Earnings Report /
Saudi Arabia

Al Rajhi Bank: Weak Q4 19 results on higher provisions and opex

    SNB Capital
    11 February 2020
    Published bySNB Capital

    Al Rajhi reported weak set of results in Q4 19 with a net income of SAR2.15bn (down -23.9% qoq). This is well below consensus estimates SAR2.82bn. We believe earnings weakness comes from higher than expected 1) provisions of SAR665mn (vs our estimate SAR359mn) and 2) G&A expenses of cSAR975mn (vs our estimate SAR596mn). On a recurring basis, net income grew 14.7% yoy. 

    AlRajhi reported a weak set of Q4 19 results with a net income of SAR2.15bn (down -23.9% qoq). This is significantly below the NCBC and consensus estimates of SAR2.85bn and SAR2.82bn, respectively and is primarily attributed to higher than expected provisions and G&A expense. However, margins and balance sheet trends remained robust, which we believe are the key positives of the results.

    On yoy basis, earnings improved from a loss of SAR3.5bn in Q4 18 to a profit of SAR2.15bn as Q4 18 earnings included one-off impact of SAR5.4bn related to settlement of zakat claims. Excluding this, net income grew 14.7% yoy.

    Revenues increased 11.0% yoy to SAR5.0bn, in-line with our estimates. Revenue growth was largely driven by strong NSCI growth of 11.8% yoy to SAR4.26mn, in-line with our estimate. Fee and other income grew 6.9% yoy to SAR743mn, lower than our estimate of SAR836mn. 

    Based on our initial estimates, NIMs grew c30bps yoy to 5.8%, coming in-line with our estimate. NIM expansion is attributed to a c30bps yoy increase in asset yields to 6.0% while funding costs remained unchanged yoy.

    G&A expenses increased 21.9% yoy to SAR1.91bn, significantly higher than our estimate of SAR1.5bn and reaching the highest level since Q1 12. We believe this was the major surprise of the results. Moreover, provisions more than doubled yoy to SAR665mn vs our estimate of SAR359mn. Although the increase in provisions is in-line with other banks results in Q4 19, it was unexpected for AlRajhi. We believe the provisioning in other banks were related to corporate segment, whereas AlRajhi has retail centric business. 

    Loans grew 7.7% yoy (+2.1% qoq) to SAR250bn and deposits grew 6.3% yoy (+4.5% qoq) to SAR312bn, coming broadly in-line with our estimates. L/D ratio stood at 79.9% vs 78.9% in Q4 18.

    We are Neutral on AlRajhi with a PT of 62.0. AlRajhi trades at a 2020f PB of 3.0x, higher than peer average of 1.8x.