Marmore Company Reports. Saudi British Bank

Transcription

1 Marmore Company Reports Saudi British Bank Country Sector Saudi rabia Financial Services

2 MRMORE COMPNY REPORTS Research Team M.R. Raghu CF, FRM Head of Research N.C. Karthik Ramesh Manager Research Rajesh Dheenathayalan Senior nalyst Puja garwala Intern Support Team Jenevivu Lasrado Secretary, Research Nataraj Balakrishnan Manager dmin & Support Disclaimer This report has been prepared and issued by Marmore MEN Intelligence Ltd (Marmore), a fully owned research of Kuwait Financial Centre Markaz K.P.S.C. Marmore is a private limited company registered with the Registrar 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 to be reliable, but no representation or warranty, expressed or implied, is made that 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 Markaz 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or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn.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 investing 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 fluctuate 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 necessarily 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 affect 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 COMPNY REPORTS 1. Executive Summary Business Overview... 8 Overview... 8 Porter Five Force nalysis...12 STEEPLED analysis Financial Overview Results...21 Loans...21 Key Financial Ratios...27 Earnings Quality (EQ) Projections Peer nalysis...34 Domestic Peers...34 Regional Peers...36 Recent Developments Share Market Overview...37 Dividend...39 Risk Metrics...39 Liquidity...40 nalyst Calls...40 Credit Rating ppendix...42 Sector Overview...42 Growth Drivers

4 MRMORE COMPNY REPORTS Tables and Charts Tables Charts 1.1 SBB Summary, Ownership structure of SBB 1.2 SBB Business Review 2.2 Saudi British Bank: Business lines 1.3 SBB Financial Review 2.3 Key Milestones 2.1 Top Banks in the Region, Business Mix Profit Contribution, Financial Ratios 2.5 GDP per capita, Purchasing Power Parity (2014) 2.3 Summary of Porter s Five Forces 2.6 Real GDP (in %), ( ) analysis 2.4 Summary of STEEPLED analysis 3.1 Net Loans (USD billion) 2.5 SWOT analysis, SBB 3.2 Loans by Sector, SBB Investments Portfolio, Loans by Type, 2014 (USD mn) 3.2 Earnings Quality across time periods 3.4 ssets (USD bn) 3.3 Earnings Quality Components, ssets by Type 4.1 Projections for Income Statement, 3.7 Total Deposits (USD billion) Balance Sheet 4.2 Largest Current/Planned Projects in 3.8 Customer s Deposits by Type Saudi rabia 4.3 Credit Growth (in %) 3.9 Non-Interest Income (USD mn) 4.4 SBB Key Ratios 3.10 Non-Interest Expense (USD mn) 5.1 SBB Peers, Net-Interest Income & Net Income (USD mn) 5.2 Profitability Ratios, SBB vs. Saudi Index, Rebased ( ) 5.3 sset Quality Metrics, SBB Volume Traded (in mn) vs. Stock Price 5.4 Capital & Liquidity Ratios, Risk vs. Return: SBB, Peers and Saudi Index, Rankings of Regional Peers based on Market Capitalization (USD bn) 7.1 Sector wise breakup of Saudi rabia Economy 6.1 Returns of SBB vs. Saudi Index, 7.2 Real GDP Growth Rate, CGR SBB Dividends, KS Banking Sector ( ) in USD billion 6.3 SBB Risk Metrics 7.4 KS Real GDP Growth Rate (in %) 6.4 SBB Liquidity Metrics 7.5 Gross Domestic Product break-up (in %) 6.5 SBB Equity Calls 6.6 SBB Credit Rating 7.1 Board of Directors and Designation 4

5 MRMORE COMPNY REPORTS 1. Executive Summary Saudi British Bank (SBB) is one of the largest banks in the Kingdom of Saudi rabia (KS). It is 60% owned by the Saudi Nationals and 40% by HSBC Holdings B.V. Table 1.1: SBB Summary, 2014 Market Capitalization USD 14.6bn Total ssets USD 50 bn Stock Listing Saudi SE Loan Growth, 5yr CGR 9.7% % share in the index 2.8% NPL Ratio 1.27% Number of Employees 3,314 P/E (TTM) 12.1x Regional Ranking 1 8/63 P/B 1.98x Source: SBB, Reuters Eikon; 1 Rankings based on market capitalization Saudi British Bank (SBB) is one of the largest banks in the Kingdom of Saudi rabia (KS). It is 60% owned by the Saudi Nationals and 40% by HSBC Holdings B.V. SBB s loans have been growing at a CGR of 9.7% ( ) compared to deposits which rose at a CGR of 9.4% during the same period. SBB is 60% owned by the Saudi Nationals and 40% by HSBC Holdings B.V. SBB s total assets have increased from USD 33.4 billion in the year 2010 to USD 50 billion in 2014, representing a CGR of 10.6%. Loans to deposit ratio stands at 78% as of 2014-end. SBB has access to cheap source of funding as demand deposits constitute 59.4% of total deposits and these are low interest bearing deposits. sset quality of Saudi British bank remains strong as evidenced by low NPL at 1.27%. SBB remains well capitalized with Tier-1 ratio at 15.6% in the year 2014 which much higher than the regulatory limit. Net profit has increased by a CGR of 23.4% in the past five years ( ). SBB has consistently paid dividends to its shareholders. It has also outperformed the Saudi banking index and the general index in the past five year period ( ). 5

6 MRMORE COMPNY REPORTS Banking industry in KS is likely to be among the key beneficiaries, as they continue to lend and finance more funds Table 1.2: SBB Business Review Parameter Sector ttractiveness Business Model ttractiveness Industry Competition STEEPLED nalysis Source: Marmore Research Review Positive Positive Moderate Positive towards households. Economic growth in Saudi rabia is underpinned by large-scale government expenditures. The government is highly dependent on the oil sector for its revenues and any turmoil in this sector is likely to affect the economy and slow down implementation of large scale infrastructural projects. This is because the momentum of growth in the KS is dependent upon the government maintaining its higher level of spending. However, the expansionary fiscal policy followed by the government continues to support credit growth and this augurs well for the banking sector. Banking industry is likely to be among the key beneficiaries, as they continue to lend and finance more funds towards households to aid in The expansionary fiscal policy followed by the government continues to support credit growth and this augurs well for the banking sector. their consumption of durable and non-durable goods; participate in the development of infrastructure projects including expansion of ports, airports, construction of metro among others that are under various stages of planning and execution and by providing credit to the private sector to support their business activities. Table 1.3: SBB Financial Review Parameter Top-line Growth High Bottom-line Growth Return Ratios Liquidity Levels Balance Sheet Strength Earnings Quality High High High High Medium Source: Reuters, Marmore Research 6

7 MRMORE COMPNY REPORTS Net profit has increased by a CGR of 23.35% in the past five years ( ) while the return on average equity has been around 13-17% in each of those five years. ssets have increased at a CGR of 10.58% in the past five years ( ) on back of increased credit disbursal (CGR of 9.68%) during the same period. With loans to deposit ratio at 78%, as of 2014, liquidity profile of Saudi British bank remains strong. SBB remains wellcapitalized; with tier-1 ratio at 15.6%, the bank is comfortably placed as against the statutory limit of 8%. 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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