MubasherTrade maintains Sell/Moderate Risk rating on CIB

MubasherTrade maintains Sell/Moderate Risk rating on CIB
MubasherTrade has maintained their Sell/Moderate Risk rating on the CIB, with the same PT at EGP 76/shr
-2.11% 81.48 -1.75

Cairo - Mubasher: MubasherTrade Research has maintained their Sell/Moderate Risk rating for the stock of the Commercial International Bank - Egypt (CIB), with the same price target (PT) at EGP 76 per share, according to a recent report.

The CIB’s stock “has fallen by c.13% from its peak in mid-July” and “is currently traded at 3.3x book value, including interim earnings,” MubahserTrade added.

The CIB's return on equity (ROE) stood at 31.4% year-on-year for the first nine months of 2017, the report indicated.

The CIB posted on Thursday posted a 22% year-on-year rise in consolidated profits for the third quarter of 2017.

Net profits amounted to EGP 2.087 million in Q3-17, versus EGP 1.703 million in Q3-16, beating MubasherTrade expectations of EGP 1.976 million.

Net interest income (NII) and non-interest income went up 40.9% year-on-year at EGP 3.567 million and 60% year-on-year at EGP 620 million, respectively, pushing the CIB’s annual earnings higher.

The research firm believes that the CIB’s net fees and commissions’ income, which levelled up 56% year-on-year, “should improve further in the coming period as the EGP flotation should reflect positively on customers' ability to open letters of credit for imports,”

Total banking income surged 43.4% year-on-year to EGP 4.187 million, the report mentioned.

Net interest margin (NIM) fell 5.47% year-on-year in Q3-17 from 5.75% in Q3-16.

Moreover, loan loss provision (LLP) charge soared 744.6% year-on-year at EGP 623 million.

Total cost rose 25.6% year-on-year at EGP 794 million due to a 29% year-on-year increase in general and administrative expenses, as well as an increase of a 33% year-on-year in depreciation.

Meanwhile, the cost-to-income ratio dropped 19% in Q3-17 from 22% in Q3-16.

MubasherTrade noted that CIB's total corporate loans declined by 4.4% quarter-on-quarter to EGP 82.9 billion due to the current high-interest rates which led to a slowdown in demand for credit.

On the other hand, CIB's total retail loans increased by 6.3% quarter-on-quarter, the report highlighted.

The research firm is forecasting loan growth to go up due to the expected increase in capital expenditure during 2018, pointing out that the CIB's net loans grew 44.8% year-on-year to EGP 88 billion at the end of September 2017, while customer deposits accelerated by 39.1% year-on-year to EGP 247.7 billion.

The bank's net loans-to-deposits (L/D) ratio increased slightly on annual basis from 34.1% in September 2016.

The bank's loans asset quality slipped slightly to 6.9% from 5.3% in September 2016, while non-performing loan (NPL) coverage ratio plunged 155% from 158% in September 2016.

However, capital adequacy ratio (CAR) rose 16.95% in September 2017 from 13.9% in September 2016, “which is comfortably above minimum CAR required by the CBE of 11.25%,” the report said.

In October 2017, the Central Bank of Egypt (CBE) lifted the reserve requirement ratio (RRR) on deposits from 10% to 14% as an alternative for raising interest rates to dis-inflate the Egyptian economy.

MubasherTrade indicated that the CBE’s decision would have a short-term negative impact on local banks which are expected to keep their deposit rates downward, noting that the CIB would maintain originating loans to the small- and medium-sized enterprises (SME) to address the higher RRR.

“Banks that finance SMEs within the framework of the CBE's initiative are exempted from compulsory RRR with an amount equivalent to such loans,” the research company noted.

“The CIB has already started to take steps in this direction with the bank currently considering entering the real estate mortgage sector through a new subsidiary—a plan pending approval by the bank's board of directors,” the company continued.

“The bank is focusing this year on mortgage financing for lower-income citizens and may expand its financing at the beginning of next year to include middle-income earners,” the report added.

The report mentioned that the CBE's promote mortgages for low- and middle-income earners to bring total financing extended under its initiative to EGP 10 billion.

“The CIB is also looking to grow its retail banking portfolio, which has solid potential for growth despite high-interest rates and the CBE's cap on monthly payments on loans at 35% of the borrower's total documented income,” the report concluded.