Earnings surge annually and sequentially on strong IB platform revenues and healthy growth of NBFIs, despite high opex and sequentially higher provisions
Group attributable net profit for 2Q21 recorded EGP406 million (+39% q/q, +24% y/y), beating our estimates for the quarter and bringing 1H21 profits to EGP698 million (+67% y/y).
Sequential improvement came as a result of: 1) higher IB platform revenues driven by Investment banking, Brokerage, capital markets and treasury operations, and asset management, 2) healthy growth of NBFIs platform, mainly Micro finance and consumer finance. Although, OPEX surged, net profit ended in the green.
Annual expansion was driven by NBFIs robust performance coupled with adequate growth of the IB platform that was capped by the decline in capital markets and treasury operations revenues. This came despite OPEX growth that was wholly driven by employee expenses and higher effective tax rates, noting that provisions remained stable.
Business lines in focus
IB, Capital Markets and Treasury Operations' (68% of 1H21 Group operating revenue) revenues expanded to record EGP1,127 million (+39% q/q, +9% y/y) on higher revenues across all lines of business with the exception of PE which fell annually and sequentially. Investment banking, Brokerage, Capital markets and treasury operations, and AM drove the strong sequential revenue expansion, while the annual expansion was limited by capital markets and treasury operations long with PE. Filtering into net profit of EGP295 million (+63% q/q , -1 y/y), with improved NPM of 25% in 2Q21 (+2 pps q/q, +1 pps y/y).
NBFI (32% of 1H21 Group operating revenue) sequential revenues strengthened to stand at EGP483 million (+9% q/q, +62% y/y), as annual and sequential growth rates were witnessed across all NBFIs lines of business, with the exception of leasing, mainly driven by Tanmeyah and ValU. Filtering into a net profit of EGP112 million, with lower NPM of 23% in 2Q21 (-2 pps q/q, +13 pps y/y), but representing a high contribution to the Group bottom line of 28%.
Tanmeyah (74% of 1H21 Group operating revenue) represented 76% of the NBFI revenue in 2Q21 (+3 pps q/q). Total outstanding portfolio grew marginally to record EGP3.3 billion as of June-end 2021 (+5% q/q, +18% y/y), with provision coverage at 8.5% by the end of 2Q21. Operational branches remained unchanged at 286.
ValU (13% of 1H21 Group operating revenue) represented 13% of NBFI’s revenue in 2Q21 (stable q/q), continuing its significant growth streak with an outstanding portfolio of EGP1.1 million (+15% q/q, +97% y/y). ValU ended 2Q21 with a total provision balance of EGP33.2 million representing a coverage ratio of 3.5%.
Leasing (11% of 1H21 Group operating revenue) represented 9% of NBFI’s revenue in 2Q21 (-4pps q/q). New bookings in 2Q21 recorded a strong EGP802 million (-6% q/q, +203% y/y), taking total outstanding portfolio to EGP5.8 billion(+3% q/q, +39% y/y), Leasing total provision balance stood at EGP80.1 million, reflecting a total provision coverage of 1.6% for the Leasing business.
Factoring (2% of 1H21 Group operating revenue) represented 2% of NBFI’s revenue in 2Q21 (+0.6pps q/q), where revenues gained 45% sequentially and tripled annually. Outstanding portfolio surpassed the EGP 1 billion mark up from EGP816 million in the previous quarter. Leasing total provision balance stood at EGP80.1 million, reflecting a total provision coverage of 1.6% for the Leasing business.
Operating Expenses expanded annually and sequentially in 2Q21 (+22% q/q, +13% y/y) mainly driven by higher employee expenses (+25% q/q, +19 y/y). However, employee expenses to revenues ratio remained much lower than the 50% mark, at 45% in 2Q21.
At the current market price, HRHO is trading at annualised multiples of 0.7x P/B21 and 7.7x P/E21 on an ROAE 2021 of 10%.