EUR 46.06 For Business Accounts Only

CIEB EY | Recent rally has more steam; Remain OW

Strong fundamentals coupled with a high yield. We continue to favour CAE and maintain our OW rating. CAE’s solid balance sheet and balanced credit exposure allow for the trickling down of the bulk of the impact from the potential margin expansion to total profitability. We expect RoE to stand at c23% over 2022-23e vs. 17.5%, as implied from the current market price. CAE offers a 2022e dividend yield of 12%, among the highest within our Egypt coverage. CAE trades on a 2022e P/BV of 0.83x and P/E of 3.8x (30% discount to its five-year average and 20% to CIB).

BS conducive of margin expansion, despite high utilisation. We project CAE to fare well, given its loan composition – 69% corporate and 85% LCY-denominated. CASA contribution and long-term CDs account for 51% and 23%, respectively, of deposits, signalling a favourable funding structure. Utilisation is relatively high, with LTD at 69%. We look for LTD to grow by 4pp by 2024e. We see utilisation in treasuries (c26% of assets in 2022e) supporting asset yields. We estimate 10-15bps in NIM expansion, over four to six quarters, for every 100bps hike in interest rates.

Cut TP by 14.4%, on higher discount. Our updated TP stands at EGP9.04/share. We factor in a higher discount rate (+2.5pp over the forecast horizon, to account for the +3.6pp y-t-d rise in treasury yields). We forecast 53bps in NIM expansion over 2021-24e, in line with the higher policy rates. We lower our loan growth forecasts by 3pp p.a.. on average, on slower than previously expected pick-up in economic activity. We see CTI ratio declining by 3pp over 2021-24e and ETR averaging c25% over the forecast horizon, together supporting overall profitability.

ST impact from EGP weakness positively skewed. CAE recorded FX revaluation gains of EGP20mn (4% of total income) in 1H22. We estimate that c15-20% of interest income is FCY-denominated; thereby, lending support to the top line in the event of any currency movement. We expect NPL ratio to rise by 20bps y-o-y to 3.5% in 2022e, given the challenging global backdrop, and then to drop by 20bps y-o-y p.a. over 2023-24e. Provision coverage averages a healthy 156% over 2022-24e.