Earnings Report /

ADIB Egypt: 2Q22 – Outstanding quarter

  • Strong sequential and annual performance was driven by: strong topline, lower OPEX, and lower effective tax rate q/q

  • Loans expanded by +8% q/q and +14% YTD and deposits expanding by 6% q/q to bring YTD growth to 9%

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

Al Ahly Pharos Securities Brokerage
21 August 2022

Earnings boosted by strong margins and non-interest income coupled with lower OPEX despite surging provisions; LDR improves

ADIB 2Q22 consolidated net profit pre minority interest recorded a robust EGP578 million (+29% q/q, +65% y/y) reaching EGP1,017 million (+51% y/y) in 1H22.

The strong sequential and annual performance was driven by: 1) improved margins, 2) strong non interest income, 3) lower OPEX, 4) lower sequential effective tax rate despite surging provisions annually and sequentially .

1H22 reached EGP1,017 million (+51% y/y). 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.

Balance sheet showed healthy growth on both the lending and funding sides with loans expanding by +8% q/q and +14% YTD and deposits expanding by 6% q/q to bring YTD growth to 9%.

Key takeaways:

  • NIM improved by 32 bps to stand at 5.3% despite lower treasury exposure at 31% to total assets as of Jun-end 2022 (-26 bps q/q).

  • Non-interest income expanded sequentially and annually. Non-interest income represented 21% of operating income in 2Q22 (+279 bps q/q).

  • OPEX contracted annually and sequentially, to support bottom line growth. Cost to income ratio improved in 2Q22 to record 24% (-17.4 pps q/q).

  • The bank booked huge provisions in 2Q22 amounting to EGP 203 million, where the cost of risk came in at 1.6% which is higher than the average of the past four quarters of 0.2%. Coverage ratio increased by 30 pps q/q, recording 169%, due to lower NPLs where NPL ratio decreased by 32 bps q/q to stand at 2.3%.

  • The effective tax rate was sequentially lower recording 34%, versus an average of the past four quarters of 36%.

  • Lending activity continued growing in 2Q22 by 8% q/q to bring YTD growth to 14% mainly driven by corporate segment. Deposits grew by 6% q/q bringing YTD growth to 9%, so the LDR ratio reaches 65% (+109 q/q)

ADIB trading attractive multiples

We reiterate our Equalweight recommendation on ADIB on a FV of EGP29.29/share, until the newly raised shares reflect in the market and the price adjusts accordingly. ADIB paid-in capital increased by EGP2.0 billion, from a current of EGP2.0 billion, to reach EGP 4.0 billion against 400 million shares with a par value of EGP 10/share. The amount was financed through a rights issue, where 50% of the amount was transferred from internal sources of the bank relative to ADIB UAE shareholding of 50%, and the remaining balance was fresh capital injected from minority shareholders.

After the success of the first issue, the remaining EGP 1.0 bn, 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 retained profits. Management is yet to decide on the choice.

We recommend trading the stock post the adjustment/ reflection of the new raised shares , given the low multiples, high growth, and relatively higher ADVT within the banking sector. We expect the bank will exceed out estimates for the year of 19% y/y growth based on strong 1H22 performance.

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