Al Rajhi Bank - Net Profit Report 1Q 2018

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1. Al Rajhi Banking and Financial Services Sector RJHI AB - 1120 .SE May 09, 2018 Al Rajhi Bank Q1 2018 Recommendation Neutral Fair Value (SAR) 77.32 Price as of May 8, 2018 82.2 Expected Return %-5.9 Tadawul Symbol 1120.SE Company Data 52 Week High (SAR) The YoY increase in profits in Q1 2018 was mainly driven by an increase in operating income by 7.5%, as a result of an increase in the net financing and investment income by 8.12%. On the contrary, total operating expenses increased by 7.8%, mainly due to the increase in provisions for financing and general administrative expenses. 85.6 52 Week Low (SAR) 61.00 YTD Change 26.2% 3-Month Average Volume (Thousand Shares) The results for the bank showed decline in net profit QoQ from a decrease in total operating income by 1.3%, in addition to slump in net special commission by 1.1%. On other hand, total operating expenses rose by 0.8% due to an increase in provisions for financing and salary expenses. 3,963 Market Cap. (SAR Million) 133,575 Market Cap. (USD Million) 35,620 Outstanding Shares (Million Shares) 1,625 Major Shareholders ( > 5% ) General Organization for Social Insurance By the end of Q1 2018, loans portfolio declined by 0.16% YoY, reaching SAR 229 billion. Investments, however, surged by 57.6% to record SAR 20.7 billion, which led to an increase in total assets by 3.56% to SAR 329.2 billion. Moreover, customer deposits rose 2.66% YoY to SAR 283.9 billion. Deposits increased at a faster pace than loans growth, as a result, the loans-to-deposits ratio decreased to 80.66% in Q1 2018 from 82.5% in Q1 2017. In addition, demand deposits accounted for 92.2% of total deposits as of December 2017 %10.19 52-week Stock Price Movement Alrajhi Alrajhi Bank reported net profit of SAR 2,383 million in Q1 2018, surging by 7.29% YoY, however the net profit dipped 2.85% QoQ and missed our expectation of SAR 2,292 million by 2.7%. Tadawul Index 150 140 It is worth noting that in Q1 2018, LIBOR declined to levels lower than SAIBOR for the first in the last 10 years. Therefore, SAMA rose the reverse repo rate and the repo rate to drive up SAIBOR to normal levels. 130 120 110 100 90 Source: Tadawul The expected hikes in interest rates and the availability of liquidity in the market, will improve profit margins going forward; therefore we expect that the bank will continue to post robust results during the year. Accordingly, we maintain our valuation at SAR 77.32 per share with assigning a “Neutral” recommendation. Quarterly Operating Income (SAR mn) and Profit Margin 5000 Operating Income Profit Margin 70% 60% 4000 50% 3000 40% 2000 30% 1000 20% 0 10% Source: Company Filings, Albilad Capital Research Estimates Hamad Albarrak Financial Analyst Hamad.Albarrak@albilad-capital.com For more information, please contact: Turki Fadaak Research & Advisory Manager tfadaak@albilad-capital.com FY - Ending December 2015A 2016A 2017A 2018E Net Interest Margin 3.67% 3.99% 2.25% 2.32% Return on Assets 2.29% 2.28% 2.67% 2.71% Return on Equity 16% 16% 17% 17% Net Special Commission Growth 1.2% 12.7% 7.2% 2.3% Expenses to Income 28% 27% 23% 23% Net Loans / Deposits 82% 83% 86% 87% NPL / Total Loans 1.2% 1.2% 1.2% 1.2% Coverage Ratio 197% 195% 173% 151% PE 11.73 10.29 9.17 8.83 P / BV 1.79 1.61 1.50 1.23 EPS (SAR) 2.9% 2.2% 2.2% 2.2% 5.00 5.61 5.83 2.39 Source: Company Filings, Albilad Capital Research Estimates 1
2. Al Rajhi Banking and Financial Services Sector May 09 , 2018 RJHI AB - 1120.SE Summary of Financial Statements & Forecasts Income Statement (SAR mn) 2012A 2015A 2016A 2017A 2018E 10,213 10,258 11,751 12,581 13,063 395 299 528 552 513 Net Special Commission Income 9,817 9,959 11,223 12,029 12,550 Fees from banking services 2,738 2,702 2,950 2,697 2,850 Currency Exchange income 952 980 925 822 832 Other operating income 159 103 223 336 205 Net Operating Income 13,667 13,726 15,322 15,905 16,639 Salaries and Employees Related Expenses 2,512 2,661 2,872 2,812 2,929 Rent and Premises Related Expenses 257 222 277 311 329 Depreciation and amortization 213 372 216 220 262 Charge for impairment of assets 2,312 1,958 2,208 1,528 1,606 Other general and administrative expenses 1,335 1,379 1,221 1,671 1,838 Total Operating Expenses 6,831 6,616 7,215 6,782 7,165 Net Income 6,836 7,130 8,126 9,121 9,272 2012A 2015A 2016A 2017A 2018E Cash and Balances with SAMA 50,102 53,965 68,728 58,992 62,578 Investment 22,550 39,877 32,033 36,201 36,765 Financing, net 205,920 210,218 222,992 233,536 222,520 Property and Equipment, net 2,812 5,579 6,285 7,858 8,622 Others 2,306 5,981 5,271 6,329 6,626 307,712 315,620 339,712 323,116 357,172 2,135 2,558 8,917 5,523 9,728 256,077 257,822 272,593 273,056 278,517 7,603 6,601 6,255 8,787 8,922 Total Liabilities 265,815 268,981 287,765 287,365 297,208 Shareholders’ Equity 21,896 26,639 51,927 55,751 58,563 Total Liabilities and Shareholders’ Equity 307,712 315,620 339,712 323,116 355,770 Income from investing and financing Return on time investing Balance Sheet (SAR mn) Total Assets Due to Banks and Other Institutions Customer Deposits Others Source: Company Filings, Albilad Capital Research Estimates A: Actual. E: Albilad Capital Research Estimates. F: Albilad Capital Research Forecasts. 2
3. Al Rajhi Banking and Financial Services Sector May 09 , 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: clientservices@albilad-capital.com +966-11-203-9888 Toll-free: 800-116-0001 Research & Advisory E-mail: research@albilad-capital.com Tel: +966-11-290-6250 Website: www.albilad-capital.com Asset Management Brokerage Custody Investment Banking E-mail: Tel: E-mail: Tel: abicasset@albilad-capital.com +966-11-290-6280 custody@albilad-capital.com +966-11-290-6259 E-mail: Tel: E-mail: Tel: abicctu@albilad-capital.com +966-11-290-6230 investmentbanking@albilad-capital.com +966-11-290-6256 Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital, 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