Equity Analysis /
Saudi Arabia

Banque Saudi Fransi: Opex efficiencies mitigate decline in revenues

    SNB Capital
    5 May 2019
    Published by

    Banque Saudi Fransi (BSFR) reported a net income of SAR1,126mn in Q1 19. This compares with Q1 18 net income of SAR1,112mn and Q4 18 net income of SAR269mn, which was impacted by one-off provisioning charges. This is significantly higher than the NCBC estimate of SAR1,033mn. With revenues being in-line, we believe the variance is attributable to lower than expected opex.

    BSFR’s net income remained broadly unchanged yoy at SAR1,126mn in Q1 19. This is significantly higher than the NCBC and consensus estimates of SAR1,033mn and SAR991mn respectively. We believe the variance is attributed to lower than expected opex.

    Revenues declined -1.2% yoy to SAR1,723mn, coming in line with our estimates of SAR1,693mn. The decline was largely attributed to a SAR97.3mn one-off gain on the partial sale of Allianz Saudi Fransi in Q1 18. NSCI remained broadly flat yoy at SAR1,273mn, compared to our estimates of SAR1,236mn. We believe the variance is attributed to higher than expected investment growth. Fee and other income declined -7.8% yoy to SAR450mn, which the management attributed to the one-off gain in Q1 18.

    NIMs remained unchanged yoy at 3.4%, coming in-line with our estimates. This 60bps rise in asset yields was offset by an equivalent rise in funding costs. It is worth noting that gross special commission income increased 14.9% yoy to SAR1,846mn, coming in-line with our estimates.

    Operating expenses (including provisions) declined -5.5% yoy to SAR597mn. This is lower than our estimates of SAR674mn. We believe the variance is attributed to higher than expected opex savings.

    Loans and advances declined -2.1% yoy to SAR121bn, in-line with our estimate. Meanwhile, deposits grew 2.0% yoy to SAR145bn vs our estimates of SAR148bn. L/D ratio declined 350bps yoy to 83.7%. Investments grew 22.8% yoy to SAR34bn, coming significantly above our estimates of SAR29bn. Total assets grew 3.2% to SAR190bn.

    We are Underweight on BSFR with a PT of SAR35.0. A high NPL ratio, cost of risk and zakat rate remain a key drag on earnings. BSFR trades at a 2019f PB of 1.5x, lower than its peer average of 1.9x.