Qatar International Islamic Bank (QIIK) Company Report - 30 January

Transcription

1. Qatar International Islamic Bank (QIIK) Recommendation Share Price Implied Upside MARKET PERFORM QR68.80 (8.4%) Risk Rating Target Price R-4 QR63.00 Revising Estimates, Gains from RE Could Surprise Positively Qatar International Islamic Bank (QIIK) is the smallest Shari’ah compliant bank among listed banks. The bank has a market share of 3% and 14% among listed banks and Shari’ah compliant banks, respectively. QIIK is focused on the real estate and retail segments which collectively make up 66% of the bank’s loan book. Currently, the bank is in the process of expanding into Morocco. Highlights  QIIK reports in-line net profit for 2016. QIIK generated a net profit of QR784.15mn (reported/headline), in-line with our estimate of QR792.59mn (-1.0% variation). Moreover, net operating income was also in-line at QR901.59mn vs. our estimate of QR910.55mn (-1% variation). QIIK’s flat profitability was attributed to a decline in net provisions and impairments.  After a weak 2015 and 2016, we expect an improvement in 2017 and 2018. We pencil in a growth of 5.2% in 2017, driven by a 5.4% growth in net interest income (flat NIM at 2.73%) vs. 3.8% in 2016 , better fees generation (+8.0% vs. -7.2% in 2016) and cost containment due to a soft operating environment. We estimate opex to grow by 1.1% (flattish performance in 2016) accompanied by an improvement in the efficiency ratio (24.2% vs. 25.3% in 2016). As far as 2018 is concerned, we factor a growth of 8.6% in net income driven by positive performance across the board.  Asset quality to deteriorate further in 2017 and 2018 before improving in 2019. We expect QIIK’s NPLs ratio to increase to 1.95% in 2017 (1.85% in 2016). Moreover, we estimate the coverage ratio to move up to 86% vs. 72% in FY2016. For 2018, we model in NPL ratio of 2.00% (coverage ratio of 99%). In contrast, we expect the asset quality to improve in 2019 and estimate an NPL ratio 1.63%.  Net loans to exhibit healthy performance; we model a CAGR of 10.7% (201621) vs. 20.8% (2011-16); liquidity to remain an impediment in the short-term. QIIK’s loan book is modeled to grow by 7.0% to QR29.1bn in 2017 followed by 9.4% in 2018. We do not assume aggressive loan growth due to a soft operating environment coupled with concerns on liquidity. We envisions the bank to raise expensive deposits to lower its LDR below 100%. Key Data Current Market Price (QR) 68.80 Dividend Yield (%) 5.8 Bloomberg Ticker QIIK QD ADR/GDR Ticker N/A Reuters Ticker QIIB.QA ISIN Sector* QA0006929879 Banks & Financial Svcs. 52wk High/52wk Low (QR) 73.30/58.50 3-m Average Volume (‘000) 119.2 Mkt. Cap. ($ bn/QR bn) Shares Outstanding (mn) FO Limit* (%) Current FO* (%) 1-Year Total Return (%) Fiscal Year End 2.9/10.4 151.4 25.0 5.1 +13.0 December 31 Source: Bloomberg (as of January 29, 2017), *Qatar Exchange (as of January 29, 2017); Note: FO is foreign ownership Catalysts Limited catalysts; Beyond a stabilization/recovery in oil prices, the following  developments could be perceived positively by the market: 1) Clarity on Morocco expansion. Recommendation, Valuation and Risks Recommendation and valuation: We maintain our Price Target of QR63.00.  QIIK is trading at a 2017e P/B and P/E of 1.8x and 12.6x, respectively. The stock offers an attractive yield of 5.7% in 2017. The market is currently factoring in a RoE of 16.8% (P/B of 1.8x) which is higher than our estimates. Moreover, the stock trades at a 2017e PEG of 1.6x (based on a 2016-2021e earnings CAGR of 8.6% vs. 3.1% in the previous 5 years. This implies, the stock is expensive.  Risks: 1) Exposure to the real estate and consumer segments creates concentration risk which further results in impairments. Key Financial Data and Estimates Reported/Headline EPS (QR) EPS Growth (%) P/E (x) Tangible BVPS (QR) P/TB (x) DPS (QR) Dividend Yield (%) FY2016 5.18 0.1 13.3 37.4 1.8 4.00 5.8 FY2017e 5.45 5.2 12.6 38.4 1.8 4.00 5.8 FY2018e 5.92 8.6 11.6 39.8 1.7 4.25 6.2 FY2019e 6.83 15.4 10.1 41.9 1.6 4.50 6.5 Shahan Keushgerian +974 4476 6509 shahan.keushgerian@qnbfs.com.qa Saugata Sarkar +974 4476 6534 saugata.sarkar@qnbfs.com.qa Source: Company data, QNBFS estimates; Note: All data based on current number of shares Monday, 30 January 2017 1
2. Detailed Financial Statements FY2016 FY2017e FY2018e FY2019e RoAE (Attributable) 13.2 13.0 13.8 15.4 RoAA (Attributable) 1.8 1.7 1.7 1.8 RoRWA (Attributable) 2.5 2.4 2.4 2.5 NIM (% of IEAs) 2.7 2.7 2.7 2.7 NIM (% of RWAs) 3.4 3.4 3.4 3.4 NIM (% of AAs) 2.4 2.4 2.4 2.4 Spread 2.3 2.3 2.2 2.1 Cost-to-Income (Headline) 25.3 24.2 23.6 23.4 Cost-to-Income (Core) 26.0 25.3 24.7 24.4 102.2 102.2 99.0 98.3 Loans/Assets 64.0 62.8 64.3 65.8 Cash & Interbank Loans-to-Total Assets 13.7 15.3 13.2 11.4 Deposits to Assets 62.6 61.5 64.9 66.9 Wholesale Funding to Loans 31.5 35.4 30.5 28.3 132.0 127.2 130.5 129.4 NPL Ratio 1.8 2.0 2.0 1.6 NPLs to Shareholder's Equity 9.0 9.9 10.8 9.6 NPLs to Tier 1 Capital 8.6 9.9 10.8 9.7 Ratios Profitability (%) Efficiency (%) Liquidity (%) LDR IEAs to IBLs Asset Quality (%) Coverage Ratio 71.5 86.0 98.9 123.3 ALL/Average Loans 1.3 1.6 2.0 2.0 Cost of Risk 0.4 0.4 0.4 0.3 Tier 1 Ratio 19.5 17.7 16.9 16.1 CAR 19.5 17.7 16.9 16.1 Tier 1 Capital to Assets 13.9 12.7 12.2 11.3 Tier 1 Capital to Loans 21.7 20.1 18.9 17.2 Tier 1 Capital to Deposits 22.2 20.6 18.8 16.9 7.5 8.0 8.2 8.8 Capitalization (%) Leverage (x) Growth (%) Net Interest Income 3.8 5.4 8.1 10.8 -17.6 7.9 8.5 1.1 OPEX -0.7 1.1 5.9 8.0 Net Operating Income -0.2 7.4 8.9 9.6 Net Income (Attributable) -2.9 1.0 9.3 16.4 9.0 7.0 9.4 15.2 -0.1 7.0 13.0 16.0 Assets 5.0 9.0 7.0 12.5 RWAs 7.0 9.2 7.6 9.9 Non-Interest Income Loans Deposits Source: Company data, QNBFS estimates Monday, 30 January 2017 2
3. Income Statement (In QR mn) FY2016 FY2017e FY2018e FY2019e Net Interest Income 1,014 1,069 1,155 1,280 Fees & Commissions 118 127 140 131 FX Income 41 25 28 34 Other Income 34 56 58 64 Non-Interest Income 193 208 226 228 Total Revenue 1,207 1,277 1,381 1,509 Operating Expenses (305) (308) (327) (353) Net Operating Income 902 968 1,055 1,156 (117) (143) (158) (121) 785 825 897 1,035 0 0 0 0 Net Profit (Headline/Reported) 785 825 897 1,035 Payment on Tier-1 Sukuk (23) (55) (55) (55) Social & Sports Contribution Fund (20) (21) (22) (26) Net Profit (Attributable) 742 750 819 954 FY2016 FY2017e FY2018e FY2019e Cash & Balances with Central Bank 2,038 2,138 2,094 1,943 Interbank Loans 3,771 4,953 4,464 4,408 Net Investments 7,375 7,954 8,905 10,311 27,233 29,135 31,882 36,731 Investment In Associates 337 338 339 340 Other Assets 686 626 679 776 Net PP&E 681 794 828 910 Net Provisions Net Profit Before Taxes, Non-Recurring Items & Minority Interest Minority Interest Source: Company data, QNBFS estimates Balance Sheet (In QR mn) Assets Net Loans Investment in Real Estate Total Assets 431 427 424 420 42,551 46,364 49,614 55,838 Liabilities Interbank Deposits 6,039 7,778 7,177 7,834 Customer Deposits 26,640 28,505 32,210 37,364 Other Borrowings 2,548 2,548 2,548 2,548 Tier-1 Sukuk 1,000 1,000 1,000 1,000 Other Liabilities Total Liabilities Total Shareholders’ Equity Total Liabilities & Shareholders’ Equity 647 713 644 747 36,874 40,543 43,579 49,493 5,677 5,821 6,035 6,345 42,551 46,364 49,614 55,838 Source: Company data, QNBFS estimates Monday, 30 January 2017 3
4. Recommendations Risk Ratings Based on the range for the upside / downside offered by the 12 month target price of a stock versus the current market price Reflecting historic and expected price volatility versus the local market average and qualitative risk analysis of fundamentals OUTPERFORM Greater than +20% R -1 Significantly lower than average ACCUMULATE Between +10% to +20% R -2 Lower than average MARKET PERFORM Between -10% to +10% R -3 Medium / In-line with the average REDUCE Between -10% to -20% R -4 Above average UNDERPERFORM Lower than -20% R -5 Significantly above average Contacts Saugata Sarkar Shahan Keushgerian Zaid Al Nafoosi, CMT, CFTe Head of Research Senior Research Analyst Senior Research Analyst Tel: (+974) 4476 6534 Tel: (+974) 4476 6509 Tel: (+974) 4476 6535 saugata.sarkar@qnbfs.com.qa shahan.keushgerian@qnbfs.com.qa zaid.alnafoosi@qnbfs.com.qa QNB Financial Services Co. WLL Contact Center: (+974) 4476 6666 PO Box 24025 Doha, Qatar Disclaimer and Copyright Notice: This publication has been prepared by QNB Financial Services Co. WLL (“QNBFS”) a wholly-owned subsidiary of QNB SAQ (“QNB”). QNBFS is regulated by the Qatar Financial Markets Authority and the Qatar Exchange QNB SAQ is regulated by the Qatar Central Bank. This publication expresses the views and opinions of QNBFS at a given time only. It is not an offer, promotion or recommendation to buy or sell securities or other investments, nor is it intended to constitute legal, tax, accounting, or financial advice. QNBFS accepts no liability whatsoever for any direct or indirect losses arising from use of this report. Any investment decision should depend on the individual circumstances of the investor and be based on specifically engaged investment advice. We therefore strongly advise potential investors to seek independent professional advice before making any investment decision. Although the information in this report has been obtained from sources that QNBFS believes to be reliable, we have not independently verified such information and it may not be accurate or complete. QNBFS does not make any representations or warranties as to the accuracy and completeness of the information it may contain, and declines any liability in that respect. For reports dealing with Technical Analysis, expressed opinions and/or recommendations may be different or contrary to the opinions/recommendations of QNBFS Fundamental Research as a result of depending solely on the historical technical data (price and volume). QNBFS reserves the right to amend the views and opinions expressed in this publication at any time. It may also express viewpoints or make investment decisions that differ significantly from, or even contradict, the views and opinions included in this report. This report may not be reproduced in whole or in part without permission from QNBFS COPYRIGHT: No part of this document may be reproduced without the explicit written permission of QNBFS. 4