12-Month Fair Value: SAR 30.70
Recommendation: Hold - Risk Level: 3
Last Close (14 January 2012): SAR 29.30

Saudi Hollandi Bank (SHB) reported a net profit of SAR 231 million in 4Q2011, up 3% YoY but down 23% QoQ. It looks like provisioning (not disclosed in preliminary earnings releases), increased QoQ, leading to the sharp drop in net profit compared with 3Q2011. Net profit for FY2011 reached SAR 1.03 billion, 31% above FY2010 on lower provisioning.

We believe this is a good set of results. Operating income was broadly in-line with our forecasts while loan growth was stronger than expected. Non-interest income was very robust; however, the NIM is still, expectedly, under pressure. SHB’s stock price has increased by 13% since we initiated on the bank with “Accumulate” recommendation in October 2011 to close at SAR 29.3. Our fair value per share (SAR 30.7) for SHB still reflects a 5% upside potential, hence our current recommendation is “Hold.” However, we will issue an update report on SHB after we speak with the bank’s management.

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