AlRajhi reported an in-line set of Q3 22 results, with net income increasing by 14.8% yoy (+2.3% qoq) to SAR4.35bn. This compares with the SNB Capital and consensus estimates of SAR4.38bn and SAR4.39bn, respectively. The growth in net income was primarily driven by higher net special commission income (+9.1% yoy and +2.2% qoq) and supported by a decline in cost-to-income ratio to 25.8% in Q3 22 vs 26.7% in Q3 21. Adjusted for Tier 1, net profit stood at SAR4.32bn, up 13.7% yoy (+2.9% qoq). The bank recorded a robust growth of 32.4% yoy (+7.3% qoq) in loan book, which is a key highlight of the result.
Revenues increased by 9.5% yoy (+0.8% qoq) to SAR7.21bn and were largely in-line with our estimates. The growth in revenues was driven by an increase in net special commission income (NSCI), (+9.1% yoy, +2.2% qoq) to SAR5.7bn, marginally higher than our estimate of SAR5.6bn. Fees and other income increased by 11.4% yoy (-3.9% qoq) to SAR1.52bn.
NIMs declined c56bps to 3.1% in Q3 22, in-line with our estimates. The yoy decline in NIMs can be attributed to flat asset yields yoy at 4.6%, coupled with an increase in funding costs by c89bps yoy to 1.2%. The contraction in NIMs is indicative of the bank’s tightening liquidity position and increased competition. We believe the bank is targeting growth in market share at the expense of margins.
Operating expenses (ex-provisioning) increased 6.1% yoy (+2.2% qoq) to SAR1.86bn and was in-line with our estimates of SAR1.83bn. Subsequently, cost to income ratio declined to 25.8% in Q3 22 vs 26.7% in Q3 21.
Provisioning expenses declined sharply both yoy and qoq to SAR490mn in Q3 22 and was significantly lower than our estimate of SAR547mn. This resulted in a decline in cost of risk to 0.4% in Q3 22 vs. 0.6% in Q3 21.
The bank’s strong loan book growth of 32.4% yoy (+7.3% qoq) to SAR557bn is higher than our estimate of SAR545bn and is the strongest growth reported from the four banks that have reported so far in Q3 22. Deposits increased 16.2% yoy (+0.5% qoq) to SAR556bn, albeit lower than our estimate of SAR578bn. The bank’s L/D ratio witnessed a sharp increase to 100.3% in Q3 22 vs 88.0% in Q3 21 and 94.0% in Q2 22. Adjusted for Tier 1 sukuk offering, LDR ratio remains high at 99% in Q3 22 vs 93% in Q2 22.
Based on our last update in June 2022, we are Neutral on Al Rajhi with a PT of SAR94.3. The stock is trading at 2023f P/B of 3.8x and is higher than the peer average of 2.0x. We believe that tightening liquidity is the main concern.