Equity Analysis /
Egypt

Suez Canal Bank: 1Q19 – Weak operational performance despite qoq rise in bottom line

    Bottom line rises qoq on one-off  FX gains; Balance sheet grows at a slower momentum

    CANA 1Q19 net profit pre-minority interest and appropriations came in strong at EGP129 million, growing by 44% qoq and 12% annually with an ROAE of 18%. 1Q2019 results key takeaways were:

    • Despite a rise in treasury exposure to total assets by 11% in 1Q19, NIM fell sequentially by 28 bps, standing at 2.7%. Net-interest income declined by 3% sequentially.
    • Non-interest income surged by 196% q/q on FX gains, to compensate for the drop witnessed in interest income, leading operating income to rise by 38% q/q. 
    • OPEX rose sequentially by 22% in 1Q19, at a slower pace than that of operating income which resulted in a lower cost to income ratio, decreasing by 650 bps, standing at 48% in 1Q19.
    • Lower asset quality; NPL ratio rose by 10 bps, recording 21.4% in 1Q19, coupled with  a rise in Cost of Risk (COR), where booked provisions surged by 669% sequentially, resulting in a COR of 1.4% in 1Q19, up from 0.2% a quarter earlier, with a decrease in coverage ratio by 5 pps, recording 80%. The surge probably reflects the implementation of IFRS9.
    • Lower effective tax rate, falling by 6% to stand at 39% in 1Q19, down from 45% in 4Q18.
    • Balance sheet witnessed a sequential steady growth with gross loans expanding by 5% q/q, versus an average of 9% over the past five quarters, and customer deposits remained stable, bringing Loan-to-Deposit ratio to 46%.

    Despite cheap multiples, we maintain Underweight on unchanged FV of EGP7.00 

    We reiterate our Underweight recommendation on CANA on FV of EGP7.00/share. The stock is trading at P/E19 of 3.8x, and P/B19 of 0.6x, on ROAE of 18%. Egypt’s sector average of P/E19 and P/B19 are 4.8x and 0/9x, respectively.