Masraf Al Rayan Market Brief Report - 2Q 2022

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1. MARK Alert – 2Q2022 Falls Short of Estimates; Provisions and Impairments Surge •MARK’s 2Q2022 earnings misses our estimates due to larger-than-estimated provisions: Masraf Al Rayan (MARK) reported a net profit of QR519.7mn in 2Q2022, short of our estimate of QR580.1mn. The bottom-line dropped by 8.6% YoY as a result of hefty provisions (earnings sequentially climbed up by 2.7%). On a positive note, net operating income increased by 26.6% and 15.0% on YoY/QoQ basis to QR969.0mn. •Net interest & investment income and non-funded income continued to display strong performance. We note that YoY comparisons are skewed because 2Q2022 figures are consolidated, whereas 2Q2021 numbers are pre-merger. Net interest & investment income grew by 21.1% YoY to QR988.7mn (+8.1% QoQ). Moreover, fees and f/x income increased by 29.4% and 28.5%, respectively, on a YoY basis; on a QoQ basis, fees grew 31.9%, while f/x income fell 13.6%. •Surge in net provisions and impairments adversely impacted the bottom-line. MARK booked provisions and impairments of QR374.6mn vs. QR196.6.9mn in 2Q2021 (QR286.6mn in 1Q2022), which remains one of the highest in its operating history. 1H2022 annualized CoR increased to 96bps vs. 79bps in 1H2021. •Asset quality came under some pressure; asset quality remains manageable as MARK’s main exposure is to the public sector. The bank’s NPLs further surged by 39.7% YTD to QR2.86bn vs. QR2.05bn in FY2021. Moreover, MARK’s NPL ratio moved up to 2.36% (1Q2022: 2.25%) vs. 1.67% in FY2021. Stage 3 ECLs increased by 49.4% YTD. However, coverage of Stage 3 loans increased from 50% in FY2021 to 54% in 2Q2022 (Stage 3 loans highly collateralized) •Capitalization remained robust and one of the highest among its peers. MARK ended 2Q2022 with a CET1/Tier-1 of 18.0%/18.9%. •Recommendation and valuation: We maintain our PT of QR6.10 and Outperform rating for the time being. 1
2. R ecommendations R i sk Ratings Based on the range for the upside / downside offered by the 12month 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 R EDUCE Between -10% to -20% R- 4 Above average Lower than -20% R- 5 Significantly above average UNDERPERFORM Saugata Sarkar, CFA, CAIA Head of Research +974 4476 6534 saugata.sarkar@qnbfs.com.qa Shahan Keushgerian Senior Research Analyst +974 4476 6509 shahan.keushgerian@qnbfs.com.qa DISCLAIMER: This publication has been prepared by QNB Financial Services Co. WLL (“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. 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. While this publication has been prepared with the utmost degree of care by our analysts, 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. 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. COPYRIGHT: No part of this document may be reproduced without the explicit written permission of QNBFS. 2