Equity Analysis /
Saudi Arabia

Al Rajhi Bank: Revenue growth offset by higher opex, zakat

    SNB Capital
    30 July 2019
    Published by

    AlRajhi reported an in line set of Q2 19 results, with net income increasing by +4.3% yoy (flat qoq) to SAR2.58bn. This compares to NCBC’s estimates of SAR2.64bn. We believe the yoy growth in earnings is largely attributed to NIM expansion, supported by a growth in earning assets. Strong revenue growth was partly offset by an increase in opex and zakat expenses. We are Neutral on AlRajhi. However, we may revisit our ratings and estimates subject to the change in the interest rate.

    NCBC view on results: 

    AlRajhi reported an in line set of Q2 19 results with a net income of SAR2.58bn, up 4.3% yoy (-0.7% qoq). To highlight, the reported net income is post-zakat and compares with NCBC’s post zakat estimates of SAR2.64bn (pre-zakat est. SAR2.94bn). We believe the yoy growth in earnings is attributed to NIM expansion and higher-earning assets.

    Revenues increased 13.4% yoy to SAR4.86bn, coming in line with our estimates of SAR4.74bn. This is the highest revenue level since Q1 12. Revenue growth was largely driven by NSCI growth of 14.0% yoy to SAR4.18bn, higher than our estimate of SAR4.03bn. NSCI growth may be attributed to NIM expansion of c50bps yoy to 5.7% (flat qoq), the highest level since Q1 12. This compares with our estimate of 5.5%. Fee and other income grew 8.7% yoy to SAR800mn, supported by an increase in fee, exchange and other income. This is lower than our estimate of SAR853mn. 

    Operating expenses increased 16.0% yoy to SAR1.61bn due to higher depreciation and G&A expenses. This is higher than our estimate of SAR1.39bn and is the highest quarterly opex on record. Provisions increased 15.7% yoy to SAR386mn vs our estimates of SAR417mn.

    We estimate that zakat expenses increased nearly threefold to SAR287mn in Q2 19 vs. SAR94mn in Q2 18. This compares with our estimate of SAR294mn.

    Loans and deposits grew 5.3% yoy and 7.2% yoy to SAR238bn and SAR301bn, respectively, coming in line with our estimates. L/D ratio declined to 79.3% in Q2 19 vs. 80.8% in Q2 18. 

    We are Neutral on AlRajhi. The company trades at a 2019f PB of 3.3x, higher than peer average of 1.9x. We believe that the interest rate outlook poses a downside risk to our earnings projections.