Abu Dhabi Islamic Bank - Egypt [ADIB]: Wise Utilization Enhances Profitability
Significantly lower provisions boost net earnings
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Abu Dhabi Islamic Bank - Egypt [ADIB]
Egypt / Banks / Q4 2021 Results
12M PT: EGP21.7 (+59%)
set on 7 Dec 2021
Investment Rating: Overweight | Risk Rating: Medium
Earnings growth on the back of lower credit provisions
Abu Dhabi Islamic Bank - Egypt [ADIB] reported its 2021 figures, with a satisfying bottom line of EGP1.4bn (+20% y/y) on a higher net interest income (NII) of EGP3.6bn (+13% y/y). Full-year earnings matched our estimates (PRe). ADIB managed to achieve NII growth despite a slight y/y decrease in NIM of 4.57% (-33bps), in light of a strong interest earning assets (IEA) growth, driven by Treasuries and loans. Also, strong earnings growth was the product of booking much lower credit provisions which dropped to EGP166mn (-62% y/y), coming below PRe.
Diversified asset allocation, albeit with a lower ROAA
Total assets grew boldly by 23% y/y, as the bank managed to grow its investments by 40% y/y, its interbank assets by 26%, and most importantly, its lending by 13% y/y to EGP45.3bn. This shows how the bank efficiently utilized higher total deposits (+21% y/y) and interbank liabilities (+243% y/y due to a low base). Accordingly, ROAA dropped slightly to 1.70% (-4bps y/y), whereas ROAE weakened by 142bps to 23.75%, given a slow expansion in the bank’s equity multiplier. It is clear that the IEA mix of the bank leaned more towards risk-free investment vehicles, as government debt securities as a percentage of total assets increased to 34% (up from 30% a year before), while loans represented 51% (down from 55% a year before). This clearly translated into a lower GLDR of 67% in 2021, down from 74% in 2020. Moreover, ADIB has a positive short-term asset repricing gap (29% of total assets), making the bank a beneficiary in case of interest rate hikes.
Credit quality maintained despite double-digit loan book growth
Despite the increase in the bank’s loan book, ADIB booked 62% lower credit provisions in 2021, with the cost of risk (CoR) decreasing materially to 34bps from 104bps a year earlier. Meanwhile, NPL ratio upped a bit to 3.81% (+67bps y/y); hence, overall coverage ratio slipped to 115% in 2021, down from 146% a year earlier. We note that the increase in loans was mainly driven by corporate lending.
Overweight maintained with a positive outlook
In view of 2021 results, we maintain our 12MPT at EGP21.7/share (ETR +59%); hence, we maintain our Overweight rating. ADIB is currently traded at 2022e P/E of 2.9x and P/BV of 0.7x. We note that the stock faced downward pressures ever since the bank announced its plans for a rights issue in 2022. ADIB plans to raise its paid-in capital to EGP5bn by August 2022, which will be through a combination of rights issue and bonus shares distribution. While the impact of the rights issue is a short-term negative for ADIB, we note that it will have a minimal impact on our 12MPT as well as long-term growth prospects.
Amany Shaaban
Equity Analyst
T +202 3300 5720