sharjah islamic bank (sib) –result update report
SIB’s balance sheet size grew at a Y-o-Y growth of 44.2% in 2006 as it reached AED7.64bn at the end of 2006. The contribution of leased assets and financing receivable to total assets decreased to 65.7% in 2006 as compared to 59.5% reported in the previous year. The contribution of investment properties to total assets increased to 9.0% in 2006 as compared to 8.1% reported in the previous year. The bank acquired 100% of share capital of Sharjah National Holdings for AED520mn in 2006.
The combination of revised projections and revised cost of equity have led to a DDM value of AED2.82 per share. Based on a forward P/BV multiple of 2.32x 2007 projected book value for the UAE Banking sector, the peer valuation method results in a valuation of AED4.67x per share. Assigning an 80% weight to the DDM value, and a 20% weight to the relative value, the weighted average share value of SIB came out to AED3.19 per share. At its current market price of AED2.80, SIB's share is quoting at a discount of 13.8% to its fair value. Hence we maintain our earlier “Buy” recommendation on SIB’s stock.
Financial Performance Review – FY06
SIB’s balance sheet size grew at a y-o-y growth of 44.2% in 2006 as it reached AED7.64bn at the end of 2006. The contribution of leased assets and financing receivable to total assets decreased to 65.7% in 2006 as compared to 59.5% reported in the previous year. The bank's leased assets (finance leases) are dominated by the government sector, which constituted 54.5% of the total leased assets, amounting to AED1,945.5mn in 2006.
Net profit reported an increase of 7.8% in 2006 as it reached AED200.6mn. The bank reported AED28.5mn income from subsidiary companies as a result of acquisitions during the year. The bank’s subsidiaries are Sharjah National Hotels (operates hotel, resorts and catering business), Sharjah Islamic Financial Services (conducts intermediation in dealing in local market Shariah compliant shares) and Contact Marketing (provides support services to SIB)
However, the net commission income (core banking income) reported a growth of 25.1% in 2006 as it reached AED218.7mn in 2006. Income from Murabaha and leasing reported a yearly growth of 48.3% in 2006 as it aggregated to AED332.1mn, whereas payment to depositors recorded a larger increase of 131.6% in the same period as it amounted to AED113.4mn. Accordingly, the bank’s spread declined to 4.0% in 2006 as compared to 4.5% recorded in the previous year.
Fees, commissions and other income increased by 23.7% as it reached AED92.4mn in 2006. However, the bank saw a loss of AED2.6mn from investments in 2006 as compared to income of AED38.8mn recorded in the previous years as a result of capital market corrections. However, we believe that with the market starting to come up, the bank will record growth in investment income which will improve profitability.
Analysis of Financial Performance – 1H-2007
SIB assets reported a YTD growth of 19.5% as it reached AED9.1bn at the end of 2Q-2007 from AED7.6bn reported at the end of 2006. Loans & Advances witnessed a YTD growth of 18.8% as its reached AED5.4bn at the end of Jun-07 compared to AED4.5bn recorded in 2006. Customer deposits continued to account for the major chunk of liabilities, constituting 59.5% of the total funding mix at the end of Jun-07. The bank’s customer deposits recorded a higher YTD growth of 23% as it reached AED5.4bn at the end of Jun-07.
SIB reported a net profit of AED121.1mn in 1H-2007, increasing by 32.7% from AED91.3mn recorded in the corresponding period of the previous year. Net commission income recorded a growth of 10.8% in the first half of the year as it reached AED115.9mn in 1H-2007.
Income from Murabaha & Leasing witnessed an increase of 45.4% to reach AED207.5mn in 1H-2007 as opposed to AED142.7mn reported in the corresponding period of the previous year, whereas distribution to depositors witnessed a 140.2% jump in 1H-2007 to reach AED91.6mn as opposed to AED38.1mn recorded in the corresponding period of the previous year as the bank distributed Sukuk income of AED25.4mn during the period in addition to depositors' distribution of AED66.3mn compared to AED38.1mn distributed in 1H-2006.
Income from subsidiaries jumped to AED31.9mn compared to AED5.3mn recorded in the corresponding period of the previous year as the effect of the purchased of Sharjah National Hotel came into effect in 2007.
