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Mubasher Trade maintains sell on CIB, sets target price at EGP 76 per share The research firm believes that the net fees and commissions' income should improve further in the coming period
Mubasher Trade Research has maintained their "Sell/Moderate Risk" rating for the stock of the Commercial International Bank – Egypt (CIB), setting the price target (PT) at EGP 76 per share, according to a recent report. The research firm believes that the CIB's net fees and commissions' income, which leveled up 56% year-on-year, "should improve further in the coming period, as the EGP flotation should reflect positively on customers' ability to open letters of credit for imports." Total banking income surged 43.4% year-on-year to EGP 4.187m, the report mentioned. Net interest margin (NIM) fell 5.47% year-on-year in Q3 2017 from 5.75% in Q3 2016. The CIB's stock "has fallen by 13% from its peak in mid-July" and "is currently traded at 3.3x book value, including interim earnings," Mubahser Trade added. The CIB's return on equity (ROE) stood at 31.4% year-on-year for the first nine months of 2017, the report indicated. The CIB on Thursday posted a 22% year-on-year increase in consolidated profits for Q3 of 2017. Net profits amounted to EGP 2.087m in Q3 2017, versus EGP 1.703m in Q3 2016, beating Mubasher Trade expectations of EGP 1.976m. Net interest income (NII) and non-interest income went up 40.9% year-on-year at EGP 3.567m and 60% year-on-year at EGP 620m, respectively, pushing the CIB's annual earnings higher. Moreover, loan loss provision (LLP) charge soared 744.6% year-on-year at EGP 623m. Total cost rose 25.6% year-on-year at EGP 794m due to a 29% year-on-year increase in general and administrative expenses, as well as an increase of a 33% year-on-year in depreciation. Meanwhile, the cost-to-income ratio dropped 19% in Q3 2017 from 22% in Q3 2016. Mubasher Trade noted that CIB's total corporate loans declined by 4.4% quarter-on-quarter to EGP 82.9bn due to the current high-interest rates, which led to a slowdown in demand for credit. On the other hand, CIB's total retail loans increased by 6.3% quarter-on-quarter, the report highlighted. The research firm is forecasting loan growth to go up due to the expected increase in capital expenditure during 2018, pointing out that the CIB's net loans grew 44.8% year-on-year to EGP 88bn at the end of September 2017, while customer deposits accelerated by 39.1% year-on-year to EGP 247.7bn. The bank's net loans-to-deposits (L/D) ratio increased slightly on an annual basis from 34.1% in September 2016. The bank's loans asset quality slipped slightly to 6.9% from 5.3% in September 2016, while non-performing loan (NPL) coverage ratio plunged 155% from 158% in September 2016. However, capital adequacy ratio (CAR) rose 16.95% in September 2017 from 13.9% in September 2016, "which is comfortably above minimum CAR required by the CBE of 11.25%," the report said. In October 2017, the Central Bank of Egypt (CBE) lifted the reserve requirement ratio on deposits from 10% to 14% as an alternative for raising interest rates to disinflate the Egyptian economy. Mubasher Trade indicated that the CBE's decision would have a short-term negative impact on local banks which are expected to keep their deposit rates downward, noting that the CIB would maintain originating loans to the small- and medium-sized enterprises (SME) to address the higher RRR. "Banks that finance SMEs within the framework of the CBE's initiative are exempted from compulsory RRR with an amount equivalent to such loans," the research company noted. "The CIB has already started to take steps in this direction, with the bank currently considering entering the real estate mortgage sector through a new subsidiary—a plan pending approval by the bank's board of directors," the company continued. "The bank is focusing this year on mortgage financing for lower-income citizens and may expand its financing at the beginning of next year to include middle-income earners," the report added. The report mentioned that the CBE promotes mortgages for low- and middle-income earners to bring total financing extended under its initiative to EGP 10bn. "The CIB is also looking to grow its retail banking portfolio, which has solid potential for growth despite high-interest rates and the CBE's cap on monthly payments on loans at 35% of the borrower's total documented income," the report concluded. Meanwhile, the research firm maintained the "Buy/Low Risk" rating for Arabian Cement Company, with a price target (PT) of EGP 11.13 per share, implying an expected total return of 35%, according to a report issued Monday. Arabian Cement reported a hike in profits for the third quarter of 2017 by 561% year-on-year, due to higher sales. Profits hit EGP 95.9m in Q3 2016, up from EGP 14.5m in Q3 2016, as sales increased to EGP 674.5m from EGP 531.4m.
