Earnings Report /

ADIB Egypt: 1Q22 – Robust quarter driven by controlled OPEX and lower provisions

  • Margins wane sequentially but expand annually

  • Lower booked provisions support bottom line on improved NPLs

  • The stock is trading at P/E 22 of 1.7x and P/B 22 of 0.3x, on ROAE of 21%.

Margins wane sequentially but grow annually; Lower booked provisions support the bottom line on improved NPLs; LDR improves

ADIB 1Q22 consolidated net profit pre minority interest recorded a robust EGP444 million (+16% q/q, +34% y/y). The strong sequential performance was driven by: 1) lower OPEX, 2) lower provisions, while 3) non-interest income expansion failed to wipe out the effect of lower sequential margins, and effective tax rate remained stable sequentially.

On an annual basis, strong bottom line came on the back of: 1) strong margins, 2) higher non-interest income despite lower investment income, 3) lower booked provisions, while higher OPEX and effective tax rate limited bottom-line growth.

Key takeaways:

  • NIM inched down by 57 bps to stand at 5.0% on stable treasury exposure at 33% to total assets as of Mar-end 2022.

  • Non-interest income expanded sequentially and annually. Non-interest income represented 18% of operating income in 1Q22 (+219 bps q/q).

  • OPEX contracted sequentially, to support bottom-line growth. Cost to income ratio improved in 1Q22 to record 42% (-5.8 pps q/q).

  • The bank booked provisions in 1Q22 amounting to EGP 27 million, where the cost of risk came in at 0.2% which is below the average of the past four quarters of 0.4%. Coverage ratio increased by 18 pps q/q, recording 138%, due to lower NPLs where NPL ratio decreased by 56 bps q/q to stand at 2.6%.

  • The effective tax rate was sequentially stable at 37%, versus an average of the past four quarters of 35%.

  • Lending activity continued growing in 1Q22 by 6% q/q. Deposits grew by 3% q/q, so the LDR ratio reached 64% (+190 bps q/q).

ADIB trading attractive multiples; EW until capital increase plans unfold

We reiterate our Equalweight recommendation on ADIB on a FV of EGP29.29/share, until the conclusion of the rights issue. BoD agreed on increasing the bank’s paid-in capital by EGP2.0 billion, from a current of EGP2.0 billion, to reach EGP 4.0 billion, financed through a rights issue, still up to the GAM approval. 

Depending on the success of the first issue, the remaining EGP 1.0, to reach the min. required capital of EGP5.0 billion will be financed through either a second round of rights issue or distribution of bonus shares from the 2021 bottom line. Management is yet to decide on the choice.

The same ownership structure will be maintained with ADIB UAE owning 49% of the bank, without diluting the ownership of minority shareholders. 

At current prices, we recommend trading the stock cautiously on a ST basis, given the low multiples, high growth, and relatively higher ADVT within the banking sector, until the rights issue concludes. After the conclusion, we see a huge potential in the bank, with an adequate upside, and would recommend buying the stock after any potential pressure created by the announcement. 

The stock is trading at P/E 22 of 1.7x and P/B 22 of 0.3x, on ROAE of 21%.