Profits sequentially driven by lower opex and other income; loan-to-deposit ratio improves
CIEB 4Q19 consolidated net profit pre-minority and appropriations recorded EGP497 million (-11% q/q, -6% y/y) bringing FY19 to a strong EGP2,360 million (+7% y/y, +3% higher than our estimates) with a ROAE for FY2019 of 35%. Sequential decline in profits was mainly attributed to a decline in operating revenue despite support from controlled operating costs.
Q4 19 results key takeaways:
- Margins remained stable, for the third quarter straight, at 7.0%. Net interest income slightly declined despite higher treasury exposure (+2% q/q) and lending expansion (+4% q/q).
- Non-interest income came broadly flat q/q, where other income compensated for fees and commissions, and investment income sequential decline.
- Efficiency improved by 4.5% q/q where cost to income ratio recorded 31%, triggered by a decrease in other expenses while admin expenses grew steadily at 10% q/q. The 13% q/q decrease in OPEX drove net operating profit (+6% q/q), amid weak operating revenues.
- 4Q19 marked the first quarter of the year for the bank to book provisions of EGP74 million, at a cost of risk of 1.2%, in tandem with a slightly lower non-performing loans ratio of 2.9%. Provisions coverage surged to 140% in 4Q19 from 129% in 3Q19.
- Effective tax rate inched down by 100bps in 4Q19, recording 24%.
- Loan portfolio bounced 4% q/q bringing the YTD growth to 13%, while customer deposits continued contracting by 4% q/q, bringing YTD contraction to 10%. As a result, loan to deposit Ratio (LDR) improved from 58% as of September 2019 end to 62% as of December 2019 end.
- Capital adequacy ratio sequentially declined, on faster growth of risk weighted assets than total capital, but remained strong at 18.3%.
CIEB offers a decent dividend yield; maintain Overweight
We reiterate our Overweight recommendation on CIEB on FV of EGP57.50/share. CIEB is trading at attractive multiples of P/E20 of 6.3x, and P/B20 of 1.7x, which is below COMI’s P/E20 of 10.7x, and P/B20 of 2.1x, but above Egypt sector average of P/E20 4.2x and P/B20 0.8x. CIEB is among our top dividend plays with proposed dividends payout ratio of 60% (+6% higher than our estimates) which translates to DPS of EGP4.55/share and a dividend yield of 10.6% in 2020.