SAUD 2Q20 standalone bottom line in 2Q20 recorded a healthy figure of EGP280 million (+8% q/q, and +3% y/y). The healthy set of results came on the back of 1) stronger margins caused by increased treasury allocation on expense of lending growth which shrank by 1% in 2Q20, 2) lower opex, contracting by 4% q/q in 2Q20, and 3) the absence of over-provisioning witnessed by most banks, where the bank took moderate provisions in line with improving asset quality. On the downside, non-interest income and a surging effective tax rate failed to provide support, and lending contracted by 1% q/q in 2Q20.
2Q20 results takeaways:
NIM was the main driver of earnings growth as it expanded by 36bps to 3.9% on increased treasury exposure which rose 13.6 ppts to stand at 53% of total assets as of June-end 2020. Net-interest income rose sequentially by 12% as interest income declined by 6% q/q against a faster interest expense decline of 13% q/q.
Non-interest income contracted by 4% q/q mainly on lower fees and commissions while investment income provided support, bringing non-interest income down at 11% to operating income, versus 13% a quarter earlier.
OPEX contracted sequentially by 8% in 2Q20, and cost to income ratio declined by 440 bps, boosted by a faster increase in base, standing at 23% in 2Q20.
Non-performing loans ratio (NPL) slightly improved by 26bps to record 6.8%, with a stable cost of risk (COR) of 1.3%, to result in a higher provisions coverage ratio of 108%.
Effective tax rate surged by 6.5 pps q/q, on higher treasury exposure, recording 41% in 2Q20, up from 35% in 1Q20.
Lending contracted by 1% q/q, bringing down YTD growth to 3%, while customer deposits remained stable with YTD growth of 1%.
SAUD is trading at attractive multiples; Maintain Overweight
We reiterate our Overweight recommendation on SAUD on FV of EGP14.00/share. The stock is trading at 1H20 annualized P/E20 of 1.9x and P/B20 of 0.4x (which are in line with our estimates of 3% bottom-line growth in 2020), on ROAE of 24%. BoD proposed 1:5 bonus shares financed from 2019 net profit, which should improve share price performance.