Equity Analysis /

Faisal Islamic Bank of Egypt: 2Q19 — Weak operational performance and high base effect weigh on earnings

    Al Ahly Pharos Securities Brokerage
    1 September 2019

    Bottom line drops sequentially mainly due to high base effect in 1Q19 and weak operational performance; Steady sequential balance sheet growth 

    Faisal Islamic Bank of Egypt (FAIT) 2Q19 net profit pre-minority interest and appropriations came in at EGP642 million, falling by 38% sequentially and growing by 7% annually with an ROAE of 20%. 2Q2019 results key takeaways were:

    Treasury exposure to total assets stabilized at 34% in 2Q19, resulting in a decline in NIM sequentially by 13 bps, standing at 5.1%. Net-interest income declined stabilized sequentially.

    Non-interest income plunged sequentially by 69% mainly due to high base one-off FX gains effect in 1Q19, bringing non-interest income to operating income to 12% in 2Q19, down from 31% a quarter earlier.

    OPEX rose sequentially by 8% in 2Q19, while operating income fell by 21% q/q, resulting in a higher cost to income ratio of 28% in 2Q19, up from 24% in the previous quarter.

    Provision reversal, resulting in a COR of -1.2% in 2Q19, up from -3.5% a quarter earlier, with a decrease in coverage ratio by 31 pps, recording 71%. Asset quality improved, with a decrease in NPL ratio by 4 pps, standing at 7.3% in 2Q19.

    Higher effective tax rate, increasing by 12 pps to stand at 27% in 2Q19, up from 15% in 1Q19.

    Balance sheet witnessed a sequential steady growth with gross loans expanding by 2% q/q, versus an average of 8% over the past four quarters, and customer deposits grew by 2% q/q, versus an average of 3% over the past four quarters, bringing Loan-to-Deposit ratio to 14% .

    FAIT is trading at attractive multiples compared to peers, Maintain Equalweight on FV of EGP16.00 

    We reiterate our Equalweight recommendation on FAIT on FV of EGP16.00/share. The stock is trading at P/E19 of 2.6x, and P/B19 of 0.4x, on ROAE of 16%. Egypt’s sector average P/E19 and P/B19 are 4.7x and 1.0x, respectively.