Equity Analysis /
Egypt

Faisal Islamic Bank of Egypt: Provision reversal and one-off FX gains drive earnings growth; maintain Equalweight on FV of EGP1600

    Bottom line surges sequentially on provision reversal and one-off FX gains; Robust sequential lending growth 

    FAIT 1Q19 net profit pre minority interest and appropriations came in strong at EGP1,042 million, growing by 87% sequentially and 41% annually with a  ROAE of 33%. 1Q2019 results key takeaways were:

    • Despite a rise in treasury exposure to total assets by 650 bps in 1Q19 to record 34%, NIM dropped sequentially by 30 bps, standing at 5.3%. Net-interest income declined by 2% sequentially.
    • Non-interest income surged sequentially by 36% mainly due to one-off FX gains, bringing non-interest income to operating income to 31% in 1Q19, up from 24% a quarter earlier.
    • OPEX dropped sequentially by 53% in 1Q19, due to a high base one-off expenses in 4Q18, resulting in a cost to income ratio of 24% in 1Q19, down from 54% in the previous quarter.
    • Provision reversal, resulting in a COR of -3.5% in 1Q19, down from -0.1% a quarter earlier, with a decrease in coverage ratio by 37pps, recording 102%. Asset quality improved, with a decrease in NPL ratio by 150 bps, standing at 11% in 1Q19.
    • Higher effective tax rate, increasing by 2% to stand at 15% in 1Q19, up from 13% in 4Q18.
    • Balance sheet witnessed a sequential strong growth with gross loans expanding by 12% q/q, versus an average of 4% over the past four quarters, and customer deposits grew by 1% q/q, versus an average of 2% over the past five 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 2019f of 16%. Egypt’s sector average of P/E19 and P/B19 are 4.4xand 0.9x, respectively.