financials - Bank Audi

CURRENT PRICE SAR 13.5
FAIR VALUE SAR 15.6
RATING ACCUMULATE
Stock Data
Ticker ALINMA AB
Price 13.5
Consensus Median Target
Price (SAR)
15.3
Fair Value 15.6
Upside Potential 16%
Market Cap (SAR m) 20,175
August 24, 2012
HIGHLIGHTS
Market Cap (USD m) 5,380
Number of Shares (m) 1,500
Free Float 69%
Av Monthly Liquidity (SAR) 8,681
52 week High (SAR) 16.9
Major Shareholders
Name Holding
Public Pension Company 10.7%
Public Investment Fund 10.0%
GOSI 10.0%
Public
Source: Zawya
69.3%
Relative Share Price Performance
ALINMA: ROBUST GROWTH PARTIALLY REFLECTED
EQUITY RESEARCH
Alinma, which was only established in 2008, is the fastest growing bank in KSA. In the first half of
2012, the bank surprised the market on the upside by beating consensus estimates. In spite of its
progressing return, almost clean loan portfolio as well as strong capital base, Alinma is still in its
development phase and faces higher expansionary costs as well as NIM pressure. We believe Alinma
has the ability to maintain its increasing profitability, driven by its strong loan growth as it moves
from its development phase to a mature business.
LOAN GROWTH TOPPING SAUDI BANKS
Alinma’s 2011 loan growth has reached 62%, the highest among the Saudi banks. Its retail book
grew by 6.1% year to date while its corporate loans increased by 13.2%. The bank’s management
expressed its interest in real estate development projects. The bank recently signed an agreement
to finance the purchase of real estate units in King Abdullah Economic City. In addition to that,
recent announcements show that Alinma has been active in corporate finance as well as advisory
business, such as Jabal Omar Development Co. and the Sadara Chemical Co. The majority of the
bank’s financing, which is around 82% of total, is currently extended to the commercial segment. We
expect a loan growth of 36% and 26% for 2012 and 2013 respectively.
LOW LEVERAGED BANK WITH A STRONG CAPITAL BASE
Following the Central Bank requirement, the bank will have to focus on raising its general provision
reserve to 1% of gross loans, from 0.5% as at 2011. This increase is expected to continue in 2012, and
will be translated into a higher cost of risk in 2012. The bank reported a Tier 1 ratio of 44%, one of the
highest in the sector, with a leverage ratio at 2.31x. As the bank continues its aggressive expansion and
starts paying dividends in the coming years, its capital adequacy ratio will decrease.
LIQUIDITY AND SPREAD TO BE MONITORED
Alinma’s loan to deposit ratio is one of the highest a 142% compared to the sector average of
85%. However, the bank’s deposits have increased by 96.2% year to date and we believe the bank
is capable of increasing its deposits at higher rates should the need arise to support incremental
lending. According to our estimates, Alinma’s net interest spread suffered beginning of 2012 due
to rising funding costs. Since it was only recently established, the bank didn’t reach its optimal cost
of capital.
ALMOST INTACT ASSET QUALITY
While the bank’s financing portfolio climbed up by 62.7% in 2011, the bank’s existing portfolio
remains almost free of NPLs, with a NPL ratio of 0.04% end of 2011. As the bank accomplishes its
expansion and its business grow, we expect that it will start realizing higher impairment charges. It’s
worth noting that the majority of the impairment allowance that was recorded last year was against
retail loans. Our expectations for Alinma’s NPL is to rise to 0.25% at the end of 2012 and to keep its
NPL coverage above 100%.
PREMIUM VALUATION
Alinma trades at a PB 2012E of 1.24x, on a sustainable ROE of 13.5% . The bank trades at a PE 2013E
of 21.9x due to the high growth phase. We assess Alinma’s growth potential as partially priced in. We
initiate coverage on Alinma by assigning an Accumulate rating, with a fair value of SAR 15.6.
FINANCIAL DATA
ALINMA BANK
2011 2012e 2013e 2014e
Net Income 428 652 924 1,405
EPS 0.29 0.43 0.62 0.94
P/B (x) 1.27 1.24 1.20 1.14
P/E (x) 47.3 31.0 21.9 14.4
ROAE 2.7% 3.9% 5.4% 7.9%
NPL Ratio 0.0% 0.3% 0.3% 0.3%
NPL Coverage nm 174% 149% 152%
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