Off To a Good Start, Maintain Buy

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Augustus Harrington
6 years ago
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1 Stock Performance (QAR) Index Performance(QAR) Research Department Banks-Qatar Commercial Bank of Qatar Flash Note 20 April 2010 Off To a Good Start, Maintain Buy Credit costs show improvement supporting earnings in 1Q Cut our loan loss provisioning 50% in FY10f and 20% in FY11f Buy Target Price (QAR) 90.8 Market Price (QAR) 75.4 Upside 20.4% Reiterate Buy and increase TP 13% to QAR90.8/share Results highlight: Earnings were QAR410 million, 11% higher than our expectations of QAR369 million, mainly driven by better asset quality. Excluding gains of QAR165 million from the asset sale recognized in 1Q09, earnings are down only 8% YoY. NPL ratio (non-performing loans to total loans) slightly rose to 2.4% in 1Q10 from 2.2% in the previous quarter, well within our expectation of 3% for FY10f. Loan loss provisioning amounted to QAR12 million versus our estimate of QAR106 million. Coverage ratio (loan loss reserve to NPL) remained strong at 96% compared to 99% in 4Q09. Benign credit costs in 1Q10 supports improving macro-environment in Qatar this year, in line with our expectations. CBQ s credit expansion, however, remains soft and we expect this to pick up into this year as the government invests in infrastructure and other projects as announced in the fiscal year 2010 budget. With a budget surplus in place (unlike last year) and increasing oil prices, we believe the much awaited fiscal expenditure is likely to come through this year, filtering down to the economy and particularly the private sector. Despite slow loan growth, the bank benefitted from improved liquidity conditions in Qatar, which supported margins. NIM remained strong at 3.2%. Operating expenses were 10% higher than our estimates though down 2% QoQ. What we think: After a year of provisioning, the first quarter numbers indicate a favorable macro environment, which we expect to improve further into this year. CBQ reported disappointing earnings last year due to a corporate default and the general macro environment. We believe this quarter earnings are a positive start, indicating improving sentiment. Action: We maintain our Buy recommendation and raise our TP to QAR90.8 from QAR80.6 upon revision of earnings estimates and change in relative valuation. In light of the benign credit costs, we lower our loan loss provisioning by 50% in FY10f and 20% in FY11f. Consequently, our FY10f net income increases 10%. We reiterate our view that CBQ is well placed with its attractive business model to grow its book/earnings this year as government spending filters down and the bank diversifies its exposure. Valuation and catalyst: We still find the stock attractive, trading at a FY10f PB of 1.3x a 5% discount to its implied PB. Robust loan growth and fee income would act as catalysts to the stock. KPIs (QAR mn) New Old Consensus FY10f FY11f FY10f FY11f FY10c FY11c Net Interest 1, , , , Total Income 2, , , , Net Income 1, , , , , ,224.9 Net Interest 3.16% 3.15% 3.16% 3.15% - Gross Loans (bn) Cost/Income 28.1% 27.9% 28.1% 27.9% - Gross LD 119.1% 110.5% 119.1% 110.5% - EPS DPS Dividend Yield 5.67% 6.61% 5.14% 6.54% - P/E (x) P/B (x) ROAE 15.8% 17.3% 14.4% 17.2% - ROAA 3.2% 3.4% 2.9% 3.4% Listed On DSM,LSE Bloomberg CBQK QD RIC COMB.QA Market Cap. (QARm) 16,325 Market Cap. (USDm) 4,485 No of Shares (m) Foreign Ownership Limit 25.00% Foreign Ownership Level 16.85% Shareholder Structure Free Float 80.2 % Al Farden Family 10.0% Qatar Investment Authority 5.0% Others 4.8% Price Performance Chart , CBQK (LHS) 13, DSM (RHS) , , , , , ,000 Janany Vamadeva janany.vamadeva@af-hc.com Germaine Benyamin germaine.benyamin@af-hc.com * Disclaimer: See Page 5 Commercial Bank of Qatar 1

FY11e PE FY10e PB FY10e PB Qatar Table 1: Comparison of Actual vs. Estimates QAR million 1Q10a 1Q09a YoY 4Q09a QoQ 1Q10e Surprise Net Interest Income 408.9 391.2 5% 413.0-1% 423.

2 FY11e PE FY10e PB FY10e PB Qatar Table 1: Comparison of Actual vs. Estimates QAR million 1Q10a 1Q09a YoY 4Q09a QoQ 1Q10e Surprise Net Interest Income % % % Non- Interest Income % % % Total Income % % % Operating Expense % % % Operating Profit % % % Provision % % % - Loan loss % % % - Other % % % Net Income % % % Cost-to-Income ratio 32% 22% 34% 28% in QAR billion Net Loans % % % Deposit % % % Shareholder equity % % % Source: Company reports, HC Research Chart 1: Valuation FY10e PB vs. ROE FY10e PB vs. ROE/COE ADCB CIB CBK QNB SAMBA NSGB ARNB QIB AUDI BURG BKMB DHB HDB CBQ NBAD FGB BLOM BYBADIB CBD DIBUNB CAE ENBD CIB QNB CBK QIB SAMBA BURG ARNB NSGB AUDI BKMB HDB DHB DIBBLOMCBQ ADIB NBAD UNB FGB CBD ADCB BYB CAE ENBD 0% 5% 10% 15% 20% 25% 30% FY10e ROE FY10e ROE/COE FY11e PE vs. EPS growth BKDB ARNBQIB SAMBA CIB CIB BKMB QNB CAEAUDI CBQ NSGBNBAD BLOM BYB HDB UNB FGB CBD EGBE CBK DHB DIB ENBDADIB % 0% 10% 20% 30% 40% 50% 60% EPS Growth FY10e-FY11e Source: Bloomberg, HC Research Commercial Bank of Qatar 2

3 Financial Statements QAR million 2009a 2010f 2011f 2012f 2013f 2014f Income Statement Interest Income 3, , , , , ,988.5 Interest Expense 1, , , , , ,280.2 Net Interest Income 1, , , , , ,708.4 Fees and Commissions ,043.5 FX Income Investment Income Other Income Non-interest Income 1, , , , , ,644.8 Total Income 2, , , , , ,353.2 Total Operating Expenses , ,190.7 Pre-provision Income 2, , , , , ,162.5 Provisions Associate and Other Income Pre-tax Income 1, , , , , ,181.2 Income Taxes Net Income After Tax 1, , , , , ,181.2 Minority Interest Net Income 1, , , , , ,181.2 Balance Sheet Assets Cash Due from Central Bank 4, , , , , ,379.8 Due from Banks 5, , , , , ,920.9 Investments 9, , , , , ,857.6 Gross Loans 32, , , , , ,691.1 NPL Provisions Net Loans 31, , , , , ,745.6 Other Assets 4, , , , , ,944.6 Net Fixed Assets 1, , , , , ,360.4 Total Assets 57, , , , , ,209.0 Liabilities Total Deposits 26, , , , , ,901.1 Due to Banks 7, , , , , ,992.9 Borrowings 9, , , , , ,924.4 Other Liabilities 1, , , , , ,571.1 Total Liabilities 45, , , , , ,389.5 Shareholder Equity 12, , , , , ,819.4 Commercial Bank of Qatar 3

4 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 Qatar 4

5 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 & 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 Qatar 5

Commercial Bank of Dubai

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