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.