Earnings Report /
Egypt

Housing and Development Bank: 3Q21 – Provisions reversal support earnings amid opex expansion

  • Results were supported by: 1) healthy topline, 2) lower booked provisions, and 3) lower effective tax rate

  • NIM remained stable at 6.2%, despite lower treasury exposure of 15% to total assets

  • Balance sheet showed healthy growth where gross loans expanded by 7% q/q, while deposits grew by 8% q/q.

Al Ahly Pharos Securities Brokerage
11 November 2021

Healthy topline growth and stable margins wiped out by lower non-interest income and high opex

HDBK 3Q21 standalone bottom line recorded EGP433 million (+14% q/q, +2% y/y), bringing 9M21 bottom line to EGP 1,434 million (+1% y/y). Results were supported by: 1) healthy topline, 2) lower booked provisions, and 3) lower effective tax rate, despite opex expansion and non-supportive non-interest income. The balance sheet showed healthy growth where gross loans expanded by 7% q/q, bringing YTD growth to 17%, while deposits grew by 8% q/q, bringing YTD growth to 19%. 

On 9M21 basis, net profit was growth was capped by the lack of provisions reversals coupled with high opex and effective tax rate, despite strong interest and non-interest income growth.

3Q21 key takeaways:

  • NIM remained stable at 6.2%, despite lower treasury exposure of 15% to total assets (-2 pps q/q).

  • Non- interest income waned mainly on lower investment income to stand at 17% to operating income (-13 pps q/q).

  • Net operating income declined by 30% q/q as a result of a decline in operating revenues of 13% (triggered by non-interest income) coupled with a 17% q/q expansion of opex.

  • Provision reversal was witnessed in other provisions, by EGP 85 million, after coming to a stop in the previous quarter. Loan impairment provisions showed minimal booking of EGP3.7 million, where CoR recorded 0.1% in 3Q21, with improving asset quality as non-performing loans recorded 10.2% (-1.3 bps q/q). Provisions coverage rose to 86% ( +4.5 pps q/q). 

  • Efficiency worsened, where the cost to income ratio spiked to stand at 49% from 37% in the previous quarter and versus an average of 37% over the previous four quarters.

  • Effective tax rate recorded 26% in 3Q21 versus an average of 33% over the past four quarters.

  • Loans grew in 3Q21 by 7% q/q while deposits grew at a faster pace of 8%, bringing the loan-to-deposit ratio to 45% (-30 bps q/q).

  • The capital adequacy ratio continued to record a solid figure of 22.40%, comfortably above the minimum requirement of 12.5% (+80 bps q/q)

Trading at cheap multiples; penalised by being a blended play

We continue to have an Overweight recommendation on HDBK, with a FV of EGP59.14 (45% commercial banking activities, 39% real estate, and 16% other equity investments). However, we believe that the stock price is penalized by the mix between commercial banking and real estate operations, especially that the developments regarding the stock de-merger continue to be unclear and seem far-fetched at this point.  

HDBK is currently trading at 3.1x P/E22 and 0.5x P/B22 with ROAE of 17% .