Banque Saudi Fransi (BSFR)

Transcription

1 Banque Saudi Fransi (BSFR) Recommendation ACCUMULATE Risk Rating R-3 Share Price SAR27.90 Target Price SAR33.00 Implied Upside 18. Initiating Coverage With a Price Target of SAR33.00 Banque Saudi Fransi (BSFR) has a and 8% market share in loans (5 th largest among domestic banks) and deposits (6 th largest among domestic banks), respectively. What is of significant importance is BSFR commands the 2 nd largest market share in corporate lending at 12%. Leveraging off Credit Agricole s technical support (a prominent French bank and BSFR s strategic shareholder) and its successful corporate banking franchise/platform, BSFR s strategy is to cross-sell the bank s products and services, in turn boosting its fees & commissions income. Moreover, the bank is targeting mid-segment retail and HNIs vs. mass retail. Highlights We expect positive performance in 2015, weak performance in 2016 followed by a rebound in 2017; we pencil in a bottom-line CAGR of 9.0% in e vs. 7. in Due to the weak overall outlook for 2016, we expect net income to decline by 4.1% to SAR3.8bn. In times of weak market conditions, asset quality deteriorates and provisions rise. As such, we pencil in a cost of risk (CoR) of 33bps (16bps in 2015) which leads to provisions jumping by 145.7% to SAR444.3mn. We also foresee sluggish growth in net interest income and fees. At the same time, we estimate a significant drop in investment income. However, 2017 could be a promising year. We expect net income to grow by 10. to SAR4.2bn led by strong core banking income and investment income. We estimate core income to gain by 9.1% led by a 11. growth in net interest income, 8.0% growth in f/x income and 6.0% gain in fees & commissions. Moreover, investment income is modeled to grow by 15.1% (down 22. in 2016). We caution that our estimates could be revised downward if oil prices remain depressed longer than expected. 25bps interest rate hike by the FED is positive but not a game changer for NIMs and spreads; further hikes would be material. The FED is expected to hike interest rates by 25bps in December This is positive for BSFR as 52. and 35. of loans are repriceable within 3 months and 3-12 months, respectively. BSFR is an established corporate banking franchise with a 12% market share in this segment (highest among domestic peers); we estimate an overall loan book CAGR of 8.6% during e. BSFR is mostly known for being a corporate oriented bank with corporate loans representing on average ~91% of its loan book between However, by mid-2000, the bank modified its strategy tapping the retail sector more aggressively. This did not work to the bank's advantage as impaired retail loans expanded by 28% in 2011 and 3 in As such, the bank has adopted a more cautious approach about lending to retail; it plans to target the mid-segment and HNIs vs. mass retail. During , BSFR cleaned/restructured its retail book and some corporate accounts. We are of the view that the corporates' segment, the historical niche segment for the bank, should drive credit off-take. We pencil in loan book growth of 7.8%, 5., 7. and 10.0% in 2015, 2016, 2017 and 2018, respectively. Catalysts Beyond a stabilization/recovery in oil prices, the following developments could be perceived positively by the market: improvement in NIMs and spreads. Recommendation, Valuation and Risks Recommendation and valuation: We assign a Price Target of SAR33.00 and an Accumulate rating. BSFR is trading at a 2016e P/B and P/E of 1.0x and 8.8x, respectively. The stock offers a yield of 3. and 4.1% in 2016 and 2017, respectively. Risks: 1) Declining oil prices remains the biggest risk for BSFR and the Saudi banking sector and 2) Greater-than-expected asset quality deterioration. Key Financial Data and Estimates FY2014 FY2015e FY2016e FY2017e EPS (SAR) EPS Growth (%) (4.1) 10.4 P/E (x) BVPS (SAR) P/B (x) DPS (SAR) Dividend Yield (%) Key Data Current Market Price (SAR) Dividend Yield (%) 3.8 Bloomberg Ticker ADR/GDR Ticker Reuters Ticker ISIN Sector* BSFR AB N/A 1050.SE SA Banks & Financial Svcs. 52wk High/52wk Low (SAR) 40.90/ m Average Volume ( 000) Mkt. Cap. ($ bn/sar bn) 33.6/9.0 Shares Outstanding (mn) 1,205.4 QFI Limit* (%) 20.0 Current QFI* (%) Year Total Return (%) (11.3) Fiscal Year End December 31 Source: Bloomberg (as of December 01, 2015), *Tadawul (as of December 01, 2015); Note: QFI is Qualified Foreign Investors Shahan Keushgerian shahan.keushgerian@qnbfs.com.qa Saugata Sarkar saugata.sarkar@qnbfs.com.qa ; Note: All data based on current number of shares Wednesday, 02 December

2 Valuation Our target price of SAR33.00/share implies an upside of 18. over the current price. As such, we rate BSFR an Accumulate. Key risk to our assumptions and target price is oil prices remaining depressed, which in turn would further weaken the Saudi economy, resulting in having more projects being put on hold or suspended. Consequently, this would put further pressure on the banking sector. Another major risk is the geopolitical situation in the Middle East. We value BSFR using a blended valuation methodology, which assigns a 50%:50% weighting to a) Warranted Equity Valuation (WEV) and b) Residual Income Model (RI). a) We utilize a WEV technique derived from the Gordon Growth Model: P/B = (RoAE-g)/(Ke-g). This model uses sustainable return on average equity (RoAE) based on the mean forecast over the next seven years, cost of equity (Ke) and expected long-term growth in earnings (g) to arrive at a fair value for this stock. We consider this method best suited to arriving at an intrinsic valuation through the economic cycle. Based on this method we arrive at a fundamental P/B of 1.2x. b) We also derive BSFR's fair value by employing the RI valuation technique, which is calculated based on the sum of its beginning book value, present value of interim residuals (net income minus equity charge) and the present value of the terminal value (we apply a fundamental P/B multiple based on the Gordon Growth Model to the ending book value at the end of our forecast horizon). The RI model is suitable for the following reasons: 1) when the company does not pay dividends or the pattern of dividend payments is unpredictable; 2) the company is expected to generate negative free cash flows for the foreseeable future and 3) as the traditional free cash flow to equity (FCFE) formula does not apply to banks. A major advantage of RI in equity valuation is that a greater portion of the company's intrinsic value is recognized from the beginning BVPS as opposed to the terminal value (common in traditional FCFE methodology). In Banque Saudi Fransi's case, 77% of the fair value is derived from the bank's beginning BVPS vs. 1 from the terminal value. Both valuation methodologies are based on a common Cost of Equity (Ke) assumption of 11.. We calculate a risk free rate of 4. and factor in an adjusted beta of 1.03 vs (actual from Bloomberg) as we believe banks are a direct proxy for the economy. Finally, we add a local equity risk premium of 6.7% to arrive at a Ke of 11.. Valuation Matrix WEV Sustainable RoAE (%) 13.0% Beginning BVPS (2016e) (SAR) Book Value of 2016e (SAR) Present Value of Interim Residuals (SAR) 2.68 Estimated Cost of Equity (%) 11. Present Value of Terminal Value (SAR) 4.72 Terminal Growth Rate (%) 4.0% Fundamental P/B 1.2x Intrinsic Value (SAR) Intrinsic Value (SAR) Current Market Price (SAR) Current Market Price (SAR) Upside/(Downside) Potential (%) 18. Upside/(Downside) Potential (%) 18. Equity Value (SAR mn) 39,777 Equity Value (SAR mn) 39,777 RI Source: Bloomberg, QNBFS estimates Price Target Calculation Methodology Equity Value (SAR mn) Weight (%) Fair Value (SAR mn) WEV 39, ,888 Residual Income 39, ,888 Blended Equity Value 13,565 Shares Outstanding (mn) 1,205.4 Target Price (SAR) Upside/(Downside) 18. Source: Bloomberg, QNBFS estimates We present below a scenario analysis of possible price targets based on a Base, Bull and Bear scenarios. Scenario Analysis Bear Base Bull Sustainable RoAE 12.0% 13.0% 14.0% G % 5.0% Ke P/B Blended Fair Value based on WEV & RI Source: QNBFS estimates Wednesday, 02 December

3 Trading at a 38% discount to its Historical P/B Historical Median - 1.9x 9.0 Current P/B - 1.2x Mar-05 Sep-08 Mar-12 Sep-15 Source: Bloomberg BSFR's valuation is undemanding. The stock trades at a steep discount to its 10-year average P/B and P/E ratios. Moreover, if we exclude the bull years and the global financial crisis years the stock is still trading at a 16% and 2 discount to its median P/B and P/E, respectively. And a 3 discount to its Historical P/E Mar-05 Sep-08 Mar-12 Sep-15 Source: Bloomberg Historical Median x Current P/E - 8.5x Wednesday, 02 December

4 Key Forecasts Loan Portfolio BSFR is an established corporate banking franchise with a 12% market share in this segment (highest among domestic peers); we estimate an overall loan book CAGR of 8.6% during e. BSFR is mostly known for being a corporate oriented bank with corporate loans representing on average ~91% of its loan book between However, by mid-2000 the bank modified its strategy by tapping the retail sector more aggressively. This did not work to the bank's advantage as impaired retail loans expanded by 28% in 2011 and 3 in Moreover, NPLs arising from retail contributed 3 of total NPLs. As such, the bank has become more cautious about lending to this sector; it plans to target the mid-segment and HNIs vs. mass retail. During , BSFR cleaned/restructured its retail book and some corporate accounts. Thus impaired retail loans dropped by and in 2013 and 2014, respectively. Moreover, retail loans contracted by 13. in 2013 while were marginally up (+0.) in We are of the view that the corporates' segment, the historical niche segment for the bank, should drive the credit off-take. We pencil in loan book growth of 7.8%, 5., 7. and 10.0% in 2015, 2016, 2017 and 2018, respectively. We expect the loan book to grow to SAR176.2bn in 2019e from SAR116.5n in It should be noted that we expect low single digit growth in 2016 due to depressed oil prices, which is adversely affecting KSA's economy. Loans to Exhibit 8.6% CAGR (SAR mn) Loans Skewed Towards Corporates 180, % CAGR 176, , % 120, , , , , , % 46% 46% % 22% 16% 1 20% 1 60, e 2016e 2017e 2018e 2019e 2 0% 17% 1 12% 1 20% 12% 7% 11% 11% 8% 8% Retail Real Estate & Construction Manufacturing Commerce Other Corporates Shari ah compliant financing to drive loan growth. Given KSA's corporate sectors' preference for Shari ah compliant loans, the former has grown by a CAGR of 30. ( ) vs. 3. that of conventional loans. Shari ah Compliant Loan Growth Outpaced Conventional; Currently Shari ah Compliant Loans Dominate BSFR's Loan Book 100% 7 50% 2 86% 1 80% 20% 71% 2 67% 3 61% % 52% 48% 52% 48% 56% 58% 4 42% 0% Conventional Loans Sharia'h Compliant Loans Source: Company data Wednesday, 02 December

5 Deposit Book BSFR has a 8% market share in deposits, 5th among domestic banks; we estimate deposits to grow by a CAGR of 8. during e. The bank has successfully managed to raise non-interest bearing deposits. In 2014 non-interest bearing deposits reached a peak at 7 of total deposits. Given the anticipated Fed rate hike, we believe BSFR's current deposit structure is not sustainable. Thus, we estimate a gradual decline in non-interest bearing deposits. On a side note, SAMA has enforced a deposit insurance scheme in which banks would have to apply a charge of 5bps on non-sovereign deposits. Consequently, this would increase interest expense going forward. Non-Interest Bearing Deposits have Reached Non-Sustainable Levels; A Gradual Drop is Imminent 100% 7 50% 56% % 68% 6 50% 2 50% % 27% 30% 32% 3 0% e 2016e 2017e 2018e Interest Bearing Deposits Non-Interest Bearing Deposits LDR (Loans to stable sources of funds) expected to remain below SAMA's 8 limit. Given BSFR's conservative nature, we do not assume an expansion in the LDR % SAMA's 8 Limit 75.0% % 80.2% % 79.0% 77.8% 78.7% 50.0% 25.0% 0.0% e 2016e 2017e 2018e Wednesday, 02 December

6 Operating Performance We expect positive performance in 2015, weak performance in 2016 followed by a rebound in 2017; we pencil in a bottom-line CAGR of 9.0% in e. We estimate net income to grow by 13.7% to SAR4.0bn in 2015 mainly due to a 50.6% drop in net provisions. It is worth mentioning that BSFR was cleaning its books during 2012 and 2013 due to impaired retail and some corporate accounts, leading provisions to expand by 181.1% and 117.6% in 2012 and 2013, respectively. In 2014, net income soared by 46.2% on the back of robust operating income coupled with a contraction in provisions (down 62.1%). Coming back to 2015, we expect provisions to further drop by 50.6% based on sound asset quality and the trend in 9M2015. Moreover, we expect net income to be boosted by investment income while estimating healthy growth from core banking income since 2014's jump in profitability stemmed from a low base effect. On the other hand, due to the weak overall outlook for 2016, we expect net income to decline by 4.1% to SAR3.8bn. In times of weak market conditions, asset quality deteriorates and provisions rise. As such, we pencil in a cost of risk (CoR) of 33bps (16bps in 2015) which leads to provisions increasing by 145.7% to SAR444.3mn. Moreover, we foresee sluggish growth in net interest income and fees. At the same time, we estimate a significant drop in investment income. Finally, 2017 could be a promising year. We expect net income to grow by 10. to SAR4.2bn led by strong core banking income and investment income. We estimate core income to gain by 9.1% led by a 11. growth in net interest income, 8.0% growth in f/x income and 6.0% gain in fees & commissions. Moreover, investment income is modeled to grow by 15.1% (down 22. in 2016). We caution that our estimates could be revised downward if oil prices remain depressed longer than expected. 25bps interest rate hike by the FED is positive but not a game changer for NIMs and spreads; further hikes would be material The FED is expected to hike interest rates by 25bps in December This is positive for BSFR, as 52. and 35. of loans are repriceable within 3 months and 3-12 months, respectively. However, funding would not remain free in our view as the bank's portion of non-interest bearing deposits to total deposits peaked at 7. As such, we expect depositors to demand a return on their funds. Consequently, we estimate a measured rise in NIMs. Net Income (SAR mn) Net Interest Income (SAR mn) 6, % 5,080 5, % 6,600 5,439 6, % 4,000 2,406 3,516 3,999 4,235 3, % % 6.7% 25.0% 4,400 3,363 3,817 4,078 4, % 4, % % 10.0% 2, % 2, % -4.1% 5.0% -20.2% 1.7% e 2016e 2017e 2018e 2019e -25.0% e 2016e 2017e 2018e 2019e 0.0% Net Income (LHS) Growth (RHS) Net Interest Income (LHS) Growth (RHS) NIMs To Progressively Improve 4.0% % % 3.01% % 2.86% 2.97% 2.86% 2.66% 2.41% % % e 2016e 2017e 2018e Wednesday, 02 December

7 RoAE to Remain Under Pressure On the Back of High CARs and Excessive Provisioning 15.0% % 14.0% % 2.7% 10.0% % 2.2% 12.1% % 2.0% 2.2% 2.1% 2.2% 5.0% 1.7% % e 2016e 2017e 2018e 2019e RoAE (LHS) RoRWA (RHS) 1.2% Efficiency Cost-to-income ratio at optimal levels. BSFR, has, on average ( ) maintained its efficiency ratio at an optimal level of 32%. This is mainly due to the bank s focus on corporate banking, which is less cost intensive vs. retail banking. Going forward, we estimate the bank s cost-to-income ratio to be within its historical range. Having said that, we pencil in a higher ratio in 2016 due to revenue growing less than opex. This is based on the tepid macro outlook in Operating Efficiency to Remain Robust 40% 34.8% % 34.6% % 33.0% % 0% e 2016e 2017e 2018e Cost-to-Income (Headline) Cost-to-Income (Core) Wednesday, 02 December

8 Asset Quality BSFR boasts healthy asset quality but this could worsen in 2016 and We forecast some deterioration in asset quality during 2016 and 2017 as is likely during periods of economic softness. Thus, we estimate an increase in the NPL ratio to 1.2 and 1.3 in 2016 and 2017, respectively. It should be noted that although we expect the NPL ratio to increase, the increase in the ratio still implies NPLs to remain within normal historical/sector norms. We also expect elevated coverage ratios, which should safeguard the bank in case loans are impaired more than estimated. In recent times, BSFR faced headwinds when it targeted the mass retail as discussed under the loans section (impaired retail loans expanded by 28% in 2011 and 3 in NPLs arising from retail contributed 3 of total NPLs. As such, the bank has recently become more cautious about lending to retail; it plans to target the mid-segment and HNIs vs. mass retail. Thus impaired retail loans dropped by and in 2013 and 2014, respectively. Moreover, retail loans contracted by 13. in 2013 while were marginally up (+0.) in 2014). The bank has generally maintained on average a coverage ratio of 15 between 2004 and On the other hand, BSFR ended 2014 with a coverage ratio of 19. Furthermore, we are of the view that management would like to remain conservative and maintain a coverage ratio above the 150s (%). It is important to note here that SAMA has asked banks to put aside more provisions (general provisions) by applying 1% to performing loans. As such, this should keep coverage ratios elevated and dampen ROEs. Healthy Asset Quality but Could Worsen in % % 146% % 158% 156% 187% 2 180% 150% 120% 2% 90% 1% % 1.00% % % 30% 0% e 2016e 2017e 2018e NPL Ratio (LHS) Coverage Ratio (RHS) 0% Capitalization Strong capitalization levels. BSFR has always maintained healthy capitalization levels and we do not expect this trend to reverse. Capitalization Levels Remain Robust 20.0% 15.0% % 15.6% % 15.1% 18.0% 15.8% % 5.0% 0.0% e 2016e 2017e CAR Tier 1 Wednesday, 02 December

9 4Q2015 Estimates We expect BSFR to exhibit a 10.6% QoQ drop in net income (+7. YoY). We estimate BSFR to report a net income of SAR912.5mn in 4Q2015 vs. SAR1.02bn in 3Q2015 (SAR850.7mn in 4Q2014). We expect the QoQ decrease in net income to be mainly attributed to a decrease in noninterest income driven by a drop in investment income and f/x income. We expect the YoY growth to emanate from growth in net interest income and fees & commissions. SAR mn 4Q2014 3Q2015 4Q2015e Change QoQ (%) Change YoY (%) Net Interest Income 970 1,044 1, Non-Interest Income (15.5) 2.1 Net Operating Income 894 1, (9.0) 9.0 Net Income 851 1, (10.6) 7.3 Company Description As of 9M2015, Banque Saudi Fransi had a and 8% market share in loans (5th largest among domestic banks) and deposits (6th largest among domestic banks), respectively. What is of significance is BSFR commands the 2nd largest market share in corporate lending (12%). Established in 1977, BSFR is a universal bank offering conventional and Shari'ah compliant services to corporates and retail customers, investment banking, brokerage and asset management. The bank has a network of 83 branches and over 560 ATMs. Banking on one of France's prominent banks and strategic shareholder; Credit Agricole (has a technical service agreement with BSFR) which is beneficial to the bank. Leveraging off its successful corporate banking franchise and platform, BSFR s strategy is to cross-sell the bank s products and services, boosting its fees & commissions income. Solid shareholder base. BSFR enjoys a strong and stable shareholding structure. Major Shareholders Shareholders Investor Type Country Share (%) Credit Agricole Institutional France 31.1 General Organization for Social Insurance (GOSI) Government KSA 13.3 Al Rashed Family Private KSA 9.8 Total 54.2 Source: Tadawul Subsidiaries/Associates Company Country Share (%) Saudi Fransi Capital KSA Saudi Fransi Insurance Agency (SAFIA) KSA Saudi Fransi Financing & Leasing KSA SOFINCO Saudi Fransi KSA Sakan Real Estate Financing KSA Banque BEMO Saudi Fransi Syria 27.0 Saudi Fransi Corporative Insurance Co. (Allianz Saudi Fransi) KSA 32.5 Source: Company data Wednesday, 02 December

10 Detailed Financial Statements Ratios FY2014 FY2015e FY2016e FY2017e Profitability (%) RoAE RoAA RoRWA NIM (% of IEAs) NIM (% of RWAs) NIM (% of AAs) Spread Efficiency (%) Cost-to-Income (Headline) Cost-to-Income (Core) Liquidity (%) LDR Loans/Assets Cash & Interbank Loans-to-Total Assets Deposits to Assets Wholesale Funding to Loans IEAs to IBLs Asset Quality (%) NPL Ratio NPLs to Shareholder's Equity NPLs to Tier 1 Capital Coverage Ratio ALL/Average Loans Cost of Risk Capitalization (%) Tier 1 Ratio CAR Tier 1 Capital to Assets Tier 1 Capital to Loans Tier 1 Capital to Deposits Leverage (x) Growth (%) Net Interest Income Total Revenue Net Income (Attributable) Loans Deposits Wednesday, 02 December

11 Income Statement (In SAR mn) FY2014 FY2015e FY2016e FY2017e Net Interest Income 3,817 4,078 4,313 4,806 Fees & Commissions 1,292 1,369 1,431 1,517 FX Income Investment Income Other Income Non-Interest Income 1,970 2,201 2,225 2,392 Total Income 5,787 6,279 6,538 7,198 Operating Expenses (1,904) (2,099) (2,259) (2,448) Operating Income 3,883 4,180 4,279 4,751 Net Provisions & Investment Impairments (366) (181) (444) (515) Net Profit 3,516 3,999 3,835 4,235 Balance Sheet (In SAR mn) FY2014 FY2015e FY2016e FY2017e Assets Cash & Balances with Central Bank 20,014 16,380 22,515 15,921 Interbank Loans 2,009 7,540 2,250 5,711 Net Investments 45,102 36,263 45,216 58,608 Net Loans 116, , , ,773 Other Assets 4,506 6,528 5,856 6,274 Net PP&E Total Assets 188, , , ,716 Liabilities Interbank Deposits 3,863 1,277 1,753 3,091 Customer Deposits 145, , , ,902 Term Loans 9,131 6,713 6,713 6,713 Other Liabilities 4,036 5,658 6,433 7,076 Total Liabilities 162, , , ,782 Shareholders Equity 26,471 30,455 33,024 35,934 Total Liabilities & Shareholders Equity 188, , , ,716 Wednesday, 02 December

12 KSA Banking Landscape Wednesday, 02 December

13 Loans/GDP: KSA Underbanked Young Population: Favorable for Retail Banking 100% 85.0% 87.1% % % 44.7% 2 4 0% KSA Kuwait Oman Qatar UAE Source: Respective Central Banks, UN 2014 Loans Market Share: NCB is the Incumbent 9M2015: RIBL & SAIB Lost Market share While SABB & SHB Gained SHB Alinma SAIB BAJ Al Bilad 2% NCB 18% Alinma SAIB SHB 6% BAJ Al Bilad 2% NCB 18% ARNB 8% RJHI 16% ARNB 8% RJHI 16% SABB BSFR SAMBA RIBL 11% SABB BSFR SAMBA RIBL Source: Company financials Wednesday, 02 December

14 2014 Corporate Loans Share: NCB Followed by BSFR 2014 Retail Loans: RJHI Leader Followed by NCB Alinma SAIB BAJ Al Bilad 2% NCB 17% Alinma BAJ SAIB Al Bilad SHB BSFR 2% SHB 6% RJHI 7% BSFR 12% SAMBA ARNB 6% RJHI 36% ARNB SABB RIBL 11% SAMBA 12% SABB 6% RIBL NCB 1 Source: Company financials 2014 Conventional Loans Share: RIBL Followed by SAMBA 2014 Shari ah Loans: RJHI Leader Followed by NCB SHB ARNB 11% SAIB 8% SABB 7% RIBL 1 SAMBA 16% BAJ SHB Alinma 6% ARNB 7% BSFR 7% SAIB Al Bilad RJHI 22% NCB 1 NCB 1 BSFR 1 RIBL 7% SAMBA 7% SABB Source: Company financials Wednesday, 02 December

15 Corporate Loans Dominate as is the Case in the GCC Conventional Loans vs. Shari ah Loans:: Shari ah Favored by Saudis Retail Loans 32% Convention al Loans 27% Corporate Loans 68% Shari'ah Compliant Loans 7 Source: Company financials 2014 Deposits: NCB & RJHI Dominate 9M2015 Deposits: NCB Gained Market Share While BSFR Lost Alinma SAIB SHB BAJ Al Bilad 2% NCB 20% SHB Alinma SAIB BAJ Al Bilad 2% NCB 21% ARNB 8% ARNB 8% SABB RJHI 16% SABB RJHI 16% BSFR SAMBA RIBL BSFR 8% SAMBA RIBL Source: Company financials KSA Enjoys Lowest 9M2015 LDR in GCC 100% % % 86% 87% 88% 8 50% 2 0% NCB SAMBA BAJ Total Banks RJHI Al Bilad SABB ARNB RIBL BSFR SAIB Alinma SHB Source: Company financials Wednesday, 02 December

16 Markets Factoring in a Rate Hike; KSA Appears to be Experiencing a Liquidity Crunch as is Evident by the Sudden Sharp Spike M SAIBOR 3M LIBOR Source: Bloomberg Actual 3M SAIBOR and LIBOR Rates M SAIBOR 3M LIBOR Source: Bloomberg Wednesday, 02 December

17 Recommendations Based on the range for the upside / downside offered by the 12 - month target price of a stock versus the current market price Risk Ratings Reflecting historic and expected price volatility versus the local market average and qualitative risk analysis of fundamentals OUTPERFORM Greater than +20% R-1 Significantly lower than average ACCUMULATE Between + to +20% R-2 Lower than average MARKET PERFORM Between - to + R-3 Medium / In-line with the average REDUCE Between - to -20% R-4 Above average UNDERPERFORM Lower than -20% R-5 Significantly above average Contacts Saugata Sarkar Shahan Keushgerian Head of Research Senior Research Analyst Tel: (+974) Tel: (+974) saugata.sarkar@qnbfs.com.qa shahan.keushgerian@qnbfs.com.qa QNB Financial Services SPC Contact Center: (+974) PO Box Doha, Qatar Disclaimer and Copyright Notice: This publication has been prepared by QNB Financial Services SPC ( QNBFS ) a wholly-owned subsidiary of QNB SAQ ( QNB ). QNBFS is regulated by the Qatar Financial Markets Authority and the Qatar Exchange QNB SAQ is regulated by the Qatar Central Bank. This publication expresses the views and opinions of QNBFS at a given time only. It is not an offer, promotion or recommendation to buy or sell securities or other investments, nor is it intended to constitute legal, tax, accounting, or financial advice. QNBFS accepts no liability whatsoever for any direct or indirect losses arising from use of this report. Any investment decision should depend on the individual circumstances of the investor and be based on specifically engaged investment advice. We therefore strongly advise potential investors to seek independent professional advice before making any investment decision. Although the information in this report has been obtained from sources that QNBFS believes to be reliable, we have not independently verified such information and it may not be accurate or complete. QNBFS does not make any representations or warranties as to the accuracy and completeness of the information it may contain, and declines any liability in that respect. For reports dealing with Technical Analysis, expressed opinions and/or recommendations may be different or contrary to the opinions/recommendations of QNBFS Fundamental Research as a result of depending solely on the historical technical data (price and volume). QNBFS reserves the right to amend the views and opinions expressed in this publication at any time. It may also express viewpoints or make investment decisions that differ significantly from, or even contradict, the views and opinions included in this report. This report may not be reproduced in whole or in part without permission from QNBFS COPYRIGHT: No part of this document may be reproduced without the explicit written permission of QNBFS. 17