Executive Summary

Established in April 1979 and headquartered in Doha, the Doha Bank offers commercial as well as Islamic banking services. It offers banking solutions through a network of 33 local branches including 5 Islamic branches along with 11 e-branches, 12 pay offices, 3 mobile units and around 109 Automated Teller Machines (ATMs). Doha Bank is the third largest in terms of total assets listed bank in Qatar. The bank has three overseas branches, one each in the United States of America, the United Arab Emirates and Kuwait.

Operating profit rise 16.3% to QAR 1.75 billion in FY08

During 2008, total operating income witnessed a 16.3% growth to QAR 1.75 billion from QAR 1.50 billion in 2007, driven by improved core-banking operations. Net interest income grew 35.3% to QAR 925.47 million in 2008 from QAR 683.83 million in 2007, driven by an 18.4% rise in interest income to QAR 1.99 billion in 2008. The bank’s yield on average interest earning assets and cost of funds lowered 57 bps and 89 bps to 7.0% and 3.7% in 2008, respectively. Moreover, income from Islamic finance activities increased 42.3% to QAR 253.53 million in 2008, on 33.7% increase in Islamic financing loans and advances. Doha Bank’s net profit increased 2.2% to QAR 946.50 million in 2008, while adjusted EPS increased to QAR 5.49 from QAR 5.38. However, the ongoing financial turmoil and liquidity crunch has restricted the full year net profit growth. The bank’s 4Q08 net profit fell 54.7% YoY to QAR 112.67 million on account of increase in impairment charges.

Outlook and Valuation

Qatar’s economy witnessed strong growth over the last few years and is also expected to grow at the fastest rate among Middle East countries in 2009. The country’s nominal GDP attained a CAGR growth of 31.8% during 2003-2007. Driven by declining oil prices, prevailing global financial crisis and subsequent weakening financial markets, the economies across the globe are slowing down. However, the Qatari government has undertaken various measures to pump in liquidity into the system that is likely to support the economy and also the banking sector. Amid this, Doha Bank’s strategy to diversify its income and focuses on sustaining the growth of its existing key business lines would help it to limit the effect of crisis. Currently, Doha Bank is trading at a P/E multiple of 5.42x and 5.03x on 2009E and 2010E earnings and at a P/B multiple of 0.96x and 0.89x for 2009E and 2010E BVPS, respectively. While the Doha Stock Market Index posted a negative YTD return of 36.6%, Doha Bank reported YTD loss of 39.0%. Considering the above factors, we arrive at a Fair Value per share of QAR 37.58, which exhibits a potential upside of 46.8% from its closing price of QAR 25.60 (as on March 02, 2009). Therefore, we initiate our coverage with an OVERWEIGHT investment opinion on DOHA BANK.

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