YoY), quarterly NFI margin
Stock Details
(calculated on average total assets) is estimated at 2.95%, implying a solid 27bps expansion
Closing price*
on a sequential basis. The bank’s Operating Income grew a healthy c.16% YoY (c.+38%
Market capitalization
SAR Mn
34,170
Shares outstanding
Mn
1,500
52-Week High
SAR
27.8
52-Week Low
SAR
15.5
%
+14.1
QoQ) to SAR 845mn. While disclosures are limited at this stage, we can attribute this to higher Fee Income, a key driver for the bank’s earnings.
SAR
Declines in Net Financing and Deposits QoQ, overall YoY healthy: Net financing portfolio
Price chg. (YTD)
stood at SAR53bn and registered a growth of +8% YoY, customer deposits ended 2Q15 at
EPS 2015E
c.SAR60bn, implying a solid c.23% YoY growth. On a sequential basis, however, we note a
Ticker (Reuters/ Bloomberg)
decline in both the Net Financing (down 3.7% QoQ) and Customer Deposits (down 1.8%
*Market data current as of July 9, 2015
22.8
SAR
1.1 ALINMA AB
1150.SE
QoQ). The decline in Net Financing QoQ is likely the result of competitive pressures as other banks have aggressively sought market share at the cost of pricing. Alinma’s solid 27 bps
Key Shareholding (%)
expansion indicates that it most likely chose to maintain margins even at the cost of a decline
Public Pension Agency
10.7%
in Net Financing. Alinma’s volume growth compares favorably of the system; as per latest
Public Investment Fund
10.0%
SAMA data as at end of May 2015, the system loans/ deposits registered c.10%/10% yoy
GOSI
5.1%
growth. Net Financing/Customer Deposits ratio improved to 88% in 2Q15 (vs. 89% in 1Q15 and 100% in 2Q14). Alinma added 26 new ATMs (10% of new ATMs in the system) and 938 POS terminals (c.9% of new PoS terminals) during the first two months of 2Q 2015.
Valuation (at current price)
2015e
2016e
P/E (x)
21.7
18.0
Trades at 1.8x 2015E P/B; premium to peers is reflective of its superior growth profile:
P/Pre-Provision Profit (x)
19.5
16.2
On a YTD basis, the shares of Alinma (c.+14%) outperformed both the KSA Bank’s index
P/B (x)
1.9
1.7
(c.+12%) and the broader market (c.+11%). The stock currently trades at 2015E P/B of 1.9x which is at a c.39% premium to the Saudi and GCC Banks peer group (KSA: 1.4x & GCC: 1.4x) which we think is justified due to the bank’s superior earnings growth profile.
Stock price movement vs. TASI 220
Mid-term equity story intact; maintain Buy rating: The bank benefits from a strong capital
200
base (Tier 1 as of 1Q 2015: c.24%) which in turn should likely lead to robust growth going
180
forward (SFC 2014-16E EPS CAGR 23%). Furthermore, while the financing portfolio is well
160
diversified (c.18% exposure to low-risk government/quasi government segment), the bank
140
operates at an efficient cost-structure (Cost to Income 1Q 2015: 42.8% vs. c.49.8% for the
120
pure-play Islamic banks), which we see as a positive. An emerging risk is how the bank fares
100
in the face of aggressive price competition from other banks. We will be monitoring this closely over remainder of the year. All in all, we focus on Alinma’s positives (solid capital base, attractive growth outlook, diversified financing portfolio, efficient cost structure and reasonable valuation) and maintain our Buy rating with an unchanged target price of
80 Jan-13
Jul-13
Jan-14 TASI
Jul-14
Jan-15
Jul-15
Alinma Bank
Sources: Tadawul and Saudi Fransi Capital analysis
SAR28.0/share. 2Q15
Cons*
% Dev
1Q15
% qoq
2Q14
% yoy
Net Financing Income
610
na
na
550
10.9%
502
22%
Net Profit
365
355
3%
344
6.1%
308
19%
Total Assets
81,839
na
na
83,685
-2.2%
70,600
16%
Net Financing
52,999
na
na
55,015
-3.7%
49,009
8%
Customer Deposits
60,458
na
na
61,562
-1.8%
48,976
23%
SAR mn
Sector Coverage Dipanjan Ray [email protected] +966-1-12826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Sources: Bloomberg, Tadawul, Company and Saudi Fransi Capital analysis PUBLIC
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Alinma Bank Banks | 2Q 2015 Preliminary Results | July 12, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
PUBLIC
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Alinma Bank Banks | 2Q 2015 Preliminary Results | July 12, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
PUBLIC
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Alinma Bank Banks | 2Q 2015 Preliminary Results | July 12, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the c ompany that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. 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. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and stat ements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. 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.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
PUBLIC
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
