QNB Alahli [QNBA]: Slow Earnings Pace Despite Assets Growth
Downgrade to Neutral on recent price rally
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QNB Alahli [QNBA]
Egypt / Banks / Q4 2021 Results
12M PT: EGP19.5 (+4%)
set on 7 Dec 2021
Investment Rating: Neutral | Risk Rating: Medium
Subdued earnings growth on a provisions related house-cleaning job
QNB Alahli [QNBA] has reported its consolidated 2021 figures, with a bottom line of EGP7.6bn (+2% y/y) on a higher net interest income (NII) of EGP15.3bn (+5% y/y). Net earnings came in slightly below our estimates of EGP7.8bn (-3% vs. PRe). QNBA managed to achieve NII growth despite a y/y drop in NIM, in light of a strong interest earnings assets (IEA) growth. We note that the annual slippage in NIM is a product of lower yields on IEA, as the impact of the rate cuts in 2020 materialized. Also, weak earnings growth was the product of booking yet another round of hefty credit provisions, which amounted to EGP2.3bn (+6% y/y).
ROAE weakened on muted earnings growth
Total assets grew boldly by 24% y/y, as the bank managed to grow its deposits by c.27% y/y. However, balance sheet growth did not filter through to earnings. Hence, ROAA dropped marginally to 2.3% (-35bps y/y), whereas ROAE weakened by 277bps to 17.7%, given a slow expansion in the bank’s equity multiplier. Despite having a very high base year in 2020, QNBA booked 6% higher credit provisions during 2021 as its NPL ratio upped to 3.8% (+80bps y/y). In addition, we note that Q4 2021 made up 42% of total credit provisions booked in 2021. As a result, overall coverage ratio slipped to 143% in 2021, down from 177% a year earlier, albeit higher than 132% in Q3 2021.
Balance sheet growth driven by Treasuries growth
Total assets grew 24% y/y to EGP360bn in 2021. This was driven by a 62% leap in governmental debt securities, which amounted EGP134bn, which in turn led to a higher tax rate of 31.5% in 2021 vs. 29.1% a year before. Moreover, lending growth came was more contained, growing only 6% y/y to EGP173bn. While net loans still captured the biggest chunk of total assets (i.e. 48%), GLDR decelerated drastically to 62% (c.-12pp) due to a big jump in deposits to EGP295bn (+27% y/y). We note that QNBA has a short-term (ST) positive repricing gap of 8% of total assets. This means QNBA’s ST financial assets are higher than its ST financial liabilities, making it a beneficiary to an extent in the event of higher interest rates.
Downgrade to Neutral on recent stock price rally
QNBA rallied c.19% since we published our banking sector note in December 2021. In view of 2021 results, we maintain our 12M PT at EGP19.5/ share (ETR +4%), hence we downgrade our rating from Overweight to Neutral with room to upgrade during 2022. QNBA is currently traded at 2022e P/E of 4.2x and P/BV of 0.78x.
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Amany Shaaban
Equity Analyst
T +202 3300 5720