EUR 41.45 For Business Accounts Only

Maintain OW; Rerating awaits key macro events

Favourable risk-return profile. CIB currently trades on a significantly undemanding valuation – 2022e P/BV of 1.0x and P/E of 5.1x (40% discount to five-year average). This is unjustified given the bank’s profitability and growth outlook. The current market price implies a RoE of 17.5% vs. our forecast of 21.0% in 2022e and 24.0% as the sustainable level. Clearer visibility on closing the state’s FX funding gap through GCC investments and a potential IMF agreement (expected in July) is a prerequisite for the stock’s rerating. The latest reweighting of indices, which partially triggered the recent sell-off, is now behind us.

Key beneficiary from rising interest rates. We expect CIB’s margins to increase in tandem with the tighter monetary policy, supported by its favourable balance sheet structure and active treasury management. We calculate that for every 100bps hike in policy rates, CIB’s margins would increase by c20-25bps, over four to six quarters. Our sensitivity analysis considers the recent increase in CIB’s cost of CDs (three-year at 13.5% and four-year at 14%). Long-term CDs represent 24.5 % of total deposits.

Revise TP downwards by 6%. A higher discount rate (+77bps over the forecast horizon) more than offsets the impact, on our valuation, from the potential NIM expansion. We factor in 56bps NIM expansion over 2021-24e, to reflect the 300bps y-t-d hike in policy rates. We lower our previous loan growth forecasts by c7pp p.a., on average, over 2022-24e. We see utilisation in treasuries (38.5% of assets in 2022e) supporting asset yields, yet also keeping ETR at or above c30% over 2022-23e.

Monitor credit quality and costs. Stage-2 loan contribution (32.8%) continues to stand at relatively elevated levels. We expect the NPL ratio to rise by 22bps y-o-y to 5.35% in 2022e. We raise our 2022e CoR forecast by 12bps to 107bps. However, the impact on profitability, beyond 2022e, should be contained, given CIB’s sufficient provision coverage of 218%. We expect opex to rise by 16.4% y-o-y in 2022e (vs. -2.17% y-o-y in 2021a), in line with the current inflationary environment.