First Gulf Bank -Equity Report -07-06-2012

12-Month Fair Value: AED 11.00
Recommendation: But – Risk Level**: 3

FGB remains our top pick, with limited downside risks and an upside potential of 29%; hence, we have upgraded our recommendation from “Accumulate” to “Buy.” Our new fair value per share for FGB stands at AED 11.00, which is 10% above our prior fair value, partly driven by the fact that we raised the average dividend payout over the forecast horizon from 28% in our last update to 37%. FGB’s share price has outperformed its UAE peers YTD with an increase of 11%. However, the bank continues to trade at a 2012 P/B of 0.9x. the bank displayed good liquidity, stable asset quality indicators, and strong capital adequacy (21.2%) as of March 2012. Furthermore, despite high capitalization the bank offered a healthy RoAE of 14.6% in 2011, the second highest among the covered UAE banks.