Earnings Report /
Saudi Arabia

Alinma: Weak results on higher provisions

    SNB Capital
    2 February 2020
    Published bySNB Capital

    Alinma reported weaker than expected results in Q4 19 with net income of SAR509mn, down -51.4% yoy and -28.7% qoq. This is significantly below the NCBC and consensus estimates of SAR759mn and SAR697mn, respectively. We believe the variance is primarily due to higher provisioning. We estimate the provisioning expense was SAR325mn in Q4 18 vs average of SAR90mn in the past four quarters.

    NCBC view on results

    Alinma reported a net income of SAR509mn in Q4 19 (down -28.7% qoq), which is significantly lower than the NCBC and the consensus estimates of SAR759mn and SAR697mn, respectively. The deviation is primarily due to higher provisioning and lower margins.

    Net income declined -51.4% yoy. However, Q4 18 earnings included SAR556mn zakat reversal related to previous year settlements. Adjusting for the one-off, the earnings are up +3.6% yoy. 

    Net Special Commission income (NSCI) was SAR1.16bn, reflecting a growth of 19.4% yoy (flat qoq). However, this was slightly lower than our estimate of SAR1.22bn as NIMs compression was higher than our expectations. 

    As per our initial estimates, NIMs stood at 4.0%, lower than our estimate of 4.3% and compared to 3.8% in Q4 18 and 4.2% in Q3 19. We believe the variance is due to lower than expected asset yield which came in at 5.0% vs. our estimate of 5.4%. Funding cost stood at 1.2% in-line with our estimate. 

    Operating expense (including provisioning) increased 50.6% yoy to SAR951mn, significantly higher than our estimates of SAR683mn, which we believe is due to higher than expected provisions. We estimate provisioning expense was SAR300-350mn in Q4 19 vs SAR90mn for the last 4 quarters. 

    Despite the yoy decline in earnings, we believe the results showed some positive elements. The balance sheet trends remains strong with a loan book growth of 13.0% yoy to SAR95bn (+4.6% qoq). This is higher than our estimate of SAR91bn. Deposits grew by +13.2% yoy to SAR102bn (+2.2% qoq), higher than our estimate of SAR97bn. Investments grew 27.6% yoy to SAR23bn and total assets grew 8.5% yoy to SAR132bn, both in-line with our estimates. 

    We are Neutral on Alinma with a PT of SAR24.1. We believe strong volume growth is a key driver for the stock.