national bank of abu dhabi (nbad) rating buy 03 April 2011

Transcription

1 national bank of abu dhabi (nbad) rating buy 03 April 2011 Expect Uptick in Loan Growth and Solid ROA in 2011, Raise FV; Maintain Buy fair value change Raise FV by 3% to AED12.50/Share; Reiterate Buy on Strong Fundamentals We raise our fair value (FV) for NBAD to AED12.50/share from AED12.08/share (adjusted for 20% bonus shares) on expectations of strong net interest income in FY2011. We reiterate our Buy rating on NBAD, as our revised FV implies 28% upside potential. We raise our 2011 earnings estimate by 9%, as we expect easing funding cost pressures to support an improvement in net interest spreads. Despite strong asset quality headwinds and overcapitalisation, NBAD continues to maintain strong ROEs. Our FV translates into an estimated target 2011 P/BV of 1.6x. This is justified, in our view, by the bank s capacity to generate a ROE of 18% on a sustainable basis, underpinned by healthy spreads, above-sector loan growth and easing cost of credit. Asset Quality Deterioration Within Comfort Zone We expect NBAD s NPL ratio to rise to 3.1% in 2011 from 2.3% in 2010, driven by slow recovery in the economy. NBAD s exposure to Egypt (3% of loans and 4% of net income) is relatively small. High NPL coverage (112% as at December 2010) should allow NBAD to absorb some of the deterioration in asset quality; we expect NBAD s NPL coverage to fall below 100% in Provisions should be marginally lower in 2011, as 2010 s credit costs were relatively unaffected by Dubai World, Saad and Algosaibi provisions. Loan Growth to Gain Traction in 2011 We expect loans to grow 8% Y-o-Y in 2011 after muted growth of 3% in NBAD, in our view, remains the largest beneficiary of increased infrastructure spending by the Abu Dhabi government, which appears to be gaining traction. The consumer lending business is also likely to continue its steady growth momentum. The proposed regulations on retail banking is unlikely to have major impact, in our view, on NBAD s loan growth and fee income, as NBAD is primarily a corporate bank. Murad Ansari mansari@efg-hermes.com Shabbir Malik smalik@efg-hermes.com STOCK DATA Price AED9.74* Fair Value AED12.50 Last Div. / Ex Date AED0.3 on 22 Mar 11 Mkt. Cap / Shares (mn) AED27,954 / 2,870 Av. Mthly Liqdty (mn) AED Week High / Low AED10.38 / AED8.32 Bloomberg / Reuters NBAD UH / NBAD.AD Est. Free Float 29.5% SHARE PRICE PERFORMANCE RELATIVE TO ADI REBASED Price (AED) ADI (Rebased) 03-Apr Jul Oct Jan Apr-11 KEY FINANCIAL HIGHLIGHTS December Year End (AED mn) 2010a 2011e 2012e 2013e Total Banking Income 7,152 7,670 8,475 9,220 Pre-Provision Income 4,988 5,241 5,830 6,327 Net Attributable Income 3,439 3,786 4,519 4,947 EPS (AED) P/E* (x) Dividend Yield* 2.6% 3.4% 4.8% 5.3% P/BV* (x) ROAE 19.3% 18.2% 19.0% 18.2% Total CAR 22.6% 22.5% 22.5% 22.0% NPL Coverage 112.8% 93.3% 97.7% 104.7% *Price as at 03 April 2011 The Extel Survey runs from 7 March 2011 through to 6 May To vote for EFG Hermes, go to or send an to extelsurveys@thomsonreuters.com to request a soft copy questionnaire. Thank you for your support. 1 / 6 pages kindly refer to the important disclosures and disclaimers on back page

2 national bank of abu dhabi (nbad) 03 April 2011 FINANCIAL STATEMENTS AND FORECASTS FIGURE 1: INCOME STATEMENT (DECEMBER YEAR END) In AED million, unless otherwise stated Interest Income 6,877 7,430 7,978 8,790 9,762 Interest Expense (2,306) (2,181) (2,244) (2,528) (2,979) Net Interest Income 4,571 5,249 5,734 6,262 6,783 Fee & Commission Income 1,136 1,262 1,394 1,558 1,714 FX Income Investment Income Other Income Non-Interest Income 1,772 1,903 1,935 2,213 2,437 Total Banking Income 6,344 7,152 7,670 8,475 9,220 Operating Expenses (1,903) (2,191) (2,429) (2,644) (2,894) Operating Profit 4,441 4,961 5,241 5,830 6,327 Loan Loss Provisions (1,336) (1,114) (1,103) (939) (996) Other Provisions (72) (93) Other Income / Expense Pre-Tax Profit 3,088 3,781 4,138 4,891 5,331 Taxes (73) (103) (112) (132) (144) Net Profit before Minorities 3,015 3,679 4,026 4,759 5,187 Interest on Capital Notes (120) (240) (240) (240) (240) Net Attributable Income 2,895 3,439 3,786 4,519 4,947 Headline Income 3,020 3,683 4,031 4,764 5,192 FIGURE 2: BALANCE SHEET (DECEMBER YEAR END) In AED million, unless otherwise stated Cash & Central Bank 18,057 18,430 19,904 21,696 23,917 Interbank Assets 20,078 25,062 26,297 28,924 31,722 Financial Investment 20,049 22,689 24,504 26,854 29,699 Customer Loans (Net) 132, , , , ,756 Fixed Assets 2,085 2,211 2,407 2,576 2,762 Other Assets 4,317 6,203 5,817 6,013 6,256 Total Assets 196, , , , ,112 Customer Deposits 115, , , , ,444 Interbank Liabilities 33,347 34,094 36,822 40,136 44,149 Long-Term & Medium-Term Debt 21,870 22,806 24,110 25,484 27,201 Other Liabilities 5,805 8,001 7,928 8,603 9,456 Total Liabilities 176, , , , ,251 Capital Notes 4,000 4,000 4,000 4,000 4,000 Minority Interests Shareholders' Equity 16,223 19,396 22,236 25,399 28,862 Total Liabilities & Shareholders' Equity 196, , , , ,112 2 / 6 pages

3 national bank of abu dhabi (nbad) 03 April 2011 [ FIGURE 3: VALUATION RATIOS Per Share Data (AED) EPS DPS BVPS BVPS (Tangible) Valuation P/E (x) Dividend Yield 0.8% 2.6% 3.4% 4.8% 5.3% P/BV (x) P/BV (Tangible) (x) Market Cap / Deposits 24.2% 22.7% 21.0% 19.3% 17.5% FIGURE 4: DUPONT ANALYSIS As a % of average assets, unless otherwise stated Net Interest Income 2.5% 2.6% 2.6% 2.6% 2.6% Non-Interest Income 1.0% 0.9% 0.9% 0.9% 0.9% Operating Expense -1.1% -1.1% -1.1% -1.1% -1.1% Provisioning Burden -0.8% -0.6% -0.5% -0.4% -0.4% Other Revenue / Expense 0.0% -0.1% -0.1% -0.1% -0.1% Tax Rate 0.0% -0.1% -0.1% -0.1% -0.1% ROAA 1.6% 1.7% 1.7% 1.9% 1.9% Gearing (Assets / Equity) ROAE 19.3% 19.3% 18.2% 19.0% 18.2% FIGURE 5: PROFITABILITY ANALYSIS Net Interest Spread 2.4% 2.5% 2.5% 2.5% 2.5% Net Interest Margin 2.6% 2.6% 2.7% 2.7% 2.6% Yield on Earning Assets 3.9% 3.7% 3.7% 3.8% 3.8% Cost of Funds 1.5% 1.2% 1.2% 1.3% 1.4% Cost to Income 30.0% 30.6% 31.7% 31.2% 31.4% Tax Rate 2.4% 2.7% 2.7% 2.7% 2.7% ROAA 1.6% 1.7% 1.7% 1.9% 1.9% ROAE 19.3% 19.3% 18.2% 19.0% 18.2% 3 / 6 pages

4 national bank of abu dhabi (nbad) 03 April 2011 FIGURE 6: ASSET QUALITY AND CAPITAL Asset Quality NPL Ratio 1.2% 2.3% 3.1% 3.0% 2.8% Provisions / NPLs 157.6% 112.8% 93.3% 97.7% 104.7% Provisioning to Average Gross Loans (bps) Unprovisioned NPLs / Equity -6.0% -2.1% 1.4% 0.5% -0.8% Provisions / Pre-Provisions Profit 31.7% 24.3% 21.0% 16.1% 15.7% Capital Core Tier-1 Tier % 16.2% 16.6% 16.9% 17.0% CAR 17.4% 22.6% 22.5% 22.5% 22.0% Gearing Risk Weighted Assets (RWAs) 142, , , , ,834 RWAs / Total Assets 73% 72% 73% 74% 75% FIGURE 7: GROWTH RATIOS Loans 18.3% 3.5% 9.0% 9.0% 10.0% Deposits 11.7% 6.5% 8.0% 9.0% 10.0% Assets 19.6% 7.4% 7.9% 9.0% 9.9% RWAs 20.5% 6.1% 9.9% 10.5% 11.4% Net Interest Income 26.7% 14.8% 9.2% 9.2% 8.3% Non-Interest Income 16.9% 7.4% 1.7% 14.3% 10.1% Fee Income 6.1% 16.6% 11.0% 12.0% 10.0% Total Banking Income 23.8% 12.7% 7.2% 10.5% 8.8% Costs 27.4% 15.1% 10.9% 8.9% 9.4% Net Attributable Income -4.1% 18.8% 10.1% 19.4% 9.5% FIGURE 8: BALANCE SHEET RATIOS Balance Sheet Structure & Other Ratios Loans / Deposits 114.4% 111.1% 112.2% 112.1% 112.1% Loans / Assets 67.2% 64.7% 65.4% 65.4% 65.5% Net Interbank / Assets -5.4% -3.1% -3.4% -3.3% -3.3% Investments / Assets 10.2% 10.7% 10.7% 10.8% 10.9% Deposits / Assets 58.7% 58.2% 58.3% 58.3% 58.4% Medium-Term & Long-Term Loans / Liabilities 9.2% 12.1% 11.9% 11.6% 11.3% 4 / 6 pages

5 EGYPT SALES TEAM Local call center UAE SALES TEAM call center uaerequests@efg-hermes.com KSA SALES TEAM call center RiyadhCallCenter@efg-hermes.com RiyadhTraders@efg-hermes.com RESEARCH MANAGEMENT Cairo General UAE General efgresearch@efg-hermes.com Head of Western Institutional Sales Mohamed Ebeid mebeid@efg-hermes.com Western Institutional Sales Julian Bruce jbruce@efg-hermes.com Director of Client Relationship Mazen Matraji mmatraji@efg-hermes.com Head of Research Wael Ziada wziada@efg-hermes.com Head of GCC Institutional Sales Amro Diab adiab@efg-hermes.com Client Relationship Khalid S. Al-Bihlal kalbihlal@efg-hermes.com Head of Publ. and Distribution Rasha Samir rsamir@efg-hermes.com Gulf HNW Sales Chahir Hosni chosni@efg-hermes.com UAE Retail Sales Reham Tawfik rtawfik@efg-hermes.com DISCLOSURES We, Murad Ansari and Shabbir Malik, hereby certify that the views expressed in this document accurately reflect our personal views about the securities and companies that are the subject of this report. We also certify that neither we nor our spouses or dependants (if relevant) hold a beneficial interest in the securities that are traded in the UAE stock exchanges. EFG Hermes Holding SAE hereby certifies that neither it nor any of its subsidiaries owns any of the securities that are the subject of this report. Funds managed by EFG Hermes Holding SAE and its subsidiaries (together and separately, "EFG Hermes") for third parties may own the securities that are the subject of this report. EFG Hermes may own shares in one or more of the aforementioned funds or in funds managed by third parties. The authors of this report may own shares in funds open to the public that invest in the securities mentioned in this report as part of a diversified portfolio over which they have no discretion. The Investment Banking division of EFG Hermes may be in the process of soliciting or executing fee earning mandates for companies that are either the subject of this report or are mentioned in this report. DISCLAIMER This Research has been sent to you as a client of one of the entities in the EFG Hermes group. This Research must not be considered as advice nor be acted upon by you unless you have considered it in conjunction with additional advice from an EFG Hermes entity with which you have a client agreement. Our investment recommendations take into account both risk and expected return. We base our long-term fair value estimate on a fundamental analysis of the company's future prospects, after having taken perceived risk into consideration. We have conducted extensive research to arrive at our investment recommendations and fair value estimates for the company or companies mentioned in this report. Although the information in this report has been obtained from sources that EFG Hermes believes to be reliable, we have not independently verified such information and it may not be accurate or complete. EFG Hermes does not represent or warrant, either expressly or implied, the accuracy or completeness of the information or opinions contained within this report and no liability whatsoever is accepted by EFG Hermes or any other person for any loss howsoever arising, directly or indirectly, from any use of such information or opinions or otherwise arising in connection therewith. Readers should understand that financial projections, fair value estimates and statements regarding future prospects may not be realized. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This research report is prepared for general circulation to the clients of EFG Hermes and is intended for general information purposes only. It is not intended as an offer or solicitation or advice with respect to the purchase or sale of any security. It is not tailored to the specific investment objectives, financial situation or needs of any specific person that may receive this report. We strongly advise potential investors to seek financial guidance when determining whether an investment is appropriate to their needs.

6 GUIDE TO ANALYSIS EFG Hermes investment research is based on fundamental analysis of companies and stocks, the sectors that they are exposed to, as well as the country and regional economic environment. Effective 16 December 2009, EFG Hermes changed its investment rating approach to a three-tier, long-term rating approach, taking total return potential together with any applicable dividend yield into consideration. In special situations, EFG Hermes may assign a rating for a stock that is different from the one indicated by the 12-month expected return relative to the corresponding fair value. For the 12-month long-term ratings for any investment covered in our research, the ratings are defined by the following ranges in percentage terms: Rating Potential Upside (Downside) % Buy Above 15% Neutral (10%) and 15% Sell Below (10%) EFG Hermes policy is to update research reports when appropriate based on material changes in a company s financial performance, the sector outlook, the general economic outlook, or any other changes which could impact the analyst s outlook or rating for the company. Share price volatility may cause a stock to move outside of the longer-term rating range to which the original rating was applied. In such cases, the analyst will not necessarily need to adjust the rating for the stock immediately. However, if a stock has been outside of its longer-term investment rating range consistently for 30 days or more, the analyst will be encouraged to review the rating. COPYRIGHT AND CONFIDENTIALITY No part of this document may be reproduced without the written permission of EFG Hermes. The information within this research report must not be disclosed to any other person if and until EFG Hermes has made the information publicly available. CONTACTS AND STATEMENTS Background research prepared by EFG Hermes KSA. Report prepared by EFG Hermes Holding SAE (main office), Building No. B129, Phase 3, Smart Village, KM 28, Cairo-Alexandria Desert Road, Egypt 12577, Tel Fax which has an issued capital of EGP 1,939,320,000. Reviewed and approved by EFG Hermes KSA (closed Joint Stock Company) which is commercially registered in Riyadh with Commercial Registration number , and EFG Hermes UAE Limited, which is regulated by the DFSA and has its address at Level 6, The Gate, DIFC, Dubai, UAE. The information in this document is directed only at institutional investors. If you are not an institutional investor you must not act on it. bloomberg efgh reuters pages.efgs.hrms.efgi.hfismcap.hfidom efghermes.com