Non-interest income caps bottom-line growth, Controlled OPEX and stable margins reflect positive performance
CIEB 2Q21 consolidated net profit pre-minority and appropriations recorded EGP389 million (+3% q/q, +49% y/y). The top line witnessed a limited sequential growth of 5%, along with a 30% decline in non-interest income. However, the 49% q/q decline in booked provisions brought the bottom line to the green. The annual improvement is attributed to: 1) a top line growth of 9%, standing at EGP740 million, 2) a 15% growth in non-interest income, 3) a significant decline in provisioning (-58% q/q) and 4) controlled OPEX falling by 0.3% y/y.
Loans grew by 7% q/q and 5% y/y, while deposits grew by 1% q/q and 8% y/y. This brought the LDR ratio to 66%, up from 62% as of March 2021.
2Q21 results key takeaways were:
Margins remained stable at 6.2% despite the increase of the treasury investments to total assets which recorded 22% (+400 bps q/q) as of June end 2021.
Non-interest income declined sequentially by 30% on the back of minimal growth in fees and commissions, absence of other operating income in 2Q21 and lower net trading income.
This wiped out the minimal increase in top line and led to a bottom-line growth of only 3% sequentially.
On an annual basis, non-interest income provided support as it increased by 15% y/y, mainly supported by fees and commissions. Thus, non-interest income to total operating income recorded 23% in 2Q21, down from 31% in 1Q21.
Efficiency declined by 2.2 pps q/q where the cost to income ratio recorded 36%, triggered by a decline in operating income by 6% q/q against stable OPEX.
Booked provisions came in at EGP65 million implying a cost of risk of 0.9% vs an average of 1.5% over the past 4 quarters. Asset quality deteriorated where NPL ratio recorded 3.7% (+30 bps q/q). Provisions coverage declined to 137% as of June end 2021 down from 155% as of end-March 2021.
Effective tax rate fell by 2.0 pps q/q to record 29%.
Loan portfolio increased over 2Q21 by 7% q/q, and 6% y/y bringing YTD growth to 7%, mostly driven by the corporate segment. Customer deposits expanded by 1% q/q, and 8% y/y, bringing YTD growth to 7% and LDR up to 66% (+4.0 pps q/q) as of June-end 2020.
1H21 results key takeaways were:
Bottom line recorded EGP767 million in 1H21 (+9% y/y), mainly supported by high non-interest income standing at EGP535 million, compared to EGP395 million in 1H20 (+35% y/y).
The non-interest income increase came in on the back of higher net fees and commissions growing by 25% y/y and recording EGP288 million in 1H21, along with one-off gains (other operating income) recording EGP93 million in 1H21 compared to EGP5.4 million in 1H20.
Booked provisions amounted to EGP191 million (+4% y/y), while the effective tax rate recorded 30% in 1H21, which is 300 bps higher than 1H20.
CIEB is showing slow recovery in 2021
CIEB profits in 2020 were hit significantly by rate cuts since the bank doesn’t invest heavily in treasuries to support margins, cancellation of transaction fees and commissions, excess provisioning due to asset quality deterioration, and higher effective tax rate.
In 2021, we expect recovery in all accounts from the slump witnessed in 2020. We project the bottom line to expand by 15% on higher interest and non-interest income, especially with better balance sheet growth, and controlled OPEX, which is in addition to normalized CoR compared to historical averages. CoR should record 1.0% versus 0.5% historically but lower than 2020 of 1.4%.
We expect the bank to increase capital financed from equity reserves to reach the minimum required paid-in capital of EGP 5 billion.
The stock is currently trading at 5.5x P/E21 (where EPS expands by 15% y/y in 2021) and 0.9x P/B21 with an ROAE of 18%.