The Investment Dar Company (TID)  has embarked on aggressive expansion strategy through establishing new companies, specializing in a particular asset base. Also, in some cases the innovation of new products by the company are pushed down to their subsidiaries. TID still remains quite competitive in the consumer financing market, as the gross trade receivables increased by 12.2% to reach KD202.55mn in 2004 as compared to KD180.55mn in the preceding year. TID’s net profit reached KD26.76mn in 2004 compared to KD12.90mn in  2003, reporting a phenomenal yearly increase of 107.4%. TID has adequately maintained the non-performing loans (NPLs) ratio at 2.5%-3.0%, as an Islamic companies neither have penalty on late payments nor interest is charged, so the company has the ability to recuperate after a certain period of time. During the 1H-2005, TID’s total assets stood at KD427.59mn, representing an increase of 27.8% over Dec-2004. TID posted a net profit of KD35.48mn in 1H-2005 as compared to KD15.99mn in the preceding year, a whopping increase of 121.8%. It is worth nothing that the first six months profit exceeded the last year’s profit by 32.6%.

 

Keeping in line with the improved performance of TID and our expectations about its future potential, we have valued TID’s share price at 1,814fils. The stock currently trades at around 1,740fils, which implies that the value arrived at using the weighted average method is around 4.3% higher than the current market price. Hence, we recommend a HOLD on the stock with a medium term perspective.

 

Financial Performance FY2004

TID changed its objective with the growing investment climate in the region to participate in the long term investments, which has resulted in good returns reflected in the bottom line performance of the company for the FY2004. As a result of these steps the company has strengthened its asset base and registered remarkable profits for the year. At the end of 2004, the net profits saw a huge increase of 107.4% compared to FY2003. The total revenue has grown to reach KD52.47mn in 2004 compared to KD33.69mn in 2003, an increase of 55.8%. Income from real estate surged by 112.8% to KD25.77mn during FY2004 as compared to KD12.11mn during the same period last year. The real estate income accounting for almost 49% of the total revenue for the year as compared to 36% last year. Income from investment also increased by 55.4% to reach KD10.90mn compared to KD7.02mn in 2003. Finance income increased by 8.5% to KD15.80mn compared to KD14.56mn in 2003. Finance income dropped as a percentage of the total revenue from 43% in 2003 to 30% in 2004, due to restructuring of its activities.

 

The cost of borrowing is one of the major determinant of profitability for its consumer lending business since around 60% of its assets are financed through the bank debts. The company’s bargaining power with banks have increased over the years as it is able to borrow at a highly competitive rates, due to the long track record of consistently good performance. However, the fact that the company is unable to raise customer deposits increases its funding cost, as it has increased from 6.1% in 2003 to 6.7% in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />2004 in an increasing interest rate environment since 2004.

 

The company’s assets stood at KD334.45mn at the end of 2004 compared to KD270.49mn in 2003, an increase of 23.6%. The company has been concentrating on improving the quality of consumer credit portfolio (trade receivables) rather than just increasing the volumes. The company’s investment portfolio has also reported a huge increase of 270.5% over 2003, up from KD12.03mn in 2003 in KD44.56mn in 2004.  <?xml:namespace prefix = v ns = "urn:schemas-microsoft-com:vml" /><?xml:namespace prefix = w ns = "urn:schemas-microsoft-com:office:word" />

On the liabilities side, the net murabaha payables portfolio has been growing rapidly with the growing demand in the consumer credit market since 2000. The net murahaba payables stood at KD209.18mn at the end of 2004, an increase of 13.8% over 2003. Other liabilities have witnessed a drop from KD3.90mn in 2003 to KD3.17mn in 2004, signifying a drop of 18.6%.

 

First Half Results – 2005

TID continued its positive momentum during the first half of 2005. The revenues during the 1H-2005 witnessed a whopping increase of 100.2% to KD54.23mn as compared to KD27.09mn during the same period in the corresponding year. Investment income exhibited a whopping increase of 760.1% to reach KD25.61mn during 1H-2005 as compared to KD2.98mn in the preceding year. This is mainly due to the increase in fair value of investments coupled with income on new investments. TID posted a net profit of KD35.48mn in 1H-2005 as compared to KD15.99mn in the preceding year, reporting an increase of 121.8%. It is worth nothing that the first six months profit exceeded the full year profit of 2004 by 32.6%. TID’s total assets stood at KD427.59mn at the end of June, 2005, representing an increase of 27.8% over Dec-2004, thanks to the increase in the investment portfolio. Investment portfolio of TID increased by 81.4% to KD77.34mn during the 1H-2005 as compared to KD42.64mn over Dec-2004, mainly due to the increase in the fair value as well as new investments.  Land and real estate portfolio also increased by 48% to KD72.28mn during the 1H-2005 as compared to KD48.86mn over Dec-2004, mainly due to new additions in investment properties as well as land and real estate under development.

 

Growth Drivers

Capital markets has witnessed healthy growth in the last couple of years as a result of liquidity and the fundamentals and structural changes in the economies which drove the Kuwaiti stock market further. The investors wealth in terms of capitalization has more than doubled in the last couple of years to reach KD22.11bn at the end of 2004, registering an increase of  23.04% compared to 2003. The Global “General” index has grown by 11.9% in 2004, where as it has grown by 50.04% till the end of September 2005, as compared to 2004. Real estate activity has also grown in 2004, where growth in value was led by apartment and commercial sector where sales increased by 12.3% in 2004 to reach KD128mn as compared to KD114mn. The number of units sold as well as average price per unit was also up by 1.1% and 10% respectively. The 1Q 2005 activity is slightly lower than the 2004, but the market demonstrated growth as the average price per unit went up by 6%. Furthermore, the consumer financing market mainly derived from auto financing and consumer durable goods. Although consumer market has been showing steady growth, the population growth plays a vital role for the future growth. By the end of June-2005, the total Kuwaiti population reached around 2.867mn as compared to 2.645mn same period last year, registering an increase of 8.1%. The “Consumer class” in Kuwait has also been increasing over the years, which is considered the main target market. Moreover, “consumer class” has been spending more money on luxury items such as cars and home appliances and are better risk takers. The auto financing market being quite big and highly competitive with the average number of vehicles sold are 56,586 units in a year. Recently, financing companies have taken several initiatives such as developing innovative financing programs as well as faster and effortless credit approvals. We expect that finance companies will continue to develop innovative programs that will further drive the consumer credit market. Going forward, we believe that the growth in the economy on back of increasing oil prices would maintain the flow of funds in the local economy, which will have a positive impact on the company’s earnings in the coming year.

 

 

The Investment Dar at a Glance

Price Oct 22, 2005		Shares in Issue ('000)		Market Cap			52-week price range
1,740fils		507,190		KD882.51mn			420fils - 1,780fils
	Total Revenue KD’000	Net Profit KD’000	EPS (fils)		Book Value (fils)	ROAE		P/E  (x)	P/BV (x)

2006 F 131,117 81,085 159.9 384.3 46.4% 10.9 4.5 2005 F 112,850 67,866 133.8 304.7 50.9% 13.0 5.7 2004 A 52,467 26,758 55.1 220.4 29.8% 10.7 2.7 2003 A 33,686 12,901 33.3 189.9 24.5% 11.6 2.0  

Historical P/E and P/BV multiples pertains to respective year end prices, while those for future years are based on market price in the Kuwait Stock Exchange as on Oct 22, 2005.

Source: TID and Global Research

 

Keeping in line with the improved performance of TID and our expectations about its future potential, we have valued TID’s share price at 1,814fils. The stock currently trades at around 1,740fils, which implies that the value arrived at using the weighted average method is around 4.3% higher than the current market price. Hence, we recommend a HOLD on the stock with a medium term perspective.