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Gulf Bank

Source: Taib Bank

Quarterly Result Update

Gulf Bank (GBK) reported a total operating income of KWD 109.22 million during 1H10, up 37.8% YoY.

Net profit was KWD 1.98 million as opposed to a net loss of KWD 7.49 million in 1H09.

We have revised our FY2010E operating income upwards by 19.9% due to higher than anticipated gains from foreign currency and derivatives as well as from disposal of investments available-for-sale. However, the net profit estimate stands 50.5% lower on a considerable increase in provisions for impairments.

Gulf Bank’s stock has risen 55.0% since the beginning of the year. Accordingly, we reiterate our UNDERWEIGHT recommendation with a revised target price of KWD 0.297, implying a downside of 36.1%.

Operating profit (before impairment and provision) rose 57.8% to KWD 87.88 million from KWD 55.70 million, fuelled by a substantial jump in total operating income. In spite of higher charge for provisions, net profit reported was KWD 1.98 million as opposed to a net loss of KWD 7.49 million. Consequently, Gulf Bank’s adjusted annualised EPS stood at KWD 0.002 compared to a loss per share (LPS) of KWD 0.006 in 1H09.

We had updated Gulf Bank on June 24, 2010 with an UNDERWEIGHT recommendation (target price of KWD 0.329 on a 26.0% downside). Currently, the company’s stock is trading at an exceptionally high P/E multiple of 131.18x on 2010E earnings and 35.20x on 2011E earnings. It is also trading at a P/BV multiple of 2.87x and 2.66x on 2010E and 2011E BVPS, respectively. Meanwhile, the stock has increased 55.0% since the beginning of this year compared to a decline of 4.9% in the Kuwait Stock Exchange (KSE). Considering the above factors, we have arrived at a target price of KWD 0.297, representing a downside of 36.1% over its current price of KWD 0.465 (as of close on August 15, 2010). Accordingly, we are reiterating our earlier UNDERWEIGHT recommendation on Gulf Bank.

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