NBK Capital MENA reiterates ‘HOLD’ on Qatar Islamic Bank (QIB)

24/11/2014 15:06 AST

In a research note, NBK Capital MENA said, “We have increased our fair value for QIB by 20 per cent to QR 104.80 per share on higher net profit and dividend payouts in the forecast horizon, a richer valuation for our sample of peers, and a decrease in the cost of equity. Our fair value implies potential downside of six per cent, and therefore our recommendation on the stock is ‘Hold’. QIB’s stock price has rallied by an impressive 62 per cent YTD, outperforming peers by a wide margin (the Qatari banking index is up 43 per cent in the same period) on the back of significant underperformance in 2013 and robust financial results since 4Q2013. This steep stock price increase has pushed up valuation multiples, with QIB now trading at a P/B of 2.2x and a P/E that, at 18x, is the highest among the banks under our coverage in Qatar. We expect a DPS of QR 4.0 for FY2014, unchanged from 2013, implying a 66 per cent dividend payout (71 per cent in 2013) and a 3.6 per cent dividend yield.

“We forecast net profit growth of more than 20 per cent in 2015 on the back of a double-digit increase in operating income, an improvement in the cost-to-income ratio, and less drag from investment provisioning. We expect QIB’s financing book to continue outgrowing the market, expanding by 14 per cent in FY2015 but coming in way below the 28 per cent expansion in 2014F. We forecast the cost of risk to remain broadly stable in 2015 at around 20 bps as asset quality indicators have been benign and are in fact among the best in Qatar, with an NPL ratio of 0.9 per cent as of September 2014 and NPL coverage of 104 per cent. We conservatively assume that investment provisioning will remain high, eating up seven per cent of operating income in 2015F compared with 7.9 per cent in 2014F (6.3 per cent in 9M2014), as we expect QIB to continue building up a cushion at a time when operating income is increasing by double-digit figures. All in all, we expect the RoAE to improve from 11.4 per cent in 2013 to around 15 per cent in 2015 and the RoAA to steadily improve to around two per cent by the end of our forecast horizon. Higher-than-expected financing growth in 2015 is the main upside risk to our forecasts.”

CPI Financial