Higher margins coupled with lower provisions and tax rate trickle down to bottom line despite higher OPEX; LDR improves
EXPA consolidated 1Q22 bottom line recorded a strong EGP 302 million (+63% q/q, +139% y/y), 26% higher than our estimates of EGP 239 million. 1Q22 bottom line annual and sequential surge mainly came on the back of: 1) improved margins, 2) higher non-interest income despite lower sequential fees and commission, 3) sharp decline in provisioning, and 4) lower effective tax rate, despite OPEX expansion. Gross loans expanded by 13% q/q, while customer deposits grew by 4% q/q, pushing LDR ratio to reach 62% (+4.9 pps).
1Q22 key takeaways were:
Margins expanded in 1Q22 reaching 3.8% (+12 bps), despite stable treasury allocation standing at 25% of total assets (+10 bps q/q).
Non-interest income expanded annually and sequentially. This brought non-interest income to operating income to 22% in 1Q22 (+6.9 pps q/q).
OPEX grew annually and sequentially, while operating income growth came in higher, which resulted in cost to income ratio improvement in 1Q22 to 47% (-5.3 pps q/q, -6.4 pps y/y).
Asset quality slightly improved, since NPL ratio recorded 2.9% (-36 bps q/q) as of Mar-end 2022, with a CoR of 0.0%, resulting in a lower coverage ratio of 105% (-6.1 pps q/q).
Effective tax rate contracted in 1Q22 by 1.3 pps q/q to stand at 34% lower than the average of the past four quarters of 42%.
Balance sheet impressed on the lending side (+13% q/q). Customer deposits grew by 4% q/q bringing the Loan-to-Deposit ratio up to 62% (+5.0 pps q/q).
Capital increase will cast shadows on share price performance, despite upside potential
EXPA plans to increase capital by EGP3.0 billion in 2022, divided on two tranches, through two rights issues, the first one worth EGP 2.0 billion, so that paid-in capital reaches north of EGP 6.0 billion in 2022 up from EGP3.3 billion in 2021, exceeding the minimum capital required by the CBE.
EXPA is trading at P/E22 of 3.9x, and P/B22 of 0.4x, on ROAE of 10%.