Masraf Al Rayan (MARK) Company Report 2016

Transcription

1. Masraf Al Rayan (MARK) Recommendation Share Price Implied Upside MARKET PERFORM QR40.45 (15.94%) Risk Rating Current Target Price R-3 QR34.00 Key Data Current Market Price (QR) 40.45 Dividend Yield (%) FY2016 Net Profit In-Line; Dividends Surprise Masraf Al Rayan (MARK) is the second largest Shari’ah compliant bank among listed banks. It is currently in the due diligence process of merging with 2 unlisted banks, Barwa Bank and International Bank of Qatar (IBQ). If the merger goes through, the new bank will be 2nd largest bank in Qatar. Incorporated in 2006, MARK is focused on the public sector, which dominates its loan portfolio. Public sector loans grew by a CAGR (2009-2015) of 22% and represents 48% (December 2016) of MARK’s loan portfolio. Notably, MARK has the best asset quality with an NPL ratio of 0.16%, one of the highest RoAEs of ~17% and robust capitalization at 18.0%. Highlights  MARK reported in-line net profit. MARK generated net profit of QR2.075bn in FY2016, in-line with our estimate of QR2.100bn (-1.2% variation). Moreover, Net interest income came in-line at QR1.92bn vs. our estimate of QR1.94bn. Furthermore, Net operating income also was in-line at QR1.98bn vs. our estimate of QR1.99bn.  DPS surprised positively. MARK announced a DPS of QR2.00/share vs. our estimate of QR1.75/share which translates into a yield of 4.9%.  Flat profitability was driven by a sharp decline in opex, lower provisions & impairments and growth in non-interest income. As expected during a challenging operating environment, opex dropped by 16.2% YoY to QR462.3mn. As such MARK’s efficiency ratio further improved to 18.9% vs. 22.9% in 2015. Moreover, the bank booked net provisions & impairments of QR2.28mn vs. QR46.78mn in 2015. On the other hand, non-interest income surged by 34.5% to QR524.6mn driven by fees (+31.2% YoY), f/x income (+24.1% YoY) and investment income of QR12.3mn vs. a loss of QR42.3mn.  Margins remained under pressure. Net interest income receded by 5.1% YoY to QR1.92bn. NIM compressed by ~29bps to 2.35%. The compression in the NIM was driven by cost of funds where it gained by 71bps, whereas the yield on interest earning assets increased by 24bps.  Growth in net loans outpaced deposits. Net loans expanded by 8.1% to QR67.6bn, while deposits grew by 4.3% to QR58.0bn. Thus, MARK’s LDR remained elevated at 117% vs. 113% in 2015. Notably, deposits from the public sector continued its negative trajectory declining by 12.6% in 2016 vs a drop of 25.5% in 2015.  Asset quality deteriorated but remains insignificant. MARK’s NPL ratio moved up to 0.16% (0.09% in 2015) while the coverage ratio halved to 45% vs. 90% in 2015.  MARK remains more than adequately capitalized. Capital adequacy ratio stood at 18.85%. 4.9 Bloomberg Ticker MARK QD ADR/GDR Ticker N/A Reuters Ticker MARK.QA ISIN QA000A0M8VM3 Sector* Banks & Financial Svcs. 52wk High/52wk Low (QR) 40.70/28.60 3-m Average Volume (‘000) 425.8 Mkt. Cap. ($ bn/QR bn) Shares Outstanding (mn) FO Limit* (%) Current FO* (%) 1-Year Total Return (%) Fiscal Year End 8.3/30.3 750.0 49.0 11.2 +43.4 December 31 Source: Bloomberg (as of January 17, 2017), *Qatar Exchange (as of January 16, 2017); Note: FO is foreign ownership Catalysts Beyond a stabilization/recovery in oil prices, the following developments could be  perceived positively by the market: 1) Improvement in NIMs and spreads and 2) materialization of the merger. Recommendation, Valuation and Risks Recommendation and valuation: For now, we maintain our Price Target of  QR34.00. We will update our estimates once we see more visibility leading up to the merger.  Risks: 1) Depressed oil prices remains the biggest risk for MARK and the banking sector, 2) Increase in credit costs and 3) MARK loses market share in the government segment. Key Financial Data and Estimates Attributable EPS (QR) EPS Growth (%) P/E (x) Tangible BVPS (QR) P/TB (x) DPS (QR) Dividend Yield (%) FY2013 2.21 13.2 18.3 14.0 2.9 1.50 3.7 FY2014 2.60 17.6 15.5 15.1 2.7 1.75 4.3 FY2015 2.70 3.6 15.0 16.1 2.5 1.75 4.3 FY2016 2.70 0.1 15.0 16.9 2.4 2.00 4.9 Shahan Keushgerian +974 4476 6509 shahan.keushgerian@qnbfs.com.qa Saugata Sarkar +974 4476 6534 saugata.sarkar@qnbfs.com.qa Source: Company data; Note: All data based on current number of shares Tuesday, 17 January 2017 1
2. Detailed Financial Statements FY2013 FY2014 FY2015 FY2016 RoAE (Attributable) 16.5 17.8 17.3 16.4 RoAA (Attributable) 2.6 2.7 2.5 2.3 Ratios Profitability (%) RoRWA (Attributable) 4.2 4.3 3.6 3.4 NIM (% of IEAs) 3.19 2.90 2.64 2.35 NIM (% of RWAs) 4.66 4.30 3.62 3.26 NIM (% of AAs) 2.88 2.67 2.48 2.20 3.0 2.7 2.4 1.9 Cost-to-Income (Headline) 18.8 20.6 22.9 18.9 Cost-to-Income (Core) 19.4 21.2 23.3 19.5 LDR 85.7 92.5 112.5 116.6 Loans/Assets 62.3 72.3 75.1 73.9 Cash & Interbank Loans-to-Total Assets 11.8 8.6 6.1 9.6 Deposits to Assets 72.6 78.1 66.7 63.4 Spread Efficiency (%) Liquidity (%) Wholesale Funding to Loans 16.3 7.9 21.3 28.2 118.0 120.1 126.0 127.8 NPL Ratio 0.10 0.09 0.09 0.16 NPLs to Shareholder's Equity 0.40 0.51 0.50 0.89 NPLs to Tier 1 Capital 0.56 0.58 0.56 0.99 Coverage Ratio 87.6 90.5 89.5 44.8 IEAs to IBLs Asset Quality (%) ALL/Average Loans 0.1 0.1 0.1 0.1 -0.03 0.02 0.00 0.00 Tier 1 Ratio 20.5 18.4 18.5 18.8 CAR 20.5 18.4 18.5 18.9 Tier 1 Capital to Assets 11.3 12.5 12.8 12.4 Tier 1 Capital to Loans 18.2 17.2 17.1 16.8 Tier 1 Capital to Deposits 15.6 15.9 19.2 19.6 6.3 7.1 6.9 7.2 Net Interest Income 15.8 5.9 3.5 -5.1 Non-Interest Income 17.0 31.0 5.6 34.5 OPEX 14.7 19.8 15.3 -16.2 Net Operating Income 16.3 6.8 0.8 6.5 Net Income (Attributable) 13.2 17.6 3.6 0.1 Loans -0.7 39.7 8.0 8.1 Deposits 7.4 29.5 -11.1 4.3 Assets 8.0 20.4 4.0 9.8 RWAs -13.8 48.2 5.9 4.8 Cost of Risk Capitalization (%) Leverage (x) Growth (%) Source: Company data Tuesday, 17 January 2017 2
3. Income Statement (In QR mn) FY2013 FY2014 FY2015 FY2016 Net Interest Income 1,847 1,956 2,024 1,920 Fees & Commissions 147 216 238 313 FX Income 60 87 108 134 Other Income 75 67 44 78 Non-Interest Income 282 369 390 525 Total Revenue 2,129 2,325 2,414 2,445 Operating Expenses (400) (479) (552) (463) Net Operating Income 1,729 1,846 1,862 1,982 10 (13) (47) (3) 1,739 1,833 1,815 1,979 0 186 186 93 1,739 2,019 2,001 2,072 0 (2) 25 4 1,739 2,017 2,026 2,076 Net Provisions Net Profit Before Taxes & Non-Recurring Items Non-Recurring Income Net Profit After Non-Recurring Income Tax Net Profit Before Minority Interest Minority Interest Net Profit (Headline/Reported) Social & Sports Contribution Fund (37) (15) 47 (1) 1,702 2,002 2,073 2,075 (43) (50) (52) (52) 1,660 1,952 2,022 2,023 FY2013 FY2014 FY2015 FY2016 Cash & Balances with Central Bank 3,511 3,311 2,737 3,126 Interbank Loans 4,335 3,603 2,376 5,692 Net Investments 15,017 14,288 14,625 14,012 Net Loans 41,440 57,907 62,567 67,635 1,457 424 469 509 Net Profit (Attributable) Source: Company data Balance Sheet (In QR mn) Assets Investment In Associates Other Assets 642 350 410 409 Net PP&E 55 119 147 148 Investment in Real Estate 91 91 - - 66,548 80,094 83,331 91,531 Interbank Deposits 6,765 4,560 13,345 19,060 Customer Deposits 48,331 62,571 55,623 58,024 747 1,243 2,005 1,574 Total Liabilities 55,843 68,374 70,973 78,657 Total Shareholders’ Equity 10,523 11,353 12,044 12,705 Total Liabilities & Shareholders’ Equity 66,548 80,094 83,331 91,531 Total Assets Liabilities Other Liabilities Source: Company data Tuesday, 17 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. (“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