Earnings Report /
Egypt

ADIB Egypt: Q2 19 – Margin expansion and cost control drive profits

    Al Ahly Pharos Securities Brokerage
    5 August 2019

    Bottom line grew sequentially on higher margins and lower booked provisions; balance sheet grows but with weaker asset quality

    ADIB Q2 19 net profit pre-minority interest and appropriations came in strong at EGP380mn, growing by 36% sequentially and 71% annually, with an annualised ROAE of 43%. 

    Key highlights: 

    • Despite a drop in treasury exposure to total assets by 69bps in Q2 19, NIM improved sequentially by 59bps, standing at 6.9%. Net interest income rose by 13% sequentially.
    • Non-interest income to operating income decreased by 222bps qoq mainly due to lower net fees and commissions (-12% qoq), weighing down on non-interest income contribution to operating income to 18% in Q2 19 from 20% in Q1 19 . 
    • Opex declined sequentially by 180bps in Q2 19, while operating income rose by 10%, resulting in a drop in the cost/income ratio, improving by 5.3ppts, standing at 46% in Q2 19.
    • Lower booked provisions, declining sequentially by 17%, resulting in a COR of 0.4% in Q2 19, down from 0.5% a quarter earlier, with a decrease in coverage ratio by 31ppts, recording 111%. Asset quality deteriorated, with a rise in NPL ratio by 59bps, to record 3.1% in Q2 19.
    • Lower effective tax rate, falling by 6ppts to stand at 23% in Q2 19, down from 29% in Q1 19.
    • Balance sheet witnessed sequential healthy growth with gross loans expanding by 6% qoq, versus an average of 8% over the past four quarters, and customer deposits grew by 4% qoq, versus an average of 7% over the past four quarters, bringing loan/deposit ratio to 73%.

    ADIB is trading at attractive multiples compared to peers; maintain Overweight on FV of EGP15.10 

    We reiterate our Overweight recommendation on ADIB on FV of EGP15.10/share. The stock is trading at P/E19 of 2.3x, and P/B19 of 0.6x, on ROAE of 29%. Egypt’s sector average of P/E19 and P/B19 are 4.4x and 0.9x, respectively.