Equity Analysis /

Export Development Bank Of Egypt: Weak operationally despite rise in bottom line; strong balance sheet growth

    Bottom line increases sequentially on one-off capital gains

    Export Development Bank of Egypt (EXPA)’s consolidated bottom line in 3Q18/19 recorded EGP294 mn (+4% q/q, and +79% y/y), which witnessed a  weak operational performance despite sequential bottom line growth mainly due to one-off capital gains. Key takeaways were:

    • Non-interest income surged sequentially by 56%, mainly due to the one-off capital gains on disposal of unutilized fixed assets, supporting bottom line growth.
    • Despite a stable treasury exposure in 3Q18/19, NIM dropped by 54 bps, standing at 4.1%.  Net-interest income dived by 8% sequentially. 
    • OPEX rose sequentially on a faster pace than operating income which resulted in a slightly higher cost to income ratio, increasing by 37 bps, standing at 33% in 3Q18/19.
    • Better asset quality; NPL ratio improved by 143 bps, recording 3.2% in 3Q18/19, down from 4.6% in  2Q18/19.
    • A  decline in Cost of Risk (COR), reflected in lower booked provisions by 1% sequentially, resulting in a COR of 0.5% in 3Q18/19, down from 0.6% a quarter earlier, with an increase in coverage ratio, recording 135%. 
    • Balance sheet witnessed a sequential healthy growth with net loans expanding by 7% q/q, versus an average of 8% over the past five quarters, and customer deposits grew by 5% q/q, versus an average of 3% over the last five quarters, bringing Loan-to-Deposit ratio to 67%.

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

    We reiterate our Overweight recommendation on EXPA on a FV of EGP12.00/share. The stock is trading at P/E19 of 2.9x, and P/B19 of 0.4x, on ROAE of 18.4%. These multiples are considerably below Egypt’s sector average of P/E19 of 4.7x, and P/B19 of 0/9x. 

    Note that EXPA did not yet implement IFRS9 since the bank’s fiscal year ends in June 2019. We assume it will reflect starting FY19/20.