Commercial Bank of Dubai

Transcription

1 Stock Performance (AED) Index Performance(AED) Research Department Banks - UAE Commercial Bank of Dubai Flash Note 23 February 2010 Another Quarter of Provisioning Earnings much lower than our estimates on higher provisioning; operating income in line NPL ratio rose 138 bps to 2.6% QoQ, primarily due to construction and retail loan books Maintain our Hold rating but slightly raise TP to AED4.1 Results highlight Fourth quarter earnings of AED46 million missed our estimates by 81% due to loan loss provisioning - the highest since 1Q06 and 3.5x higher than our forecasts. Operating income was more or less in line with expectations at AED318 million. The net interest margin dropped to 3.69% from 3.88% in 3Q09 as the loan book declined and c.82% of the loan portfolio is re-priced within three months. The NPL ratio increased to 2.6% in 4Q09 from 1.3% in 3Q09 mainly due to its construction and retail exposure. Construction represents 13% of the loan book with an NPL ratio at 6.1% and retail represents 30% with an NPL ratio at 2.8%. Adoption of the expected new regulation on general provisioning (1.25% of total loan book) and the rise in bad loans increased loan loss provisioning during the quarter. What we think Loan loss provisioning continues to weigh on earnings as highlighted in our 3Q09 earnings review note published on October 18, However, we find core operating performance strong, and implementation of the expected new regulation (change in NPL cut-off period and general provisioning of 1.25%) will not affect earnings this year. Given the increase in loans showing signs of weakness (AED758 million in FY09 vs. AED382 million in FY08) and the rise in loans over 90 days past due but not impaired, we expect the NPL ratio, and hence loan loss provisioning, to continue at high levels this year, similar to last year. Hold Target Price (AED) 4.10 Market Price (AED) 3.88 Upside 5.5% Listed on Bloomberg RIC DFM CBD UH CBD.DU Market Cap. (AED mn) 6,847 Market Cap. (USD mn) 1,687 No of Shares (mn) 1,765 Foreign Ownership Limit 0.0% Foreign Ownership Level 0.0% Shareholder Structure Free Float 80.0% Government 20.0% Price Performance Chart CBD (LHS) DFMGI (RHS) 7,000 6,000 5,000 4,000 Action We maintain our Hold rating, but raise our TP to AED4.1/share from AED3.95/share. Despite downward revision of our earnings estimates, the TP slightly increases as we roll over our DCF one year. We raise our FY10f loan loss provisioning due to the asset quality deterioration during the year and uncertainty surrounding the economic environment. Valuation and catalyst We find the stock fairly priced in, trading at a FY10f PB multiple of 1.2x a 1% premium to its implied PB. KPIs (AED mn) New Old Consensus FY10f FY11f FY10f FY11f FY10c FY11c Net Interest income 1, , , , Total Income 1, , , , Net Income , , , ,080.0 Net Interest Margin 3.74% 3.63% 3.46% 3.48% - - Gross Loans (bn) Cost/Income 31.1% 32.1% 31.9% 32.9% - - Gross LD 102.0% 100.0% 100.0% 100.0% - - EPS DPS Dividend Yield 2.84% 5.04% 3.93% 5.07% - - P/E (x) P/B (x) ROAA 2.1% 2.9% 2.7% 2.6% - - ROAE 13.9% 18.1% 18.2% 17.0% Janany Vamadeva janany.vamadeva@af-hc.com Germaine Benyamin germaine.benyamin@af-hc.com * Disclaimer: See page 5 3,000 2,000 1,000 Commercial Bank of Dubai 1

2 Table 1: Quarterly Comparison of Actual vs. Estimates AED million 4Q09a 4Q08a YoY 3Q09a QoQ 4Q09e Surprise Net Interest Income % 338-2% 324 2% Non-Interest Income % 117 1% 120-1% Total Income % 455-1% 444 1% Operating Expense % 139-5% 137-3% Operating Profit % 316 1% 307 3% Provision % % % - Loan Loss na % % - Other % 6-52% 3 8% Net Income na % % Cost-to-Income Ratio 29% 23% 31% 31% in billion Net Loans % % % Deposit % % % Equity % 5.3 0% 5.5-3% Table 2: Comparison (annual) of Actual vs. Estimates AED million FY09a FY08a YoY FY09e Surprise Net Interest Income 1,318 1,144 15% 1,310 1% Non-Interest Income % 451 0% Total Income 1,768 1,677 5% 1,762 0% Operating Expense % 540-1% Operating Profit 1,233 1,190 4% 1,222 1% Provision % % - Loan Loss na % - Other % 44 1% Net Income % 1,001-20% Cost-to-Income Ratio 30% 29% 31% in billion Net Loans % % Deposit % % Equity % 5.5-3% Source: Company reports, HC Brokerage Table 3: Key revisions in our estimates FY10f FY11f New Old % New Old % AED million Loan Loss Provision % % Net Income , % 1, , % AED billion Loan % % Deposit % % NPL Ratio 3.50% 1.50% 2.50% 1.50% Loan Loss Provision Charge / Total Loan 1.50% 0.40% 0.30% 0.30% Coverage Ratio 109% 135% 154% 143% Source: HC Brokerage Commercial Bank of Dubai 2

3 FY11e PE FY10e PB FY10e PB UAE Valuation FY10e PB vs. ROE FY10e PB vs. ROE/COE RJHI 3.50 RJHI RIBL BYB ADCB CBK CIB SAMBA QNB NBK QIB NSGB CBD ARNB AUD DHB CAE CBQ HDB NBAD BKMB ADIB FGB BURG BLOM UNB ENBD DIB EGBE RIBL BURG ADCB CBK CIB QNB NBK QIB NSGB SAMBA ARNB DHB CAE AUD CBQ NBAD HDB FGB BKMB CBD ADIB BLOM DIB BYB UNB ENBD EGBE 0% 5% 10% 15% 20% 25% 30% 0.00 FY10e ROE FY10e ROE/COE FY11e PE vs. EPS Growth RJHI 12.0 BKDB CBK RIBL 10.0 ARNB QIB SAMBA NBK 8.0 CIB 6.0 AUD CAE HDB QNB ABK CBQ BLOM BKMB NSGB DHB 4.0 CBD DIB NBAD FGB UNB BYB ADIB ADCB 2.0 EGBE ENBD 0.0 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% EPS Growth FY10e-FY11e Source: Bloomberg, HC Brokerage Commercial Bank of Dubai 3

4 Financial Statements AED million 2009a 2010f 2011f 2012f 2013f 2014f Income Statement Interest Income 2, , , , , ,768.2 Interest Expense ,045.5 Net Interest Income 1, , , , , ,722.7 Fees and Commissions FX Income Investment Income (12.1) Other Income Non-Interest Income Total Income 1, , , , , ,355.0 Total Operating Expenses Pre-provision Income 1, , , , , ,617.2 Provisions Associate and Other Income Pre-Tax Income , , , ,487.3 Income Taxes Net Income After Tax , , , ,487.3 Minority Interest Net Income , , , ,487.3 Balance Sheet Assets Cash Due from Central Bank 3, , , , , ,976.5 Due from Banks 1, , , , , ,561.8 Investments 1, , , , , ,602.9 Gross Loans 29, , , , , ,937.3 NPL Provisions , , , , ,347.2 Net Loans 28, , , , , ,590.1 Other Assets 1, , , , , ,602.9 Net Fixed Assets Total Assets 36, , , , , ,058.6 Liabilities Total Deposits 27, , , , , ,732.0 Due to Banks , , , ,218.0 Borrowings 1, , , Other Liabilities 1, , , ,301.6 Total Liabilities 31, , , , , ,251.6 Shareholders Equity 5, , , , , ,807.0 Commercial Bank of Dubai 4

5 Rating Scale Recommendation Upside Buy Greater than 20% Hold -5% to 20% Sell Less than -5% Disclaimer This memorandum is based on information available to the public. This memorandum is not an offer to buy or sell, or a solicitation of an offer to buy or sell the securities mentioned. The information and opinions in this memorandum were prepared by HC Brokerage from sources it believes to be reliable and from information available to the public. HC Brokerage makes no guarantee or warranty to the accuracy and thoroughness of the information mentioned in this memorandum, and accepts no responsibility or liability for losses or damages incurred as a result of opinions formed and decisions made based on information presented in this memorandum. HC Brokerage does not undertake to advise you of changes in its opinion or information. HC Brokerage and its affiliates and/or its directors and employees may own or have positions in, and effect transactions of companies mentioned in this memorandum. HC Brokerage and its affiliates may also seek to perform or have performed investment-banking services for companies mentioned in this memorandum. Commercial Bank of Dubai 5

6 HC Research Karim Khadr Regional Head of Research Tudor Allin-Khan, CFA Chief Economist/Strategist tudor.allin-khan@af-hc.com Amr Abdel Khalek Economist aabdelkhalek@hc-si.com Nadine Weheba Economist nweheba@hc-si.com NematAllah Choucri Telecoms nchoucri@hc-si.com Sarah Shabayek Telecoms sshabayek@hc-si.com Germaine Benyamin Banks & Financials germaine.benyamin@af-hc.com Janany Vamadeva Banks & Financials janany.vamadeva@af-hc.com Hatem Alaa Industrials halaa@hc-si.com Mennatallah El Hefnawy Industrials melhefnawy@hc-si.com Mai Nehad Industrials mnehad@hc-si.com Majed Azzam Real Estate majed.azzam@af-hc.com Ankur Khetawat Real Estate ankur.khetawat@af-hc.com Nermeen Abdel Gawad Real Estate ngawad@hc-si.com Lovetesh Singh Petrochemicals and Fertilizers lovetesh.singh@af-hc.com Rehaam Romero Editor rromero@hc-si.com Mohamed El Saiid, MFTA Head of TA Research msaeed@hc-si.com (Ext. 175) Wael Atta, CFTe Senior Technical Analyst wael.atta@af-hc.com Sameh Khalil, CFTe Technical Analyst skhalil@hc-si.com (Ext. 361) HC Brokerage Cairo, Egypt salesandtrading@hc-si.com Shawkat El-Maraghy Managing Director selmaraghy@hc-si.com Ext. 200 Mostafa Saad Local & Gulf Sales msaad@hc-si.com Ext. 213 Yasser Mansour Local & Gulf Sales ymansour@hc-si.com Ext. 217 Hossam Wahid Local & Gulf Sales hwahid@hc-si.com Ext. 206 Hassan Kenawi Local & Gulf Sales hkenawi@hc-si.com Ext. 300 Abou Bakr Shaaban Local & Gulf Sales ashaaban@hc-si.com Ext. 238 Nihal Hany Local & Gulf Sales nhany@hc-si.com Ext. 219 Mohamed Helmy Foreign Sales mhelmy@hc-si.com Ext. 207 Ahmed Nabil Fixed Income Trader anabil@hc-si.com Ext. 218 HC Brokerage Dubai, UAE Hassan Aly Choucri General Manager hassan.choucri@af-hc.com Mohamed Hegazy Head of Sales mohamed.hegazy@af-hc.com Mohamed Galal Head of Sales Trading mohammed.galal@af-hc.com Anne Marie Browne Foreign Institutional Sales annemarie.browne@af-hc.com Richard Frost Foreign Institutional Sales richard.frost@af-hc.com Commercial Bank of Dubai 6