Provisions Rise, Deposits Fall
October 16, 2016 Rating 12- Month Target Price
Buy SAR 24.00
SAUDI BRITISH BANK 3Q2016 First Look
Provisions Rise, Deposits Fall Expected Total Return Price as on Oct-13, 2016
SAR 17.57
Upside to Target Price
36.6%
Expected Dividend Yield
4.3%
Expected Total Return
40.9%
Market Data SAR 28.50/16.50
52 Week H/L
SAR 26,355 mln
Market Capitalization
1,500 mln
Shares Outstanding
32.4%
Free Float
305,711
12-Month ADTV
Saudi British Bank (SABB) is the latest victim of significantly higher provisioning and declining non-operating income as it reported pressured 3Q financials. Net income at only SAR 995 million is much lower than consensus estimates of SAR 1.12 billion and our expectations of SAR 1.15 billion. Operating expenses have surged to SAR 708 million, led by a hike in provisions for credit losses to an estimated SAR 170 million. Another worrying development is the SAR 6 billion it lost in deposits Q/Q while also condensing net loans by some SAR 5 billion over the quarter, keeping LDR flat at 85%. We reduce our target price to SAR 24.00 from SAR 26.00. While SABB continues on our Buy list, it does so with dampened conviction.
Loans drop Y/Y and Q/Q Net special commission income (NSCI) grew by a healthy +13% Y/Y and +3% Q/Q to SAR 1.22 billion (near our SAR 1.17 billion forecast) as total special commissions income increased by +34% Y/Y to SAR 1.59 billion. Higher SAIBOR is the only driver for the boost in NSCI given a decline in loans. We are surprised by a SAR 5.2 billion depletion in net loans (-2% Y/Y, -4% Q/Q) given healthy credit demand. However, this may be explained by the need to keep LDR in check.
Deposits plummet by SAR 6 billion
1-Year Price Performance
The most astonishing aspect of the 3Q announcement for us has been the SAR 6.2 billion reduction (-7% Y/Y) in deposit base to SAR 144 billion, even below the SAR 149 billion at 2015-end. Credit has been squeezed to keep LDR at 85% (flat Q/Q) leaving some room to grow in 4Q where credit demand is expected to be healthy but deposit mobilization would be a challenge.
110 100 90 80 70 60
Provisions edge up
50 40
Non-operating income has also been weak for the quarter as fee-based, trading and exchange income continues to be under pressure. In addition, operating expenses have risen considerably by +23% Y/Y to SAR 708 million. Besides some growth in general admin expenses, the primary culprit is likely to be a hike in provisions for credit losses. While we were expecting SAR 110 million, provisions likely came close to SAR 170 million. This might be one of the first signs that banks are now booking greater provisions and accruing NPLs given the economic environment; expect more to come. Net income fell to SAR 995 million (-13% Y/Y, -14% Q/Q). Deviation from our SAR 1.15 billion estimate is attributed to higher provisions.
30 O
N
D
J
F
SABB
M
A
M
J
J
TASI
A
S
O
TBFSI
Source: Bloomberg
6M
1Y
2Y
0% -10%
-20%
Low conviction Buy call
-30%
Given the unfolding economic environment and the bank’s latest financials, we are further cutting our target price by -8% to SAR 24.00. Although SABB is still on our Buy list, given a sizeable upside to target price, conviction on the call is not too high right now. 2016E P/B stands at 0.8x.
-40% -50%
-60% SABB
TASI
TBFSI
3Q2016E (SAR mln)
Actual
RC Forecast
Net Comm Income
1,222
1,197
Total Op Income
1,687
1,778
995
1,157
Loans & Advances
125,875
133,723
Deposits
144,084
151,771
Net Income
Key Financial Figures FY Dec31 (SAR mln) Net Comm Inc Prov for cred loss Net Income EPS (SAR) DPS (SAR)
2015A 4,254 430 4,331 2.89 0.75
Key Financial Ratios 2016E 4,610 690 4,408 2.94 0.75
2017E 4,928 768 4,668 3.11 0.80
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 2.3% 16.0% 2.3% 17.6% 6.1x
2016E 2.5% 14.7% 2.3% 20.8% 6.0x
2017E 2.5% 13.9% 2.3% 22.5% 5.6x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI BRITISH BANK 3Q2016 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 24.00
SAUDI BRITISH BANK 3Q2016 First Look
Provisions Rise, Deposits Fall Expected Total Return Price as on Oct-13, 2016
SAR 17.57
Upside to Target Price
36.6%
Expected Dividend Yield
4.3%
Expected Total Return
40.9%
Market Data SAR 28.50/16.50
52 Week H/L
SAR 26,355 mln
Market Capitalization
1,500 mln
Shares Outstanding
32.4%
Free Float
305,711
12-Month ADTV
Saudi British Bank (SABB) is the latest victim of significantly higher provisioning and declining non-operating income as it reported pressured 3Q financials. Net income at only SAR 995 million is much lower than consensus estimates of SAR 1.12 billion and our expectations of SAR 1.15 billion. Operating expenses have surged to SAR 708 million, led by a hike in provisions for credit losses to an estimated SAR 170 million. Another worrying development is the SAR 6 billion it lost in deposits Q/Q while also condensing net loans by some SAR 5 billion over the quarter, keeping LDR flat at 85%. We reduce our target price to SAR 24.00 from SAR 26.00. While SABB continues on our Buy list, it does so with dampened conviction.
Loans drop Y/Y and Q/Q Net special commission income (NSCI) grew by a healthy +13% Y/Y and +3% Q/Q to SAR 1.22 billion (near our SAR 1.17 billion forecast) as total special commissions income increased by +34% Y/Y to SAR 1.59 billion. Higher SAIBOR is the only driver for the boost in NSCI given a decline in loans. We are surprised by a SAR 5.2 billion depletion in net loans (-2% Y/Y, -4% Q/Q) given healthy credit demand. However, this may be explained by the need to keep LDR in check.
Deposits plummet by SAR 6 billion
1-Year Price Performance
The most astonishing aspect of the 3Q announcement for us has been the SAR 6.2 billion reduction (-7% Y/Y) in deposit base to SAR 144 billion, even below the SAR 149 billion at 2015-end. Credit has been squeezed to keep LDR at 85% (flat Q/Q) leaving some room to grow in 4Q where credit demand is expected to be healthy but deposit mobilization would be a challenge.
110 100 90 80 70 60
Provisions edge up
50 40
Non-operating income has also been weak for the quarter as fee-based, trading and exchange income continues to be under pressure. In addition, operating expenses have risen considerably by +23% Y/Y to SAR 708 million. Besides some growth in general admin expenses, the primary culprit is likely to be a hike in provisions for credit losses. While we were expecting SAR 110 million, provisions likely came close to SAR 170 million. This might be one of the first signs that banks are now booking greater provisions and accruing NPLs given the economic environment; expect more to come. Net income fell to SAR 995 million (-13% Y/Y, -14% Q/Q). Deviation from our SAR 1.15 billion estimate is attributed to higher provisions.
30 O
N
D
J
F
SABB
M
A
M
J
J
TASI
A
S
O
TBFSI
Source: Bloomberg
6M
1Y
2Y
0% -10%
-20%
Low conviction Buy call
-30%
Given the unfolding economic environment and the bank’s latest financials, we are further cutting our target price by -8% to SAR 24.00. Although SABB is still on our Buy list, given a sizeable upside to target price, conviction on the call is not too high right now. 2016E P/B stands at 0.8x.
-40% -50%
-60% SABB
TASI
TBFSI
3Q2016E (SAR mln)
Actual
RC Forecast
Net Comm Income
1,222
1,197
Total Op Income
1,687
1,778
995
1,157
Loans & Advances
125,875
133,723
Deposits
144,084
151,771
Net Income
Key Financial Figures FY Dec31 (SAR mln) Net Comm Inc Prov for cred loss Net Income EPS (SAR) DPS (SAR)
2015A 4,254 430 4,331 2.89 0.75
Key Financial Ratios 2016E 4,610 690 4,408 2.94 0.75
2017E 4,928 768 4,668 3.11 0.80
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 2.3% 16.0% 2.3% 17.6% 6.1x
2016E 2.5% 14.7% 2.3% 20.8% 6.0x
2017E 2.5% 13.9% 2.3% 22.5% 5.6x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI BRITISH BANK 3Q2016 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
