Saudi Arabian Banks
4Q2015 Preview
Liquidity Tight as Year Ends
December 30, 2015
Although liquidity tightening in the banking system towards year-end is an annual
phenomenon, it has been somewhat exaggerated this year stemming from depressed
oil prices restricting country revenues. Money market rates have shot up considerably
over the course of this month as illustrated in exhibit 1 below.
Ex h ibit 1: 3-mon th SAIBOR rate
Ex h ibit 2: SAR/USD 12-mon th forward spread
1.40%
700
1.30%
600
1.20%
500
1.10%
400
1.00%
300
0.90%
200
0.80%
100
0.70%
0
J
F
M
A
M
J
J
A
S
O
N
D
J
Source: Bloomberg
F
M
A
M
J
J
A
S
O
N
D
Source: Bloomberg
3-month SAIBOR rates have risen from close to 0.90% at the start of 4Q to over 1.20%
currently pointing towards tight liquidity in the market as banking deposits have
come under pressure. At the same time, the forward SAR/USD rate has also witnessed
some speculative activity this quarter with the forward rate implying some currency
pressure. However, we do not expect a change in the SAR/USD peg any time soon.
4Q Expectations
Table 1 below details our 4Q2015 forecasts for banking stocks under coverage. We
expect a minor Y/Y increase in net commission income for the three banks as interest
rates remain almost flat while both loans and deposit growth is likely to be subdued.
We expect net advance growth in the mid-single digits as banks pay more attention to
credit. Deposits growth is also likely to be weak on a Y/Y basis at 4% on average as
market reports indicate a battle to attract larger ticket corporate deposits even at
higher rates.
Table 1: 4Q2015 Estimates (SAR mln, except per share data)
Net Comm Income
Company
BSF
4Q2014
4Q2015E
Net Income
Y/Y Chg
4Q2014
4Q2015E
Net Advances
Deposits
Y/Y Chg
4Q2014
4Q2015E
Y/Y Chg
4Q2014
4Q2015E
Y/Y Chg
970
1,012
4%
851
878
3%
116,541
124,307
7%
145,275
144,549
0%
SABB
1,064
1,067
0%
969
993
2%
115,221
123,173
7%
145,871
153,164
5%
SAMBA
1,174
1,180
1%
1,232
1,334
8%
124,079
127,971
3%
163,795
176,898
8%
Group Total
3,208
3,259
2%
3,052
3,205
5%
355,841
375,451
6%
454,941
474,611
4%
Source: Riyad Capital, Company Reports
We currently have a Buy rating on our three covered banking names. SAMBA trades at
a 2015E P/B of 1.1x and offers an expected dividend yield of 5.3%. Banque Saudi
Fransi and SABB are also attractively placed at forward P/B of 1.2x.
Muhammad Faisal Potrik
[email protected]
+966-11-203-6807
Mansour Al-Ammari
[email protected]
+966-11-203-5105
Riyad Capital is licensed by the Saudi Arabia
|1
Capital Market Authority (No. 07070-37)
Saudi Arabian Banks
4Q2015 Preview
Table 2: Ratings and Valuations
TASI
Current
Market
Target
Company
Code
Price
Cap (SAR m ln)
Price
BSF
1050
27.10
32,666
SABB
1060
23.60
SAMBA
1090
22.70
Dividend
P/E
P/B
Rating
Yield
2014
2015E
2014
2015E
38.00
Buy
3.7%
9.3x
8.2x
1.2x
1.2x
35,400
38.00
Buy
3.4%
8.3x
8.2x
1.4x
1.2x
45,400
31.00
Buy
5.3%
9.1x
8.5x
1.2x
1.1x
8.9x
8.3x
1.3x
1.2x
Group Average
Source: Riyad Capital
Exhibit 3 below illustrates the stock price performance versus the TASI and the
Banking index (TBFSI). The Banking sector as a whole has underperformed the market
this quarter. While there are concerns about lower GDP growth in the coming year
affecting banks, we believe these concerns have been overplayed in the market. We
expect banks to outperform the TASI in the coming quarter as earnings are reported.
Exhibit 3: 4Q Banking sector vs. TASI performance
0.0%
-2.0%
Samba
-4.0%
-6.0%
TASI
-8.0%
-10.0%
TBFSI
SABB
BSF
-12.0%
Source: Tadawul
|2
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥
25%
Expected Total Return ≥
15%
Expected Total Return <
15%
Overvalued
Under Review/ Restricted
For feedback on our reports, please contact [email protected]
Disclaimer
The information in this report was compiled in good faith from various public sources believed to be reliable.
Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the
forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no
representations or warranties whatsoever as to the accuracy of the data and information provided and, in
particular, Riyad Capital does not represent that the information in this report is complete or free from any error.
This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial
securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the
information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any
use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or
employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its
affiliates or clients may have a financial interest in securities or other assets referred to in this report.
Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment
as at the date of this report only and are therefore subject to change without notice. There can be no assurance
that future results or events will be consistent with any such opinions, forecasts or projections which represent
only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks,
uncertainties and assumptions that have not been verified and future actual results or events could differ
materially.
The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by
changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may
receive back less than originally invested amount.
This report provides information of a general nature and does not address the circumstances, objectives, and risk
tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does
not take into account the reader’s financial situation or any specific investment objectives or particular needs
which the reader may have. Before making an investment decision the reader should seek advice from an
independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities
may not be suitable for all recipients.
This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions,
forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the
Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh,
Kingdom of Saudi Arabia (“KSA”). Website: www.riyadcapital.com