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Qatar Islamic Bank: Company Report - 16 April

IM Insights
By IM Insights
5 years ago
Qatar Islamic Bank: Company Report - 16 April

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  1. Company Report Monday , 16 April 2018 Qatar Islamic Bank (QIBK) Recommendation Share Price Implied Upside MARKET PERFORM QR105.35 (1.3%) Risk Rating Target Price R-3 QR104.00 Healthy 1Q2018 Results on an Operating Level, Maintain PT104 QIBK is the largest Islamic bank with a market share of ~12% in both total loans and deposits. QIBK spent the past number of years regaining lost market share from conventional banks. The bank’s loan book and net income grew by CAGR of 18.9% & 12.1% (2012-17), respectively. Highlights       Headline net profit declined 0.8% QoQ; on an adjusted basis (before minorities) earnings were up 22.5%. QIBK reported net profit of QR625.2mn in 1Q2018, receding by 0.8% QoQ (+12.6%), exceeding our estimate by 8.6%. Net income on an adjusted basis (before minorities) increased by 22.5% (QoQ) to QR596.5mn, in-line with our estimate of QR575.6mn (+3.6% variation).Total revenue was also in-line at QR1.1bn. Total revenue grew by 18.4% QoQ (+8.3% YoY) on the back of net interest & investment income, driven by strong margins/spreads. Margins significantly improved, CoFs dropped. QIBK’s net interest margin expanded by 21bps QoQ (+18bps YoY) to ~2.83%. This was a result of yield on assets gaining by 11bps while cost of funds dropping by 8bps. On a YoY basis, yield on assets jumped by 31bps while cost of funds moved up by 17bps. QIBK’s operating efficiency improved QoQ, generating positive JAWs. The bank’s C/I ratio receded to 26.5% from 30% in 4Q2017 (remained flat YoY). Moreover, QIBK generated robust JAWs of 12.6% as revenue grew by 18.4% QoQ while opex increased by 5.8%. Net loans gained while deposits remained flattish. Net loans increased by 2.0% YTD to QR104.6bn, while deposits inched up by 0.5% YTD to QR102.3bn. Hence, QIBK’s LDR remained flattish QoQ at 102% vs. 101% in FY2017. Asset quality remains stable as shown by stage 1 loans. The bank’s NPL ratio remained unchanged at 1.2% in 1Q2018. During the same time CoR doubled to 44bps vs. 22bps in 2016. QIBK’s stage one loans (credit risk has not increased significantly since initial recognition) represent 85.7% of total loans while stage two loans (past due but not impaired; credit risk has increased significantly since initial recognition) represent 13.2%. Stage three loans (impaired loans) are only 1.1%. Capitalization remains strong. The bank’s Tier-1 ratio remained strong at 16.2% in in 1Q2018 vs. 16.9% in FY2017. Had the bank not implemented IFRS 9, CET-1 ratio would have been 13.4% vs. the current 12.5%. Key Data Current Market Price (QR) 105.35 Dividend Yield (%) 5.0 Bloomberg Ticker QIBK QD ADR/GDR Ticker N/A Reuters Ticker ISIN Sector* QISB.QA QA0006929853 Banks & Fin. Svcs. 52wk High/52wk Low (QR) 3-m Average Volume (‘000) Mkt. Cap. ($ bn/QR bn) Shares Outstanding (mn) FO Limit* (%) Current FO* (%) 1-Year Total Return (%) Fiscal Year End 106.00/86.90 105.2 6.8/24.9 236.3 49.0 7.1 +9.2 December 31 Source: Bloomberg (as of April 16, 2018), *Qatar Exchange (as of April 15, 2018); Note: FO is foreign ownership Catalysts  1) FOL increase to 49% is already implemented; weight to double to 0.06% in MSCI EM on May 31 attracting QR420mn in funds and 2) Consistent improvement in NIMs and spreads Recommendation, Valuation and Risks   Recommendation and valuation: We maintain our Price Target of QR104.00. QIBK is trading at a 2018e P/B and P/E of 1.6x and 10.4x, respectively. The stock is trading close to its fair value ( PEG of 0.8x). Risks: 1) Further geopolitical factors/concerns, 2) Depressed oil prices, 3) Increase in credit costs and 4) Exposure to real estate segment. Key Financial Data and Estimates EPS (QR) EPS Growth (%) P/E (x) Tangible BVPS (QR) P/TB (x) DPS (QR) Dividend Yield (%) FY2017 9.31 8.9 11.3 63.0 1.7 5.00 4.7 FY2018e 10.12 8.6 10.4 64.1 1.6 5.25 5.0 FY2019e 11.52 13.9 9.1 70.2 1.5 5.50 5.2 FY2020e 12.26 6.4 8.6 76.8 1.4 5.75 5.5 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 Monday, 16 April 2018 1
  2. Detailed Financial Statements Income Statement (In QR mn) FY2017 FY2018e FY2019e FY2020e Net Interest Income 3,400 3,685 4,096 4,572 Fees & Commissions 518 543 590 643 FX Income 139 152 170 153 Other Income 106 219 238 231 Non-Interest Income 763 914 998 1,027 Total Revenue Operating Expenses Net Operating Income 4,162 4,600 5,094 5,599 (1,106) (1,145) (1,239) (1,368) 3,057 3,455 3,855 4,230 Net Provisions (785) (890) (886) (1,086) Net Profit Before Taxes & Non-Recurring Items 2,271 2,565 2,969 3,145 Tax (18) (21) (24) (25) 2,253 2,544 2,945 3,120 155 51 (18) (19) (2) 0 0 0 Net Profit (Headline/Reported) 2,405 2,595 2,927 3,101 Interest on Tier-1 Sukuk (205) (205) (205) (205) (60) (65) (73) (78) 2,140 2,325 2,649 2,818 FY2017 FY2018e FY2019e FY2020e Cash & Balances with Central Bank 5,546 5,498 5,883 6,648 Interbank Loans 4,876 6,492 6,989 6,506 Net Investments 30,402 34,429 37,194 35,213 102,613 108,196 116,484 130,124 Net Profit Before Minority Interest Minority Interest Non-Recurring/Unusual Gains/(Losses) Social & Sports Contribution Fund Net Profit (Attributable) Source: Company data, QNBFS Research Balance Sheet (In QR mn) Assets Net Loans Investment In Associates Other Assets Net PP&E Investment in Real Estate Assets of a Subsidiary Held for Sale Goodwill & Other Intangibles Total Assets 669 681 695 709 3,156 3,440 3,972 4,443 511 496 504 515 1,944 1,642 1,534 1,433 246 411 368 324 281 150,375 161,241 173,579 185,871 Liabilities Interbank Deposits 17,191 19,883 22,631 17,468 Customer Deposits 101,815 109,960 117,657 132,952 Sukuk Financing 7,057 7,057 7,057 7,057 Other Liabilities 3,432 3,299 3,765 4,387 0 0 0 0 Liabilities of a Subsidiary Held for Sale Tier-1 Sukuk Total Liabilities Total Shareholders’ Equity Total Liabilities & Shareholders’ Equity 4,000 4,000 4,000 4,000 133,495 144,199 155,111 165,865 15,289 15,502 16,911 18,430 150,375 161,241 173,579 185,871 Source: Company data, QNBFS Research Monday, 16 April 2018 2
  3. FY2017 FY2018e FY2019e FY2020e RoAE (Attributable) 14.5 15.1 16.3 15.9 RoAA (Attributable) 1.5 1.5 1.6 1.6 RoRWA (Attributable) 2.0 2.1 2.2 2.1 NIM (% of IEAs) 2.60 2.62 2.71 2.82 NIM (% of RWAs) 3.16 3.30 3.43 3.39 NIM (% of AAs) 2.34 2.37 2.45 2.54 Spread 2.23 2.17 2.21 2.29 Cost-to-Income (Headline) 26.6 24.9 24.3 24.4 Cost-to-Income (Core) 27.0 25.9 25.3 25.4 100.8 98.4 99.0 97.9 68.2 67.1 67.1 70.0 6.9 7.4 7.4 7.1 Deposits to Assets 67.7 68.2 67.8 71.5 Wholesale Funding to Loans 23.6 24.9 25.5 18.8 123.8 121.3 119.0 117.5 NPL Ratio 1.2 1.5 1.7 1.9 NPLs to Shareholder's Equity 7.9 10.4 12.0 13.5 NPLs to Tier 1 Capital 6.5 9.3 11.0 12.4 Ratios Profitability (%) Efficiency (%) Liquidity (%) LDR Loans/Assets Cash & Interbank Loans-to-Total Assets IEAs to IBLs Asset Quality (%) Coverage Ratio 99.1 156.1 151.2 152.6 ALL/Average Loans 1.1 2.2 2.5 2.8 Cost of Risk (bps) 44 51 55 62 Tier 1 Ratio 16.9 15.2 14.8 13.9 CAR 17.3 15.6 15.2 14.3 Tier 1 Capital to Assets 12.4 10.7 10.7 10.8 Tier 1 Capital to Loans 18.1 15.9 15.9 15.4 Tier 1 Capital to Deposits 18.3 15.6 15.8 15.1 9.8 10.4 10.3 10.1 Capitalization (%) Leverage (x) Growth (%) Net Interest Income 27.5 8.4 11.2 11.6 Non-Interest Income -22.7 19.9 9.1 2.9 OPEX 1.5 3.5 8.3 10.4 19.2 13.0 11.6 9.7 Net Income (Attributable) 8.9 8.7 13.9 6.4 Loans 4.5 5.4 7.7 11.7 Deposits 6.7 8.0 7.0 13.0 Assets 7.5 7.2 7.7 7.1 RWAs 4.7 3.0 10.9 15.0 Net Operating Income Source: Company data, QNBFS Research Monday, 16 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. 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. 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