Quarterly Result Update

Commercial Bank of Qatar (CBQ) reported a total operating income of QAR 2,777.62 million during FY09, up 0.3% YoY. The total income was inline with our estimate.

The company’s net profit dropped 10.5% to QAR 1,523.59 million during FY09, which was 8.9% lower than our estimate due to higher than expected operating expenses and impairment losses.

We have revised our FY2010E operating income downwards by 3.4% on account of lower other income estimates. Subsequently, we have reduced our net profit estimates by 4.4%.

We are reiterating our OVERWEIGHT recommendation on CBQ with a revised target price of QAR 80.24, implying an upside of 22.9%.

Operating Income
During FY09, CBQ’s total operating income increased marginally by 0.3% to QAR 2,777.62 million from QAR 2,768.63 million in FY08, driven by strong core banking activities, countered by lower investment gains on reduced asset valuations. Interest income increased 8.0% YoY to QAR 2,908.03 million from QAR 2,692.42 million last year. On the other hand, the decline in the cost of funds helped the bank reduce interest expenses by 10.2% YoY to QAR 1,323.90 million. As a result, net interest income rose 30.1% to QAR 1,584.14 million from QAR 1,217.61 million. Meanwhile, net income from Islamic financing and investment activities rose 2.9% to QAR 76.66 million from QAR 74.48 million in FY08, led by a 15.5% rise in income from Islamic financing and investment activities, partially offset by an increase in unrestricted investment account holders' share of profit. Subsequently, adjusted net interest income (including net income from Islamic financing activities) jumped 28.5% to QAR 1,660.79 million from QAR 1,292.09 million last year. Net fees & commission income plunged 28.1% YoY to QAR 678.80 million. Net gains from dealing in foreign currencies and profit from financial investments decreased 8.6% to QAR 119.62 million and 86.7% to QAR 36.64 million, respectively. However, other operating income more than doubled to QAR 219.06 million from QAR 87.02 million, while dividend income was up 60.4% to QAR 62.71 during FY09.

Net Profit
The increase in operating expenses, coupled with higher impairment provisions and a 26.3% decline in the share of profit of associates, impacted CBQ’s bottom-line by 10.5% YoY during FY09. Net profit declined to QAR 1,523.59 million from QAR 1,702.44 million in FY08. As a result, CBQ’s adjusted EPS decreased to QAR 6.72 from QAR 7.51.

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