Equity Analysis /
Saudi Arabia

Samba: Weak Q2 results on higher provisioning

    SNB Capital
    1 August 2019
    Published by

    Samba reported a weak set of Q2 19 results, with net profit declining -24.7% yoy to SAR935mn. This compares to NCBC’s estimates of SAR1.29bn. Despite revenues being in-line with our expectations, we believe higher operating expense (including provisioning) led to the disappointment. We are Neutral on Samba, as lower interest rates pose a key risk to our valuations. We will revisit our estimates once full financials are released.

    NCBC view on the results 

    Samba reported a weak set of Q2 19 results with net income declining -24.7% yoy (-12.2% qoq) to SAR935mn. This is significantly lower than the NCBC post-zakat earnings estimates of SAR1,278mn (pre-zakat estimates SAR1,452mn). We believe the variance is mainly attributed to higher provisions booked during the quarter, which inflated operating expenses by +66.6% yoy (+14.7% qoq).

    Revenues grew +4.4% yoy to SAR2.17bn, coming in-line with our estimate. NSCI came-in at SAR1,608mn, increasing +4.3% yoy (-2.3% qoq). This compares to NCBC’s estimate of SAR1,657mn. Fee and other income came-in at SAR563mn, up +4.6% yoy (+2.6% qoq).

    NSCI growth is primarily attributed to a c+7.7% yoy growth in earning assets. We believe earnings assets growth was largely attributed to a +24.3% yoy growth in the investment book to SAR79bn, whereas loan book contracted by 1.3% yoy to SAR115bn. We believe NIM declined by c11bps yoy to 3.3% vs our estimates of 3.4%.

    Operating expenses, including provisions, increased significantly by +66.6% yoy to SAR1,131mn which management attributed to an increase in provisioning expenses. This is significantly higher than our estimate of SAR754mn. This is a second consecutive quarter of high provisioning and is not aligned with the bank’s conservative lending policy. Samba had the lowest Stage 2 loans in the Banking sector, which made us assume lower Stage 2 to Stage 3 migration risk.  

    Loans declined by 1.3% to SAR115bn, while deposits remained flat at SAR168bn, coming in-line with our estimates. This resulted in the L/D ratio remaining broadly unchanged at 68.4%. Investments grew +24.3% yoy to SAR79bn (+4.4% qoq), though slightly lower than our estimates of SAR81bn.

    We are Neutral on Samba. Higher provisioning and low interest rate scenario poses major risks to our forecast.