Strong NIM and non-interest income trickle down to bottom line despite higher provisions sequentially and higher OPEX annually; LDR declines on higher deposits
CIB 3Q22 net profit post minority recorded a robust EGP4.41 billion (+26% q/q, +16% y/y, and 9% higher than our estimates), bringing 9M22 net profit post minority to EGP12.16 billion (+23% y/y).The sequential expansion came on the back of 1) strong NIM, 2) robust non-interest income growth, 3) softer growth in OPEX, and 4) lower effective tax rate, despite a surge in booked provisions. Healthy annual performance came on the back of 1) strong margins, 2) healthy non-interest income, and 3) lower provisions compared to 3Q21, while OPEX and effective tax rate expanded compared to 3Q21.
9M22 still came in higher than 9M21 boosted by a robust topline coupled with a drop in provisions, despite a surge in OPEX and higher effective tax rate.
It was a good quarter for lending activity as it expanded by 4.1% q/q, bringing YTD growth to 21%, driven by corporate segment. Deposits surged by 16% q/q, mainly driven by corporate segment, reaching YTD growth of 23%, pushing LDR ratio down to 40% (-470 bps q/q).
3Q22 results key takeaways
Net interest margin (NIM) strengthened to 6.5% (+54 bps q/q) on higher policy rates and yields on treasury despite lower treasury exposure recording 41% of total assets (-2.2 pps q/q).
Non-interest income expanded as both investment income and fees and commissions income grew. Thus, non-interest income to operating income strengthened to stand at 14% in 3Q22 (+1.3 pps q/q).
Efficiency improved where cost-to-income ratio recorded 30% (-4 pps q/q), as operating income expanded by 17% q/q against a 3% increase in operating expenses.
Provisions doubled sequentially despite stable non-performing loans ratio of 4.7%. Cost of Risk recorded 0.5% (+0.22 pps q/q) which is equal to the average of the past four quarters.
The effective tax rate recorded 30% (-2 pps q/q) versus an average of 30% over the past four quarters.
Lending activity expanded by 4.1% q/q bringing YTD growth to 21%, driven by corporate segment. Deposits surged by 16% q/q mainly driven by corporate segment, reaching YTD growth of 23%, pushing LDR ratio down to 40% (-470 bps q/q),as of Sep-end 2022.
CAR strengthened to stand at 26.7% (-2.1 pps q/q) as of Sep-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 EGP15.5 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 7.0x and P/B 2022 of 1.3x, on an attributable basis, post minority and appropriations. Egypt's banking sector average multiples stand at 3.5x P/E 2022 and 0.6x P/B 2022.