Non-interest income failed to support earnings; Healthy balance sheet growth reflects the positive performance
CIEB 3Q21consolidated net profit pre-minority and appropriations recorded EGP413 million (+6% q/q, +23% y/y), in line with our estimates (1% higher than Pharos estimates of EGP 410 million), bringing 9M21 bottom line to EGP1,180 million (+14% y/y). Sequential earnings were supported by lower booked provisions and effective tax rate while opex growth coupled with a flat operating income failed to provide support. The balance sheet showed healthy growth where gross loans expanded by 3.2% q/q, bringing YTD growth to 10%, while deposits grew by 3% q/q, bringing YTD growth to 9.7%.
3Q21 results key takeaways were:
Margins remained almost stable at 6.1% (-9 bps) as treasury investments to total assets decreased recording 21% ( -130 bps q/q) as of Sep-end 2021.
Non-interest income declined sequentially by 2% on the back of lower fees and commissions, standing at 23% to operating income.
Efficiency declined by 1.0 pps q/q where cost-to-income ratio recorded 37%, triggered by a flat operating income against OPEX marginal expansion of 3% q/q.
Booked provisions came in at EGP45 million implying a cost of risk of 0.6% vs an average of 1.4% over the past 6 quarters. Asset quality improved where NPL ratio recorded 3.4% (-30 bps q/q). Provisions coverage increased to 144% as of Sep end 2021 up from 137% as of June end 2021.
Effective tax rate fell by 3.0 pps q/q to record 26% on lower treasury investments.
Loan portfolio increased over 3Q21 by 3.2% q/q, and 7.2% y/y bringing YTD growth to 10%, mostly driven by the corporate segment. Customer deposits expanded by 3% q/q, and 10% y/y, bringing YTD growth to 9.7% and LDR remained stable at 66% as of Sep-end 2021.
CIEB showing slow recovery in 2021
In 2021, CIEB has been witnessing some recovery across all accounts from the slump witnessed in 2020. We project 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. 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 5.7x P/E22 and 1.0x P/B22 with ROAE of 18%.