Today’s Trading Playbook
KEY THEMES
Commercial International Bank [COMI] closed 1.1% higher on Sunday, as investors cheered all-time high quarterly net profit of EGP3.8bn (+19% q/q) during Q3 2021. Management held its analyst conference call yesterday, discussing Q3 2021 results. Here are the highlights, presented by our senior banking analyst, Shihab M. Helmy:
Focus on quality funding paid off: COMI experienced a steady growth in high-quality low-cost funding by focusing on elevating its CASA levels in new deposit booking throughout the last three quarters. This strategy has borne fruit as CASA deposits now represent 55% of total deposits. In doing so, management opted to use a different kind of promotions, including bonus points, higher credit card limits, and an upgrade for customers, among other benefits.
NIM compression is a matter of liquidity: Weaker NIM is a reflection of two important variables: (1) the liquidity issue resulting from shifting between Treasuries with different maturities and (2) a pickup in lending volume in 9M 2021 alleviating the negative impact on the net interest income, yet lending still has a low impact on NIM compared to interbank investments.
Lending is strengthening, CAR is seen dwindling: COMI borrowed more than EGP4bn during September alone, building on its good relationship with governmental entities, such as the Egyptian General Petroleum Corporation (EGPC). This helped reduce the impact on the bank's CAR. However, COMI expects its inflated CAR level to soften going forward, setting the scene for ROAE to improve further.
The likely dividend policy: COMI has not yet decided whether or not to distribute dividends based on 2021 earnings. The dividend decision has to be taken by the board of directors (BoD) and the Central Bank of Egypt (CBE). That said, management will propose in the BoD meeting to distribute dividends at 25% of both 2020 and 2021e earnings.
Expansion plans shelved: COMI does not intend to press ahead with its expansion plans in Africa, after its experience in Kenya where the results were not as anticipated. On another note, COMI expects Mayfair Bank to be the link for trade finance operations between Kenya and Egypt.
The best play on Egypt’s banks: Although COMI has already been an impressive performer since the beginning of the year, up 18.8% ytd, it is currently traded at a forward P/E of only 7.5x and a forward P/BV of 1.6x. We have an Overweight rating on the name with a 12-month price target of EGP62/share, implying an upside potential of c.18%.
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