Earnings Report /
Saudi Arabia

Alinma: Higher asset yields drive earnings growth

    SNB Capital
    4 August 2019
    Published by

    Alinma reported stronger than expected set of Q2 19 results, with a net income of SAR676mn, increasing 11.6% yoy (+6.0% qoq). This compares to the NCBC post-Zakat net income estimate of SAR632mn. We believe the variance is attributed to higher than expected asset yields which increased c20bps yoy and c11bps qoq, to be amongst the strongest in the sector.

    NCBC view on results

    Alinma reported a strong set of results in Q2 19 with a net income of SAR676mn, increasing 11.6% yoy (+6.0% qoq). This compares to NCBC post-Zakat net income estimate of SAR632mn (pre-Zakat SAR702mn). We believe the variance is attributed to higher than expected asset yields which increased c20bps yoy and c11bps qoq to be amongst the strongest in the sector.

    Revenues came in at SAR1,364mn in Q2 19, increasing 10.8% yoy (+5.7% qoq), higher than our estimate of SAR1,300mn. This is the highest quarterly revenue since Q1 12. Revenue growth was mainly driven by a 14.6% yoy growth in NSCI (+8.8% qoq), which was higher than our estimate of SAR1,002mn. This was partly offset by a 1.7% yoy decline in fee and other income (-4.4% qoq), which was lower than our estimate of SAR299mn. 

    As per our initial estimates, NIM came in at 4.0% in Q2 19 vs 3.9% in Q2 18, 3.8% in Q1 19 and higher than our estimates of 3.7%. NIM expansion was attributed to an increase in asset yields to 5.1% in Q2 19 vs 4.9% in Q2 18, 5.0% in Q1 19 and our estimate of 4.8%. This was partly offset by an increase in cost of funds to 1.3% in Q2 19 vs 1.1% in Q2 18, 1.4% in Q1 19 and in-line with our estimate. 

    Operating expense (including provisioning) stood at SAR613mn, in-line with our estimates and remaining broadly flat yoy (+5.5% qoq). We believe the increase in depreciation and G&A expenses were offset by a decline in provisions for loan losses and rent expenses.

    Loans grew 6.7% yoy to SAR88bn (+2.1% qoq), in-line with our estimate. Deposits grew 4.4% yoy to SAR93bn (+0.6% qoq), lower than our estimate of SAR97bn. As a result, funding position remained tight with L/D ratio increasing to 94.5% in Q2 19 vs 92.3% in Q2 18 and 93.1% in Q1 19. Investments grew 31.5% yoy to SAR21bn.

    We are Neutral on Alinma with a PT of SAR28.8. Following the change in interest rates, we may revisit our estimates.