NBK MENA research unit said it has raised Qatar Islamic Bank - QIB fair value by 20% to QAR104.80 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.

The new fair value implies potential downside of 6% and therefore our recommendation on the stock is "Hold" , said NBK.

NBK expects the Islamic bank to deliver net profit growth of more than 20% 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.

Meanwhile ,it expect QIB’s financing book to continue outgrowing the market, expanding by 14% in FY2015 but coming in way below the 28% expansion in 2014F.

As for cost of risk , NBK forcasts its 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% as of September 2014 and NPL coverage of 104%.
On conservative view , NBK assumes that investment provisioning will remain high, eating up 7% of operating income in 2015F compared with 7.9% in 2014F (6.3% in 9M2014), as it expects QIB to continue building up a cushion at a time when operating income is increasing by double-digit figures.

All in all,NBK expects the RoAE to improve from 11.4% in 2013 to around 15% in 2015 and the RoAA to steadily improve to around 2% by the end of its forecast horizon. Higher-than-expected financing growth in 2015 is the main upside risk to its forecasts.