Equity Analysis /

Export Development Bank Of Egypt: Q4 18/19 results – Strong operational performance despite sequential drop in bottom line

    Al Ahly Pharos Securities Brokerage
    29 August 2019

    EXPA’s consolidated bottom line in Q4 18/19 was EGP237mn (-20% qoq, and +3% yoy). The sequential decline is mainly attributed to a surge in provisions and higher effective tax rate, despite strong interest and non-interest income. FY 18/19 bottom line expanded by 41% yoy recording EGP1.12bn, on a ROAE of 22%. 

    Key takeaways: 

    • Margins improved slightly in Q4 18/19 by 22bps, standing at 4.3%, up from 4.1% a quarter earlier, despite a drop in treasury exposure to total assets by 3.7ppts in Q4 18/19.
    • Non-interest income rose sequentially by 10%, mainly due to an increase in net fees and commissions income by 29%. Non-interest income to operating income remained stable at 27% in Q4 18/19.
    • Opex rose sequentially by a similar percentage than that of operating income (+9% qoq), which resulted in a stable cost to income ratio, standing at 33% in Q4 18/19.
    • Better asset quality; NPL ratio improved by 26bps, recording 2.9% in Q4 18/19, down from 3.2% in Q3 18/19.
    • A surge in cost of risk (COR), reflected in higher booked provisions by 254% sequentially, resulting in a COR of 1.8% in Q4 18/19, up from 0.5% a quarter earlier, with an increase in coverage ratio, recording 149%.
    • Sequential healthy growth in the balance sheet with net loans expanding by 8% qoq, versus an average of 7% over the past four quarters, and customer deposits grew by 10% qoq, versus an average of 2% over the last four quarters, bringing loan/deposit ratio to 66% .

    EXPA is trading at attractive multiples compared to peers; maintain Overweight on FV of EGP12.00

    We reiterate our Overweight recommendation on EXPA on FV of EGP12.00/share. The stock is trading at P/E19 of 2.5x, and P/B19 of 0.4x, on ROAE of 19.3%. These multiples are considerably below Egypt’s sector average of P/E19 of 4.2x, and P/B19 of 0.8x.

    Note that EXPA has not implemented IFRS9 yet since the bank’s fiscal year ends in June. It will be reflected starting FY 19/20.