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August 24, 2012 FINANCIALS EQUITY RESEARCH BANK AL BILAD Balance Sheet Mix 2010 2011 2012E 2013E 2014E 2015E 2016E Loans to Deposits 73% 60% 70% 71% 72% 72% 74% Loans/ Assets 58% 50% 57% 58% 59% 59% 60% Assets/Equity 6.81 8.12 7.04 7.32 7.42 7.54 7.48 (Cash + Net Interbank) /Assets 29% 43% 38% 37% 37% 36% 35% Deposits/ Total Funding 94% 95% 94% 95% 95% 95% 95% Asset Quality 2010 2011 2012E 2013E 2014E 2015E 2016E NPL Ratio 4.67% 4.29% 4.30% 4.00% 3.90% 3.80% 3.70% NPL Coverage Ratio 89% 129% 134% 138% 146% 153% 161% Cost of Risk (% of Gross Loans) 1.99% 1.83% 1.40% 1.20% 1.20% 1.20% 1.20% Capital Adequacy 2010 2011 2012E 2013E 2014E 2015E 2016E Tier 1 16.6% 15.5% 15.7% 15.8% 15.8% 15.8% 15.9% CAR 17.5% 18.3% 18.5% 18.5% 18.5% 18.5% 18.7% Profitability 2010 2011 2012E 2013E 2014E 2015E 2016E ROAE 3.0% 10.1% 21.7% 14.5% 14.9% 15.3% 18.1% ROAA 0.5% 1.3% 2.9% 2.0% 2.0% 2.1% 2.4% NIM 3.34% 2.96% 2.92% 3.06% 3.10% 3.13% 3.61% Cost to Income 65.3% 57.6% 53.5% 50.8% 50.1% 48.8% 45.8% Operating Income Attribution 2010 2011 2012E 2013E 2014E 2015E 2016E Net Interest Income 57% 51% 50% 51% 53% 54% 58% Fee Income 31% 33% 36% 37% 37% 36% 33% Other Income 12% 15% 13% 12% 11% 10% 9% 42
CURRENT PRICE SAR 28.3 FAIR VALUE SAR 30.8 RATING HOLD Stock Data Ticker BJAZ AB Price 28.3 Consensus Median Target Price (SAR) 23.6 Fair Value 30.8 Upside Potential 9% Market Cap (SAR m) 8,490 Market Cap (USD m) 2,264 Number of Shares (m) 300 Free Float 52 Av Monthly Liquidity (SAR) 402 52 week High (SAR) 33.9 Major Shareholders Name Rashed Al Rashed 22.2% UBDC 6.5% National Bank of Pakistan 5.8% Saleh Kamal 5% Public Source: Zawya 60.5% Relative Share Price Performance August 24, 2012 HIGHLIGHTS AL JAZIRA: PROMISING EARNINGS MAINLY PRICED IN EQUITY RESEARCH In terms of balance sheet size, Al Jazira is one of the smallest banks in KSA, with a market share of almost 3% in lending as well as deposits. After it completed its conversion to an islamic bank in 2007, the bank was continuously investing in its retail banking infrastructure. Strong loan growth and high brokerage income caused re-rating of fundamentals. STRONG LOAN GROWTH Bank Al Jazira is making steady progress in developing its core banking, which lead to a considerable balance sheet growth of 80% for the past 5 years. Al Jazira has demonstrated robust retail lending growth with retail loans rising by 60% over the 12 months to December 2011, while its corporate book surged by 7% last year. Resurgence in trading volumes at Tadawul should lead to an increased appetite for margin loans. The bank’s management recently announced that a credit card product will be established. We expect Al Jazira’s loan to remain strong, with a growth of 30% and 19% in 2012 and 2013. On the liquidity front, the bank is still well positioned for growth with the loan to deposit ratio of 76%, against 83% for the sector. FEE INCOME TO REMAIN ROBUST With a brokerage market share of 17%, Bank Al Jazira will benefit the most from the increasing trading volumes at the Tadawul. We believe Al Jazira’s high dependence on volume remains a core differentiating factor to its peers; the contribution of broking income to total income increased to 11.8% last year. The rising trading volumes has a two-fold impact on the bank’s profitability: increasing brokerage commissions as well as rising demand for margin lending, which will feed into higher loan growth. Despite that monthly traded value dropped from their high of SAR 270 billion in March to SAR138 billion in June, we expect that earning momentum will still be lead by brokerage income, but at a slower pace than the first quarter of 2012. LAGGING ON ASSET QUALITY Al Jazira still lags its local peers on asset quality despite the improvement in NPL coverage achieved during 2011 and the first half of 2012. The bank’s non performing loans in percentage of gross loans have been showing improving trends after peaking in 2009. It fell from its high of 7.4% in 2009 to 3.93% in Q1-12. The NPL coverage ratio remains one of the lowest in the sector at 121%. The bank will likely push through to improve its NPL coverage, to be in line with the sector’s average of 147%. NIM TO RECOVER Despite its effort in improving and diversifying its income sources, the growth in core banking revenues hasn’t been totally reflected in earnings and NIMs. Going forward, sustained loan growth in consumer lending, supported by growing demand for margin lending will push the bank’s margins upwards. We expect the bank’s NIM to reach 2.35% and 2.47% in 2012 and 2013 respectively. VALUATION The bank’s earnings growth, as well as its advantage in brokerage is partially reflected by its high valuation. Al Jazira trades at a PB 2012E of 1.60x a premium of 10% to the Saudi banking sector . The bank trades at PE 2013E of 11.7x. We initiate coverage on Al Jazira by assigning an Hold rating, with a fair value of SAR 30.8. FINANCIAL DATA BANK AL JAZIRA 2011 2012e 2013e 2014e Net Income 303 530 725 900 EPS 1.01 1.77 2.42 3.00 P/B (x) 1.72 1.60 1.46 1.32 P/E (x) 28.03 16.01 11.70 9.43 Dividend Yield 1.9% 2.5% 3.2% 3.9% ROAE 6.1% 10.1% 12.7% 14.3% NPL Ratio 4.2% 3.7% 3.5% 3.4% NPL Coverage 117% 131% 142% 145% 43
Page 1 and 2: COVERED BANKS Samba Financial Group
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Page 19 and 20: CURRENT PRICE SAR 47.6 FAIR VALUE S
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