Bank Aljazira: Interim Financial Result - 4th Quarter 2017

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1. BJAZ Banking and Financial Services Sector BJAZ AB - 1020 .SE February 14, 2018 Bank Aljazira Q4 2017 Recommendation Neutral Fair Value (SAR) 13.75 Price as of February 13, 2018 13.08 Expected Return %5.12 Tadawul Symbol 1020.SE Company Data 52 Week High (SAR) The increase in profits for Q4 were largely driven by an increase in operating income by 12% as a result of an increase in net special commission income and net exchange income against a slight decrease in net banking fee and net trading income. While, The decline in profits for the full-year by 2% mainly due to the fact that last year income was higher as a result of sale of land owned by the Bank which resulted in a gain of SR 209 million. Moreover operating expenses have also increased by 8%( increase 6% QoQ and 3% comparing to the previous ) mainly due to increase in the net impairment charge for credit losses, other general and administrative expenses, depreciation and amortization expenses and rent and premises related expenses. 14.70 52 Week Low (SAR) 10.00 YTD Change %3.15 3-Month Average Volume (Thousand Shares) 1,904 Market Cap. (SAR Million) 5,232 Market Cap. (USD Million) 1,395 Outstanding Shares (Million Shares) 400 Major Shareholders ( > 5% ) Consolidated Brothers Company %6.59 National Bank of Pakistan %5.83 Saleh Abdullah Mohammed Kamel %5.00 Meanwhile, there was an increase in total operating by 4% mainly due to increase in net special commission income, net exchange income, net banking fees and net trading income. Net special commission income of the fourth-quarter came in at SAR 460 million, up 13.6% from the same quarter of the previous year (SAR 405 million), while on an annual level culminated at SAR 1,818 , up 16.1% from SAR1,566 million in 2016. Total operating income increased 11.92% QoQ, recording SAR 648 million in Q4, however, on an annual level increase by 4.33% compared to 2016 from SAR 2,473 million to 2,580 million . 52-week Stock Price Movement BJAZ Tadawul Index 140 130 120 110 100 90 Source: Tadawul Quarterly Operating Income (SAR mn) and Profit Margin Operati ng Income 100 0 Profit Margin 60% 50% 800 40% 600 30% 400 20% 200 10% 0 0% Source: Company Filings, Albilad Capital Research Estimates For more information, please contact:: Turki Fadaak Research & Advisory Manager TFadaak@albilad-capital.com Bank AlJazira reported its interim financial results of Q4 2017, wherein net profits increase 27.63% YoY and decline by 14.91% QoQ to SAR 194 million, below average analysts’ estimate by 20% . The bank posted the full-year net profit of SAR 858 million for 2017, declining 1.61% from 2016 (SAR 872 Million). During the FY2016, loans portfolio declined by 5.48%, reaching SAR 39.8 billion versus SAR 42.1 billion in 2016. Investments jumped up 25% recording SAR 20.63 billion compared with SAR 16.3 billion in 2016. Total assets also climbed 3%, reaching SAR 68.3 billion. Customer deposits inched down by 2.6% to reach SAR 50.27 billion versus SAR 51.6 billion in 2016. Since customer deposits decrease and loans portfolio decrease even larger cause the loans-to-deposits ratio decreased to 79.13% in 2017 from 81.5% in 2016. By neutralizing extraordinary gains from the sale of the land last years, the bank’s normalized net profit increase by 29.4 %during the FY17 compared to 2016. It appears that the bank attracts less expensive deposits that lead in an increase in net special commission income despite the decline in customer deposits, in addition to increase in SAIBOR rate. By reviewing the future performance of Bank Aljazira, thus, our fair value is SAR 13.75 per share and assigning a “Neutral” recommendation. FY - Ending December 2015A 2016A 2017F 2018F Total Assets (SAR million) 63,264 66,319 68,287 71,805 Total Deposit (SAR million) 54,569 51,602 50,278 50,781 Net Loans (SAR million) 42,174 42,099 39,790 41,381 Investment (SAR million) 11,273 16,293 20,361 21,786 Net Interest Margin 2.79% 2.68% 3.04% 3.21% Net Loans/Deposits 84.7% 81.6% 79.1% 81.5% Coverage Ratio 173% 180% 209% 244% NPL / Total Loans 0.8% 0.8% 0.8% 0.8% PE 5.37 7.93 8.07 12.34 P / BV 0.93 0.85 0.78 0.80 10.8% -2.1% 16.0% 9.0% Net Special Commission Growth Source: Company Filings, Albilad Capital Research Estimates 1
2. BJAZ Banking and Financial Services Sector BJAZ AB - 1020 .SE February 14, 2018 Income Statement (SAR mn) 2014A 2015A 2016A 2017A 2018F* Special commission income 1,955 2,135 2,656 2,757 2,901 Special commission expense 510 535 1,089 939 921 1,445 1,601 1,566 1,818 1,980 Fees and commission income, net 648 630 632 601 613 Foreign exchange income, net 57 90 103 150 165 Trading income, net 30 11 5 8 9 Other 46 590 212 3 3 2,226 2,922 2,519 2,580 2,770 Salaries and employee-related expenses 722 909 894 857 921 Rent and premises-related expenses 113 136 137 140 147 Depreciation 79 79 81 87 87 Other general and administrative expenses 361 460 418 382 458 Net Income before Impairment 952 1,337 989 1,114 1,157 Impairment charge for credit losses, net 383 53 125 267 284 Net Income before Unusual Items 569 1,284 864 847 873 0 0 0 0 0 569 1,284 864 847 873 4 3 8 11 11 572 1,287 872 858 884 Balance Sheet (SAR mn) 2014A 2015A 2016A 2017A 2018F* Cash & balances with SAMA & other financial institutions 11,461 8,433 6,535 6,344 6,785 Investments 11,335 11,273 16,293 20,361 21,786 Loans and advances, net 41,245 42,174 42,099 39,790 41,381 126 128 130 134 137 Property and equipment, net 1,259 723 764 1,230 1,270 Other Assets 1,129 534 500 429 446 Total Assets 66,554 63,264 66,319 68,287 71,805 Due to banks & other financial institutions 3,736 4,057 3,545 6,173 4,362 Customer deposits 54,569 49,765 51,602 50,278 50,781 Other liabilities 1,090 1,021 1,062 1,001 1,081 Subordinated Sukuk 1,000 1,007 2,006 2,006 2,006 Total Liabilities 60,396 55,851 58,216 59,459 58,231 Total equity 6,158 7,413 8,103 8,829 13,574 Total Liabilities & Shareholders' Equity 66,554 63,264 66,319 68,287 71,805 Net special commission income Operating income Gain on sale of land Net Income After Unusual Items Share of Gain (Loss) of an associate NAI Investment in an associate Source: Company Filings, Albilad Capital Research Estimates Presentation of financial statements may differ from the company’s presentation. However, there is no impact on the final results. 2
3. BJAZ Banking and Financial Services Sector BJAZ AB - 1020 .SE February 14, 2018 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/en/research 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 Co., 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