Al Khalij Commercial Bank (Al Khaliji) was incorporated as a Qatari Shareholding Company on January 9, 2007 with its registered office in Doha. Al Khaliji is engaged in commercial banking activities in accordance with its memorandum and articles of incorporation and operates from its head office in Doha. The bank is establishing branches in Qatar and also negotiating to acquire the branches of a banking operation in the United Arab Emirates.
Recent Developments
In January 2008, Al Khaliji announced its first Islamic banking transaction with other international banks in a major financing for Barwa Real Estate Company. The deal was for US$700mn Murabaha syndicated facility for which Al Khaliji is one of the mandated lead arrangers, providing the equivalent of US$75mn. The transaction finances Barwa's general requirements for its regional and international projects.
In October 2007, Al Khaliji has signed the Sale and Purchase Agreement (SPA) with BLC Bank (France) SA to acquire the banking business conducted by BLC in UAE. BLC Bank has branch presence in four emirates Abu Dhabi, Dubai, Sharjah and Ras Al Khaimah.
In 2007, the bank acted as a mandated lead arranger for US$2.5bln syndicated term loan for QTel. The bank contributed US$135mln in the syndication.
The bank came out with its IPO in April 2007. It floated 120mn shares through the IPO at a nominal value of QR10 per share. The IPO was oversubscribed by 2.28 times. The authorized share capital of the bank is QR7.2bn divided into 720mn shares. At the end of 2007, the issued and paid up capital of the bank is QR3.6bn divided into 720mn shares with a paid-up value of QR5 per share.
Financial Performance
At the end of 2007, the total assets of the bank was QR5.2bn. Among the major asset components, cash and due from banks was at QR4.2bn and loans to customers was at QR769.4mn. Other assets were at QR134.1mn and net fixed assets were at QR49.6mn.
During 2007, interest income was at QR205.6mn. Among the major components of this, interest on funds due from banks was at QR193.9mn and interest on loans to customers was at QR11.7mn. The interest expense was at QR2.2mn. This was mainly because majority of the bank’s assets were financed by shareholders’ equity. The net interest income stood at QR203.4mn. Al Khaliji reported a net profit of QR74.3mn.
During Q1-2008, interest income grew by 40.3% y-o-y to QR79.9mn while interest expense was at QR12.3mn which was nil in Q1-2007. With this the net interest income of the bank registered a y-o-y growth of 18.6% to QR67.6mn. The bank reported a y-o-y decline of 43.9% in its net profit to QR7.1mn as compared to QR12.6mn reported in Q1-2007. On the balance sheet side, on a y-t-d basis, total assets registered a growth of 36.3% to QR7bn, loans & advances grew by 6.6% to QR819.8mn.
Outlook and Valuation
The bank is expanding its operations gradually. In Qatar, the bank plans to ramp up its activities in the retail and small and medium sized business segments. We expect that by the end of this year the bank will make significant strides in terms of expanding its network in Qatar. The bank’s acquisition of BLC’s UAE banking business marks the beginning of Al Khaliji’s planned expansion across the Gulf. The bank is well capitalized to further expand its operations and leverage its balance sheet.
At the current market price of QR13.3 (April 27, 2008), the bank trades at 42.7x and 27.5x of its earnings and 2.05x and 2.01x of its book value for FY2008E and FY2009E respectively. The estimated fair value for Al Khaliji works out to QR11.5 based on the DDM and peer group valuation methods, which is 13.4% less than the market price on April 27, 2008. Hence we initiate our coverage on the stock with a “REDUCE” recommendation.
