A plunge in non-interest income and sequentially higher provisions wipe sequential growth while margins and lower OPEX support earnings; LDR improves
CIB 2Q22 net profit post minority recorded a robust EGP3,511 billion (-17% q/q, +9% y/y), bringing 1H22 net profit post minority to EGP7.8 billion (+27% y/y).The sequential contraction came on the back of 1) weak non-interest income (on lower fees and commissions and investment income), and 2) higher booked provisions versus provisions reversals in the previous quarter, despite positive margins and lower OPEX. Healthy annual performance came on the back of: 1) strong margins, 2) healthy non-interest income, and 3) a plunge in provisions compared to 2Q21, whileOPEX and effective tax rate expanded compared to 2Q21.
1H22 still came in higher than 1H21 boosted by a robust topline coupled with a drop in provisions, despite higher OPEX.
It was a good quarter for lending activity as it expanded by 7.5% q/q bringing YTD growth to 16.7%, driven by corporate and retail segments. Deposits remained stable with YTD growth of 5%, pushing LDR ratio up to 45% (+312 bps q/q), despite offering competitive rates CDs with 14% yield over 4 years.
2Q22 results key takeaways were:
Net interest margin (NIM) strengthened to 6.0% (+10 bps q/q) on higher treasury exposure recording 43% of total assets (+6.8 pps q/q).
Non-interest income shrank as both investment income and fees and commissions income contracted. Thus, non-interest income to operating income weakened to stand at 12% in 2Q22 (-14.9 pps q/q).
Efficiency slightly deteriorated where cost to income ratio recorded 34% (-10 bps q/q), as operating income contracted by 13% q/q against a 14% decline in operating expenses.
Provisions inched down at 217% (-0.98 pps q/q) despite lower non-performing loans ratio of 4.7% (-0.22 pps q/q) triggered by a growing loan portfolio. Cost of Risk recorded 0.2% (+0.33 pps q/q) versus an average of 0.6% over the past four quarters.
The effective tax rate recorded 32% (+1.4 pps q/q) versus an average of 29.8% over the past four quarters.
Lending activity expanded by 7.5% q/q bringing YTD growth to 16.7%, driven by corporate and retail segments. Deposits remained stable with YTD growth of 5%, pushing LDR ratio up to 45% (+312 bps q/q),as of Jun-end 2022.
CAR strengthened to stand at 28.8% (-1.8 pps q/q) as of Jun-end 2022.
COMI 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 EGP16.0 billion.
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; we project a sustainable payout ratio of 20% ).
The stock is trading at P/E 2022 of 5.2x and P/B 2022 of 0.9x, on an attributable basis, post minority and appropriations. Egypt's banking sector average multiples stand at 3.1x P/E 2022 and 0.5x P/B 2022.