BJAZ reported a weak set of Q2 22 results. Although net income increased by 2.6% yoy (-31.2% qoq) to SAR258mn, it was lower than the SNB Capital and consensus estimates of SAR373mn and SAR350mn, respectively. The deviation was due to a decline in NSCI, which fell by 5.6% yoy (-14.9% qoq). Lower provisioning (-74.9% yoy; -57.9% qoq) provided some respite to the bottom-line.
Revenues fell by 2.6% yoy (-18.2% qoq) to SAR807mn and were much lower than our estimate of SAR1,061mn. NSCI decreased by 5.6% yoy (-14.9% qoq) to SAR596mn, significantly lower than our estimate of SAR822mn. Fee and other income came at SAR211mn (+7.1% yoy; -26.2% qoq) and was also behind our estimate of SAR239mn.
Our initial estimates suggest that NIMs declined by 47bps to 2.5% and were much lower than our estimates of 3.4%. Asset yields remained flat at 3.4%, compared to our estimate of 4.0%. Funding costs witnessed a sharp rise of c55bps yoy to 1.1% which was higher than our estimate of 0.7%. While the impact of rate hikes on NIMs is a sector-wide theme, the flat asset yields and sharp rise in cost of funds is a major concern of the results.
Operating expenses (ex-provisioning) increased by 19.8% yoy (flat qoq) to SAR472mn, compared to our estimate of SAR483mn. As a result, cost-to-income increased to 58.4% vs. 47.5% in Q2 21 and was also higher than our estimate of 47.5%.
The bank provisions declined steeply to SAR40mn (-74.9% yoy; -57.9% qoq), compared to our estimate of SAR150mn. Consequently, cost of risk declined c87bps yoy to 0.2% much lower than our estimate of 0.9%.
BJAZ’s loan book grew by 15.4% yoy (+3.7% qoq) to SAR66bn, in-line with our estimates. Deposits increased 22.5% yoy (+9.2% qoq) to SAR87bn, marginally ahead of our estimate of SAR81bn. Subsequently, L/D ratio declined to 75.8%. Despite a comfortable L/D position, a sharp rise in cost of funds is a concern.
The bank has declared an interim dividend of SAR328mn (SAR0.40/share) for the H1 2022, which is higher than SAR287mn (SAR0.35/share) for H1 21.
We are Neutral on BJAZ with a PT of SAR26.3. Currently, the stock trades at 2022f PB of 1.7x, higher than its 5-year average of 0.9x. Where lower impairment charges and decent loan growth are key positives of the result, we believe the sharp rise in the cost of funds despite a comfortable liquidity position is a major concern.