Saudi. Country. Arabia. Sector. subsidiary

Transcription

1 Marmore Company Reports Samba Financial Group Country Saudi rabia Sector Financial Services (Banks)

2 MRMORE CORPORTE PROFILES Research Team M.R. Raghu CF, FRM Head of Research N.C. Karthik Ramesh Manager Research Rajesh Dheenathayala an Senior nalyst R. Kousheeka Raam Intern Support Team Jenevivu Lasrado Secretary, Research Nataraj Balakrishnan Manager dmin & Support Disclaimer This report has been prepared and issued by Marmore MEN Intelligencee Ltd (Marmore), a fully owned research of Kuwait Financial Centre Markaz K.P.S.C. Marmore is a private limited company registered with the Registrarr of Companies in India. This Report is owned by Marmore and is privileged and proprietary and is subject to copyrights. Sale of any copies of this Report is strictly prohibited. This Report cannot be quoted without the prior written consent of Marmore. ny user after obtaining Marmore's permission to use this Report must clearly mention the source as Marmore." The Report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The information and statistical data herein have been obtained from sources we believe too be reliable, but no representation or warranty, expressed or implied, is made thatt such information and data is accurate or complete, and therefore should not be relied upon as such. Opinions, interpretations, estimates, and projections in this report constitute the current judgment of the author as of the date of this Report. They do not necessarily reflect the opinion of Markazz or Marmore or other identified parties and are subject to change without prior notice. Neither Marmore nor Markaz have an obligation to update, modify, or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast, or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. This Report may not consider the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors are urged to seek financial advice regarding the appropriateness of nvesting in any security or investment strategy discussed or recommended in this report and to understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuatee and that each security s price or value may rise or fall. Investors should be able and willing to accept a total or partial loss of their investment. ccordingly, investors may receive back less than originally invested. Past performance is not necessarilyy indicative of future performance. Markaz may seek to do business, including investment banking deals, with companies covered in its research reports. Markaz may have interests in the areas covered in this research report. Markaz, Markaz managed entities, its clients, or its employees may have from time to time long or short positions in any security, derivative or other types of assets referred to in this research report. s a result, investors should be aware that Markaz may have a conflict of interest that could affectt the objectivity of this report. This report may provide the addresses of or contain hyperlinks to websites. Except to the extent to which the report refers to website material of Markaz and Marmore, Markaz has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to Markaz s or Marmore s own website material) is provided solely for your convenience and information, and the content of the linked site does not in any way form part of this document. ccessing such website or following such link through this report or Markaz s or Marmore s website shall be at your own risk. For further information, please contact Markaz at P.O. Box 23444, Safat 13095, Kuwait; info@e-marmore.com; Tel: ; Fax:

3 Table of contents MRMORE CORPORTE PROFILES 1. Executive Summary Business Overview... 8 Overview... 8 Porter Five Force nalysiss STEEPLED analysis Financial Overview Results Loans & Deposits Key Financial Ratios Earnings Quality (EQ) Projections Peer nalysis Domestic Peers Regional Peers Recent Developments Share Market Overview Dividend Risk Metrics Liquidity nalyst Calls Credit Rating ppendix Sector Overview Growth Drivers

4 MRMORE CORPORTE PROFILES Tables and Charts Tables 1.1 Samba Summary, Samba Business Review 1.3 Samba Financial Review 2.1 Top Banks in the Region, Samba Subsidiaries 2.3 Financial Ratios 2.4 Summary of Porter s Five Forces analysis 2.5 Summary of STEEPLED analysis 2.6 SWOT analysiss 3.1 Earnings Quality across time periods 3.2 Earnings Quality Components, Projections for Income Statement, Balance Sheet 4.2 Credit Growth (in %) 4.3 Samba Key Ratios 5.1 Samba Peers, Profitability Ratios, sset Quality Metrics, Capital & Liquidity Ratios, Rankings of Regional Peers based on RoE (Values in USD bn), Samba Dividends, Samba Risk Metrics 6.4 Samba Liquidity Metrics 6.5 Samba Equity Calls 6.6 Samba Credit Rating, KS banks credit break up by economic activity 7.2 Board of Directors and Designation Charts 2.1 Samba: Business lines 2.2 Shareholding Pattern 2.3 Key Milestones 2.4 GDP per capita in USD (2014) 3.1 Net Loans (USD million) 3.2 Loans by Sector, ssets (USD bn) 3.4 ssets by Type 3.5 Total Deposits (USD billion) 3.6 Deposits by Type 3.7 Non-Interest Income (USD mn) 3.8 Non-Interest Expense (USD mn) 3.9 Net-Interest Income & Net Income ( USD mn) 6.1 Samba vs. Saudi Index, Rebased ( ) 6.2 Samba Volume Traded (in mn) vs. Stock Price (SR) 6.3 Risk vs. Return: Samba, Peers and Saudi Index, Sector wise breakup of Saudi rabia Economy 7.2 Real GDP Growth Rate, CGR 7.3 KS Banking Sector ( ) in USD billion 7.4 KS Real GDP Growth Rate (in %) 7.5 Gross Domestic Product break-up (in %) 4

5 MRMORE CORPORTE PROFILES 1. Executive Summary Samba is the third largest bank in the KS in terms of asset size. Table 1. 1: Samba Summary, 2014 Market Capitalization Listings % share in the index Number of Employees USD 15.5bn TSI 3.0% 3,600 1 Total ssets Loan Growth, 5yr CGR NPL Ratio P/E (TTM) USD 57.9bn 9.3% 2.6% 10.43x Regional Ranking 1 6/63 P/B 1.35x Source: Samba, Reuters Eikon; 1 Based on market capitalization Samba currently has over 72 branches in Saudi rabia and through representative office and subsidiaries its operations are spread across, Pakistan, Dubai and London. Sambaa financial group (Samba) previously called as The Saudi merican Bank is domiciled in Saudi rabia, the biggest economy in the region. It is the third largest bank in the KS in terms of asset size. Sambaa is 50.33% owned byy the general public; Public Investment Fund (PIF) holds 22.9% stake, 15% is held by public pension agency and the remaining 11.77% iss owned by the General Organisation for Social Insurance (GOSI). Non-performing loans stood at 2.6% of the total bank loans, showing a decline from the previous year, on the back of improving asset quality. Cost to income ratio is at 30% (less compared to its peers); Return on verage Equity (RoE) has been low for the bank at 13.6% in comparison to its peers due too lower leverage ratio Sambaa remains well capitalized (capital adequacy ratio >19%) with cheap source of funds and stable funding profile (demand deposits account for >60% %) Sambaa currently has over 722 branches in Saudi rabia and through representative office and subsidiaries its operations are spread across, Pakistan, Dubai and London 1 Forbes (as on May 2015) 5

6 MRMORE CORPORTE PROFILES Saudi rabian banking industry is one of the largest in the region with 24 banks. Higher HH (Herfindahl Hirschman) index suggests higher concentration of market share among the top players and the competitive intensity is moderate. Samba s stock price has underperformed compared to the Saudi main index (TSI) in the longer horizon (2yr to 5yr period). Sambaa also underperformed compared to the Saudi banking and financial index in the last five years. Table 1. 2: Samba Business Review Parameter Sector ttractiveness Business Model ttractiveness Industry Competition STEEPLED nalysis Source: Samba, Marmore Research Saudi rabian banking industry is one of the largest in the region with 24 banks providing retail/corporate banking, investment services, brokerage facilities, derivatives etc. Banking sector in KS is overseen by two major bodies of the government The Ministry of Finance which oversees the economic policies well as the commercial banks of the country. In addition to the above the government has also establishedd five specialized credit agencies which provide loans for development of the following griculture, Industry and Construction as well a Real estate. SMB is one of the well-recognised banks in Saudi rabia and its banking as well as investment managementt services for its customers. SMB has branches in KS, Dubai,, London and Pakistan as well. In terms of sector attractiveness, the banking sector in Saudi rabia is attractive corporate Review Positive Positive Moderate Positive of the government and SM (Saudi rabia Monetary gency) which manages fiscal policy, the currency as services extend beyond the traditional banking services. It offers Private owing to increasing credit needs such as project finance, loans, trade financingg for the corporates and mortgages, vehicle loans, personal loans for the retail segments. Higher HH (Herfindahl Hirschman) index suggests higher concentration of market share among the top players and the competitive intensity is moderate. 6

7 MRMORE CORPORTE PROFILES Loan growth over the 5 years stood at a CGR of 9.3% %. Table 1.3: Samba Financial Review Parameter Top-line Growth Bottom-line Growth Interest Margins Return Ratios Liquidity Balance Sheet Strength Earnings Quality Source: Reuters, Marmore Researchh Medium Medium Medium High High High High Net profit has grown at a CGR of 3% over the time period ( ), while the return on average equity has been below 14% in the last couple of years. The bank fares well above industry median in earnings quality. The capital adequacy ratio of the bank stood at 19.2%. With loan to deposit ratio at 71.6% as of 2014, liquidity profile of Samba remains strong. Loan growth over the 5 years stood at a CGR of 9.3%. The bank also has Saudi government related deposits which are quite stable. Its high share of demandd deposits, constituting more than 60%, entails minimal interest expense and thus provides the bank with cheap source of funds - an edge over other banks in the region. The capital adequacy ratio of the bank stood at 19.2% much higher than the requirement of 8% under Basel III norms. However, holding such excess capital could act as a drag on the e profits. The bank scored well above the industry standards in its earnings quality. Samba has been operating banking facilities in London for the past two decades and also expanded itss operations across Dubai, and Pakistan. 7

8 Research Library (Complimentary Research) Capital Markets Researches Berkshire Hathaway (2015) pple (2015) Mother of ll IPOs - National Commercial Bank (2015) Saudi rabian Markets Set to Open (2014) MEN sset Management Policy Perspectives (2013) Including in the MSCI EM Index (2012) lpha bound: Study to explore lpha generation in (2012) Kuwait Investment Sector (2012) Defensive Bellwether Stocks (2012) Kuwait 15 Index (2011) SWFs: The Golden Portfolio (2010) Persistence in performance: The Experience (2010) Will catch up with GEM? -What is left for 2009 This Too Shall Pass: What can we expect in 2009 for Markets? (2009) Missing the rally (2009) Fishing in Troubled Waters (2008) Down and Out: Saudi Stock Outlook (2008) Mr. Market-Manic Depressive (2008) To Yield or Not To Yield: Examining the Potential of Yield Stocks in (2008) China and India: Too Much Too Fast(2007) Kuwait sset Management Industry (2007) Gulf Emerging Portfolio: nd Why Not? (2007) Derivatives Market in (2007) Managing Volatility (2007) Regulatory Researches Regulatory Digest (Quarterly) Kuwait s new Law on Preference Shares (2015) Kuwait's BOT law (2014) Land Reforms in Kuwait (2014) Kuwait s PPP Law (2013) Bankruptcy Law in the (2013) Got a CM (Kuwait): What Next? (2012) The New Regulations for Kuwait Investment Sector (2010) Wanted: Kuwait Capital Market uthority (2010) To Leap or To Lag: Choices before Regulators (2007) Economic Researches Kuwait Dealing with Construction Permits (2015) Dubai Government Summit 2015 (2015) Negative Interest Rates (2015) Central Bank Shocks (2015) Fiscal Breakeven Oil Price (2015) Kuwait starting Business (2015) Kuwait Electricity Tariff Hikes (2015) Basel III Norms (2015) Kuwait Real Estate (2015) Swiss Franc (2015) Cheaper Oil (2015) Rising Fuel Prices in Kuwait (2015) Cloud Computing (2014) Free Trade Zones (2014) Disruptive Technology: Bitcoins (2014) The Internet of Things! Big Data (2014) Kuwait Credit Growth (2014) Kuwait SME s (2014) Multiple directorships in KS (2013) Demographic Shift (2012) How is preparing for a + World? (2011) Kuwait Development Plan (2011) Political Risk moving to the forefront in MEN: Impact nalysis (2011) Policy Researches Kuwait Reforms (Series) - Education Oil & Gas Markets and the Emergence of New Resources (2014) Countries & sia: Bolstering Energy Ties (2014) Energy Strategies: The Way Forward (2014) Blueprint for Public Sector Good Governance in Kuwait (2013) Kuwait - Private Labor Market (2013) Kuwait - lternatives for Power Generation (2013) Kuwait - Sustainable Power Strategy (2012) Tools to Strengthen & Support Kuwait's Private Sector (2012) Daily Morning Brief Kuwait Daily Monthly MEN Markets Review International Market Update Quarterly Marmore Bulletin Half yearly Regulatory Digest Corporate Earnings nnual Periodic Reports Markets Outlook Equity Risk Premium Fixed Income Update

9 Research Library (Paid Research) Infrastructure Researches* Sector Researches* Company Reports* Power MEN (Ex- ) Offsets in the Healthcare National Bank of bu Dhabi (UE) Egypt KS, KS Education Saudi rabian Fertilizers Co. (KS) Kuwait Ports UE, KS Family Business Wealth Management rab National Bank (UE) First Gulf Bank (UE) KS Banking Saudi British Bank (KS) Kuwait viation UE Oman, Kuwait, KS, UE Hospitality Retail Samba (KS) Saudi Cement Company (KS) Full Service Carriers, Luxury -, Online sset Management bu Dhabi National Hotels Co (UE) Low Cost Carriers Kuwait MEN, KS, UE, Egypt Islamic Finance ir rabia (UE) KS Water UE Investment Banking EMR Properties (UE) KS ICT Kuwait Insurance, KS Media - Print, TV, Digital Insurance Co () National Bank () KS Social Media SBIC (KS) UE Kuwait Petrochemicals, Kuwait, KS Contracting Saudi Electricity Co (KS) Roads and Railways Saudi Telecom (KS) KS Metals & Mining Research - Knowledge Gap Savola Group (KS) Real Estate Office RE Residential RE ffordable Housing FIF World Cup 2022 Women Investors The National Shipping Co. of Saudi rabia - BHRI (KS) *Paid reports ranging from US$250-$500

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