Masraf Al Rayan (MARK): Company Report - Q1 2018

Transcription

1. Company Report Tuesday , 17 April 2018 Masraf Al Rayan (MARK) Recommendation Share Price Implied Upside MARKET PERFORM QR36.59 (7.1%) Risk Rating Price Target R-3 QR34.00 In-Line 1Q2018; Spreads Continued to Contract Masraf Al Rayan (MARK) is the second largest Shari’ah compliant bank among listed banks. It is currently in negotiations (due diligence process is over) with Barwa Bank and International Bank of Qatar (IBQ) regarding the pricing of the three-way merger. Incorporated in 2006, MARK is focused on the public sector, which dominates its loan portfolio. Public sector loans grew by a CAGR (2010-2017) of 22% and represents 56% (December 2017) of MARK’s loan portfolio. Notably, MARK has the best asset quality among Qatari banks with a NPL ratio of 0.50%, one of the highest RoEs of ~16% and robust capitalization at 18%. Highlights  MARK’s 1Q2018 bottom-line increased due to a sharp drop in provisions & impairments. MARK reported net income of QR531.1mn (in-line with our estimate QR517.7mn; +2.6% variation), increasing by 13.3% QoQ (+4.1% YoY). The growth was due to a sharp drop in provisions & impairments where the bank booked QR16.5mn vs. 115.8mn in 4Q2017. On the other hand total revenue receded by 1.2% QoQ (+9.1% YoY) to QR713.8mn due to a drop in investment income and fees while net interest income exhibited flattish performance. On a YoY basis, figures were generally positive across the board with net operating income growing by 7.7%. However, provisions vs. net reversals in 1Q2017 limited earnings growth to 4.1%.  Margins remained under pressure. Net interest margin decreased by 10bps QoQ (9bps YoY) to 2.34%. tightening of the NIM was led by a rise in cost of funds exceeding the increase in yield on assets. Cost on funds increased by 30bps QoQ to 2.56% (+50bps YoY), whereas yield on assets increased by only 16bps to 4.47% (+38bps YoY). The drop in margins is in-line with our expectations.  Asset quality risks still remain negligible, IFRS 9 impact not material. NPL ratio remained unchanged at 0.50% while absolute NPLs remained stable at QR386mn. Coverage ratio of stage 3 loans (impaired or non-performing) remained unchanged at 44% vs. 43% at the end of 2017. MARK’s stage one loans (credit risk has not increased significantly since initial recognition) represent 93.4% of total loans while stage two loans (past due but not impaired; credit risk has increased significantly since initial recognition) represent 6.1%.  Net Loans and deposits experienced flat performance YTD. Net loans came in QR72.3bn vs. QR72.1bn in FY2017, while deposits moved to QR62.7bn vs. QR62.5bn at the end of 2017. Thus, MARK’s LDR remained elevated and unchanged at 115%. We are still of the opinion that the bank may increase its borrowings in order to enhance its liquidity profile/lower LDR. Key Data Current Market Price (QR) 36.59 Dividend Yield (%) 5.5 Bloomberg Ticker MARK QD ADR/GDR Ticker N/A Reuters Ticker MARK.QA ISIN QA000A0M8VM3 Sector* Banks & Financial Svcs. 52wk High/52wk Low (QR) 3-m Average Volume (‘000) Mkt. Cap. ($ bn/QR bn) Shares Outstanding (mn) FO Limit* (%) 45.40/33.32 438.7 7.5/27.4 750.0 49.0 Current FO* (%) 12.3 1-Year Total Return (%) (9.5) Fiscal Year End December 31 Source: Bloomberg (as of April 16, 2018), *Qatar Exchange (as of April 16, 2018); Note: FO is foreign ownership Catalysts  News flow about the upcoming merger could act as a catalyst. Recommendation, Valuation and Risks  Recommendation and valuation: We maintain our Price Target of QR34 and Market Perform recommendation. MARK is trading at P/B and P/E of 2.0x and 13.0x on our 2018 estimates, respectively. The market is pricing a fundamental P/B (2.0x) and a sustainable RoE (18.5%) vs. our estimates (P/B: 1.8x & RoE: 17.0%). The name trades at a PEG of 1.7x based on 7.8% CAGR (2017-23e) Risks: 1) Geopolitical factors, 2) More than expected increase in credit costs and 3) losing market share in the government segment. Key Financial Data and Estimates FY2017 FY2018e FY2019e FY2020e EPS (QR) 2.70 2.82 3.25 3.48 EPS Growth (%) -2.3 4.1 15.5 6.9 P/E (x) 13.5 13.0 11.3 10.5 Tangible BVPS (QR) 17.6 18.2 19.4 0.0 P/TB (x) 2.1 2.0 1.9 1.8 DPS (QR) 2.00 2.00 2.25 2.50 Dividend Yield (%) 5.5 5.5 6.1 6.8  Shahan Keushgerian +974 4476 6509 shahan.keushgerian@qnbfs.com.qa Saugata Sarkar, CFA, CAIA +974 4476 6534 saugata.sarkar@qnbfs.com.qa Source: Company data, QNBFS Research; Note: All data based on current number of shares Tuesday, 17 April 2018 1
2. Detailed Financial Statements Income Statement (In QR mn) FY2017 FY2018e FY2019e FY2020e Net Interest Income 2,264 2,405 2,666 2,912 Fees & Commissions 274 291 326 349 FX Income 143 153 168 188 56 60 75 99 Other Income Non-Interest Income 473 504 569 637 Total Revenue 2,736 2,909 3,235 3,549 Operating Expenses (577) (636) (695) (754) Net Operating Income 2,159 2,274 2,541 2,795 Net Provisions (113) (146) (84) (170) Net Profit Before Taxes & Non-Recurring Items 2,045 2,128 2,456 2,626 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 0 0 0 0 2,045 2,128 2,456 2,626 (5) (3) (3) (3) 2,041 2,125 2,454 2,622 (13) (13) (15) (16) 2,028 2,112 2,438 2,606 (51) (53) (61) (65) 1,977 2,059 2,377 2,541 FY2017 FY2018e FY2019e FY2020e Cash & Balances with Central Bank 2,800 3,188 3,719 4,106 Interbank Loans 3,312 3,427 3,331 4,660 Net Investments 23,423 24,466 23,830 25,044 Net Loans 72,097 76,156 83,280 93,203 Investment In Associates 520 536 558 578 Other Assets 636 685 541 559 Net PP&E 160 168 167 167 102,949 108,626 115,426 128,316 Interbank Deposits 25,123 24,092 21,541 21,564 Customer Deposits 85,534 Net Profit (Attributable) Source: Company data, QNBFS Research Balance Sheet (In QR mn) Assets Total Assets Liabilities 62,531 66,408 74,377 Other Liabilities 1,905 4,232 4,723 5,563 Total Liabilities 89,559 94,733 100,640 112,661 Total Shareholders’ Equity Total Liabilities & Shareholders’ Equity 13,191 13,683 14,561 15,414 102,949 108,626 115,426 128,316 Source: Company data, QNBFS Research Tuesday, 17 April 2018 2
3. FY2017 FY2018e FY2019e FY2020e RoAE (Attributable) 15.9 15.3 16.8 17.0 RoAA (Attributable) 2.1 1.9 2.1 2.1 RoRWA (Attributable) 3.4 3.2 3.4 3.1 NIM (% of IEAs) 2.43 2.39 2.50 2.51 NIM (% of RWAs) 3.58 3.75 3.79 3.60 NIM (% of AAs) 2.27 2.27 2.38 2.39 2.0 2.0 2.0 2.0 Cost-to-Income (Headline) 21.1 21.8 21.5 21.2 Cost-to-Income (Core) 21.9 22.2 22.0 21.8 113.7 114.7 112.0 109.0 68.3 70.1 72.1 72.6 6.7 6.1 6.1 6.8 Deposits to Assets 60.1 61.1 64.4 66.7 Wholesale Funding to Loans 36.4 34.5 29.0 26.5 124.3 119.3 116.6 116.3 NPL Ratio 0.14 0.56 0.80 1.00 NPLs to Shareholder's Equity 0.77 3.37 4.92 6.50 NPLs to Tier 1 Capital 0.91 3.95 5.79 7.70 Coverage Ratio 50.5 159.0 114.1 98.3 0.1 0.9 0.9 1.0 0.00 0.18 0.10 0.18 Tier 1 Ratio 18.2 17.6 16.7 14.9 CAR 18.2 17.6 16.7 14.9 Tier 1 Capital to Assets 11.1 10.8 10.7 10.1 Tier 1 Capital to Loans 16.2 15.4 14.8 14.0 Tier 1 Capital to Deposits 18.5 17.6 16.6 15.2 7.6 7.9 7.9 8.3 Net Interest Income 14.0 6.3 10.9 9.2 Non-Interest Income -0.2 6.7 12.8 11.9 OPEX Ratios Profitability (%) Spread Efficiency (%) Liquidity (%) LDR Loans/Assets Cash & Interbank Loans-to-Total Assets IEAs to IBLs Asset Quality (%) ALL/Average Loans Cost of Risk Capitalization (%) Leverage (x) Growth (%) 23.5 10.1 9.3 8.5 Net Operating Income 8.0 5.3 11.7 10.0 Net Income (Attributable) 2.2 4.1 15.5 6.9 Loans 2.4 5.6 9.4 11.9 Deposits 5.0 6.2 12.0 15.0 Assets 10.8 5.5 6.3 11.2 RWAs 2.4 7.7 11.7 17.7 Source: Company data, QNBFS Research Tuesday, 17 April 2018 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, CFA, CAIA 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 Mohamed Abo Daff QNB Financial Services Co. WLL Senior Research Analyst Contact Center: (+974) 4476 6666 Tel: (+974) 4476 6589 PO Box 24025 mohamed.abodaff@qnbfs.com.qa Doha, Qatar Disclaimer and Copyright Notice: This publication has been prepared by QNB Financial Services Co. W.L.L. (“QNBFS”) a wholly-owned subsidiary of Qatar National Bank Q.P.S.C. (“QNB”). QNBFS is regulated by the Qatar Financial Markets Authority and the Qatar Exchange QNB 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