Profits impress despite lower sequential margins and higher OPEX; LDR improves
CIB 1Q22 net profit post minority recorded a robust EGP4,244 billion (+26% q/q, +48% y/y). The annual and sequential expansion came on the back of 1) strong non-interest income driven by profit from selling financial instruments and forward FX deals revaluation, 2) provisions reversals, and 3) stable effective tax rate, despite lower margins on a sequential basis and higher OPEX on an annual and sequential basis.
It was a good quarter for lending activity as it expanded by 8.5% q/q driven by corporate and retail segments. Deposits expanded at a slower pace at 5.3%, pushing the LDR ratio up to 41% (+122 bps q/q), in light of the onset of the competitive 18% rate CDs offered by public banks.
1Q22 results key takeaways were:
Net interest margin (NIM) strengthened to 5.9% (-31 bps q/q) on lower treasury exposure recording 36% of total assets (-4.5 pps q/q).
Non-interest income provided major support as both investment income and fees and commissions income increased. Thus, non-interest income to operating income strengthened to stand at 27% in 1Q22 (+17.3 pps q/q).
Efficiency deteriorated where the cost to income ratio recorded 34% (+2.4 pps q/q), as operating income grew by 22% q/q against a surge in operating expenses by 31% q/q.
Provisions coverage increased to 218% (+4.8 pps q/q) as a result of a lower non-performing loans ratio of 4.9% (-23 bps q/q) in line with provisions reversals where Cost of Risk recorded -0.1% (-0.98 pps q/q).
The effective tax rate recorded 31% (+1.3 pps q/q) versus an average of 29.6% over the past four quarters.
Lending activity expanded by 8.5% q/q driven by corporate and retail segments. Deposits expanded by 5.3%, pushing the LDR ratio up to 41% (+122 bps q/q) as of Mar-end 2022.
CAR strengthened to stand at 31% (+74 bps q/q) as of Mar-end 2022.
COMI is trading at multiples below its historical norms, despite a strong outlook
Management has healthy targets for 2022 including:
A bottom line of 15-17% higher than 2021. We project EGP15.7 bn.
10-15% deposit growth, but at local currency, but at least 50 to 55% of that to be in CASA.
On the loan side, the bank is pushing for north of 20% LC loan growth, 8-10% FC loan growth to give a blended rate of around 15% or more. Any capex financing will be incremental to the aforementioned figures. This should bring up LDRs slightly in both currencies.
Moving forward, the bank targets a more aggressive dividend payout plan (up from 15% to north of 25% for the next few years).
The stock is trading at P/E 2022 of 6.2x and P/B 2022 of 1.1x, on an attributable basis. Egypt's banking sector average multiples stand at 3.5x P/E 2022 and 0.6x P/B2022.