Earnings Report /
Egypt

Export Development Bank Of Egypt: 2Q22 – Satisfactory sequential growth but impressive annually

  • Earnings were sequentially supported by 1) robust NIM, 2) lower OPEX, and 3) lower effective tax rate

  • Loans expanded by +2% q/q and +15% YTD and deposits expanding by 5% q/q to bring YTD growth to 9%

  • EXPA is trading at P/E22 of 4.3x, and P/B22 of 0.4x, on ROAE of 10%

Al Ahly Pharos Securities Brokerage
21 August 2022

Higher margins coupled with lower tax rate support earnings; LDR declines

EXPA consolidated 2Q22 bottom line recorded a strong EGP 320 million (+6% q/q, +101% y/y) bringing 1H22 bottom line to EGP622 million (+118% y/y).

Earnings were sequentially supported by 1) robust NIM, 2) lower OPEX, and 3) lower effective tax rate, despite a plunge in non-interest income and higher provisions that limited bottom line growth.

Strong annual expansion came on the back of: 1) Robust NIM, 2) strong investment income, 3) lower provisions, and 4) lower effective tax rate, despite growing OPEX.

1H22 reached EGP621 million (+118% y/y) an annual basis, strong bottom line came on the back of: 1) strong margins, 2) higher non-interest income driven by both fees and commissions and investment income, 3) lower booked provisions, and 4) lower effective tax rate, while higher OPEX was witnessed.

Balance sheet showed healthy growth on both the lending and funding sides with loans expanding by +2% q/q and +15% YTD and deposits expanding by 5% q/q to bring YTD growth to 9%. Pushing LDR ratio down to reach 60% (-1.6 pps q/q).

2Q22 key takeaways were:

  • Margins expanded in 2Q22 reaching 4.4% (+67 bps), despite stable treasury allocation standing at 25% of total assets (-41 bps q/q).

  • Non-interest income declined sequentially. This brought non-interest income to operating income to 20% in 2Q22 (-12.6 pps q/q).

  • OPEX showed slight contraction sequentially while operating income growth came in higher, which resulted in cost-to-income ratio improvement in 2Q22 to 45% (-1.6 pps q/q, -7.4 pps y/y).

  • Asset quality remained stable where NPL ratio recorded 2.9% as of Jun-end 2022, with a CoR of 0.1%, resulting in a stable coverage ratio of 105%.

  • Effective tax rate contracted in 2Q22 by 2.1 pps q/q to stand at 32% lower than the average of the past four quarters of 39%.

  • Balance sheet showed healthy growth on both the lending and funding sides with loans expanding by +2% q/q and +15% YTD and deposits expanding by 5% q/q to bring YTD growth to 9%. Pushing LDR ratio down to reach 60% (-1.6 pps q/q).

Capital increase will cast shadows on share price performance, despite upside potential

EXPA plans to increase capital by EGP3.0 billion in 2022, divided into two tranches, through two rights issues, the first one worth EGP 2.0 billion, so that paid in capital reaches north of EGP 6.0 billion in 2022 up from EGP3.3 billion in 2021, exceeding the minimum capital required by the CBE.

EXPA is trading at P/E22 of 4.3x, and P/B22 of 0.4x, on ROAE of 10%.