Earnings Report /
Saudi Arabia

Alinma: Net income down yoy, but better than estimates

  • Revenue declined -1.3% yoy (+6.2% qoq) to SAR1.35bn, but was higher than our estimate of SAR1.18bn.

  • Based on our initial estimates, NIMs dropped c35bps yoy to 3.5% in Q2 20 vs. 3.8% in Q2 19.

  • Operating expenses (including provisioning) increased +4.0% yoy (-8.0% qoq).

SNB Capital
6 August 2020
Published bySNB Capital

Alinma reported a better-than-expected set of Q2 20 results, with a net income of SAR572mn (down -15.4% yoy, +54.6% qoq). It is significantly higher than the NCBC and consensus estimates of SAR407mn and SAR383mn, respectively. We believe the positive surprise is due to lower than expected provisions and higher non-interest income. Another positive of the results was a +17.7% yoy (+5.5% qoq) increase in the loan book to SAR103bn.

Revenue declined -1.3% yoy (+6.2% qoq) to SAR1.35bn, but was higher than our estimate of SAR1.18bn. The NSCI increased +5.3% yoy (flat qoq) to SAR1.12bn. However, the increase in the NSCI was offset by a -24.8% yoy decrease (+52.4% qoq) in fee and other income. However, it was higher than our estimate of SAR140mn.

Based on our initial estimates, NIMs dropped c35bps yoy to 3.5% in Q2 20 vs. 3.8% in Q2 19. However, margin compression was less than anticipated and came higher than our estimates of 3.3%. Asset yields declined c75bps yoy to 4.1%, in-line with our estimate. Cost of funds contracted by c46bps to 0.8%, lower than our estimate of 1.0%.

Operating expenses (including provisioning) increased +4.0% yoy (-8.0% qoq). We estimate provisioning expenses came in at SAR204mn vs. SAR142mn in Q2 19 and lower than our estimate of SAR239mn. We estimate cost of risk to be c0.8% lower than our estimates of 1.0% and Q1 20 level of 1.4%.

Loans grew +17.7% yoy to SAR103bn (+5.5% qoq), above our estimate of SAR99bn, while deposits grew +15.7% yoy to SAR107bn (+3.4% qoq), above our estimate of SAR93bn. The bank’s liquidity position tightened further, as L/D ratio increased to 96.1% vs. 94.1% in Q1 20. Total assets grew +15.2% yoy to SAR142bn (+3.0% qoq).

Based on reported numbers so far, the banking sector earnings are down -13.3% yoy (+13.7% qoq), but more importantly, on a cumulative basis earnings are c7.0% higher than the consensus estimate. Loan growth has been strong, growing +3.3% qoq and +14.8% yoy.

We are Neutral on Alinma with a PT of SAR14.9. Alinma trades at 2020f P/B of 0.9x, lower than the peer average of 1.3x.