BJAZ reported a strong set of Q1 22 results with a net income of SAR375mn, up 16.6% yoy (+63.9% qoq). This is higher than the SNB Capital and consensus estimates of SAR262mn and SAR282mn, respectively. The deviation is due to 1) higher than expected fee and other income, 2) lower provisioning expense and 3) lower effective zakat rate. Their loan book increased by 14.7% yoy (+1.3% qoq) to SAR63.3mn, but was lower than the loan growth announced by other peers. We believe this is a key concern of the result.
Revenues increased by 4.3% yoy (+10.2% qoq) to SAR986mn and were higher than our estimate of SAR914mn. NSCI increased 8.8% yoy (+3.7% qoq) to SAR701mn and was in-line with our estimates. Fee and other income at SAR286mn (-5.3% yoy; +30.3% qoq) and was ahead of our estimates of SAR226mn. We believe this may be due to higher capital gain booked during the quarter.
Our initial estimates suggest that NIMs declined marginally by 5bps to 2.7% but were in-line with our estimates of 2.6%. Asset yields remained flat at 3.5%, lower than our estimate of 3.7%. Funding costs witnessed a small rise of c7bps yoy to 0.6% but were lower than our estimates of 1.0%. We believe the bank is optimizing its deposits mix, as it has forgone its loan growth.
Operating expenses (ex-provisioning) increased 10.9% yoy (+2.7% qoq) to SAR478mn, compared to our estimate of SAR462mn. As a result, cost-to-income increased to 48.1% vs. 45.4% in Q1 21. However, it was lower than our estimate of 50.2%.
BJAZ’s recorded provisions of SAR94mn (-38.5% yoy; -39.5 qoq) vs our estimate of SAR150mn. Consequently, the cost of risk declined c51bps yoy to 0.6% lower than our estimate of 0.9%.
The effective zakat rate was reduced to 10% in Q1 22 vs our estimate of 14%. This is also lower than Q1 21 and Q4 21 levels of 12% and 14%, respectively.
BJAZ’s loan book grew 14.7% yoy (+1.3% qoq) to SAR63bn, marginally lower than our expectations of SAR65mn. We believe this is a key concern of the results as the growth is lower than the growth reported by its peers. Deposits increased 12.2% yoy (+1.2% qoq) to SAR79bn and was lower than our estimates of SAR81bn. The bank’s L/D ratio increased slightly to 79.8% vs. 78.1% in Q1 21.
We are Neutral on BJAZ with a PT of SAR20.8. Currently, the stock trades at 2022f PB of 1.9x, higher than its 5-year average of 0.9x. Despite reporting strong profitability numbers, we believe lower than industry loan growth is a concern.