COMI EY | Capacity and growth outweigh ST headwinds
Business back to normalcy. During October-end, CIB was faced with a regulatory issue, post an audit review by the CBE, which resulted in the resignation of the former Chairman/MD, and the appointment of a new Non-Executive Chairman. The details from this review were not disclosed. Nonetheless, the release of 3Q20 financial statements, after the CBE’s ratification, with an unqualified opinion from the external auditors, along with no other changes amongst management team, strongly suggest that the issue is now behind us. In our view, the bulk of the financial burden arising from rectifying any violation is already reflected in 3Q20 numbers, which saw the booking of EGP1.6bn in provisioning (vs. management guidance of EGP1.5bn, our previous estimate of EGP1.1bn, 2Q20 figure of EGP1.02bn).
Cut TP to EGP85.0/share, on higher provisions. We lower our TP by 10%, as we raise provisions to EGP4.8bn for 2020e (CoR=352bps), and by an average of 86% p.a. for 2021-22e. We also hike our opex estimates by an average of c11% for 2021-23e, to reflect potentially higher spending, to further strengthen supervisory, compliance framework, implying a CTI ratio of c31% in both 2021e and 2022e.
Maintain OW, as valuation remains attractive amid potential growth pick-up. CIB currently trades on an undemanding 2021e P/BV of 1.4x (c47.8% discount to the stock’s five-year trailing average), unjustified, in our view, given its sustainable RoE of c23% (vs. 18.0% in 2020e). Any downward correction, on delay of improving sentiment on the stock, would be a strong buying opportunity. CIB’s current LTD (40.6%) and CAR (31%) are top among our MENA coverage, providing ample room for credit expansion and asset reallocation post-COVID-19. We expect CIB to grow its loans and deposits by a 2021-23e CAGR of 28% and 15%, respectively.
3Q20 results summary. Results came broadly in line with management’s guidance. Net income recorded EGP2.35bn, missing our estimate by 22%, due to booking higher provisions (CoR of 4.75%). NIM came in at 7.04%, on stable asset yields (c17bps rise in CoF). CTI fell to 23%, as opex declined by 36.2% q-o-q, and fees and commissions by -27.4%. Gross loan inched up 0.6% q-o-q and deposits rose 3.8%. CASA contribution fell to c53%. NPL stood at 3.97% against coverage of 288%.
Commercial International Bank (Egypt) is a financial institution based in Egypt. Co. is engaged in the business of commercial banking. Co.'s principal activity is the provision of banking and financial services to private and corporate customers. Services provided include deposits, checking and savings accounts, credit cards, letters of credit, commercial, mortgage and personal loans, and custody of securities. Co. maintains branches throughout Egypt and Qatar. Co.'s principal shareholder is the National Bank of Egypt which maintains a 99.9% investment.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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