Global Investment House – Kuwait – Qatar Islamic Bank – Initial Research Report-
Qatar Islamic Bank (QIB) was incorporated in 1982 as the first Islamic bank in Qatar. The bank operates through 18 local branches and its has international operations in Malaysia, Lebanon, Bahrain, Yemen and UK. The activities of the bank are conducted in accordance with the Islamic Shari’a principles, as determined by the Shari’a Committee of the Bank.
Recent Developments
In Feb. 2008, Qatar Islamic Bank’s European subsidiary, European Finance House (EFH), has received authorisation from the Financial Services Authority to operate as an Islamic investment bank in the United Kingdom. The European Financial House will provide Shari'ah compliant financial services to corporate clients, primarily in the UK and Continental Europe, as well as clients in the GCC.
In March 2007, the bank opened the Asian Finance Bank in Malaysia and this will serve as an arm of QIB to reach and service the South East Asian market. In 2007, QIB led a consortium of investors to establish an Islamic bank on Pakistan with a capital of US$100mn.
During 2007 the bank concluded the first ever Islamic financing in Qatar in the aviation industry which was an Airbus 340-600 for Qatar Airways. It is also acted as the mandated lead arranger and investment agent for a US$150mn Sukuk mandate from Al Salam Bounian. QIB was the first bank in the GCC to prepare for a securitization transaction regarding its property finance portfolio. QIB also acted as the MLA and security agent for a US$200mn Master Murabaha facility in US$1.8bn Al Waab City project.
In 2007, QIB launched two new investment funds under the name 'Al Sanabel A & B' (for Qatari and non Qatari investors respectively), with a capital of QR2bn. The two funds, proposed for trading in Sharia’a compliant Qatari stocks and supervised by QIB Sharia’a supervisory board. The funds are being managed by Kuwait-based Global Investment House.
The bank issued 50% bonus shares for the year 2007, therefore, with the issue of bonus shares the bank’s equity capital increased to QR1.8bn. The bank has also proposed to increase its capital by way of rights issue in two phases, 10% of the capital will be raised in 2008 and another 10% will be raised in 2009. The first rights issue was in March 2008. The share offer price and issuance time for the second rights issue will be announced on a later date.
Financial Performance
The total assets of the bank grew by 43.3% in 2007 to QR21.3bn. Among the major asset components, due from financing activities (gross) grew by 57.3% to QR13.3bn. Funds with banks & FIs declined by 12.5% to QR3.4bn. Net financing activities accounted for 54.7% of the total assets. The bank’s NPLs as a percentage of gross financings have been declining over the last few years, which was despite the growing loan book. Its NPLs declined by 15.7% to QR285mn in 2007 from QR338mn in 2006. NPLs as a percentage of gross loans declined to 2.1% in 2007 from 4% in 2006.
During 2007, income from financing activities grew by 17.4% to QR911.3mn. The depositors’ profit sharing grew by 48.9% to QR342.8mn from QR230.1mn in 2006. The net profit sharing witnessed a growth of 4.1% to reach at QR568.5mn. QIB registered a y-o-y growth of 25.2% in its net profit to QR1,255.4mn over QR1,003mn reported in 2006.
During Q1-2008, income from financing activities grew by 53.1% y-o-y to QR254.1mn whereas income from investing activities registered a steep y-o-y growth of 88.2% to QR353.7mn. Total income from financing & investing activities grew by 71.7% on y-o-y basis to QR607.8mn and total operating income grew by 86.5% to QR698mn. The bank reported a y-o-y growth of 68.6% in its net profit to QR455.6mn as compared to QR270.2mn reported in Q1-2007. On the balance sheet side, on a y-t-d basis, total assets registered a growth of 40.4% to QR30bn, due from financing activities (net) grew by 24.5% to QR14.5bn and customer deposits increased by 19.6% to QR14.6bn.
Outlook and Valuation
The bank’s strategic to expand through QINVEST will definitely help in pursuing Islamic investment banking opportunities in Qatar as well as in the region. We believe that QIB’s growth strategies, which encompass expanding its presence in UK through EFH is right move considering presence of Islamic financial market in Europe. Apart from this, its foray in counties like Malaysia and Pakistan will help in pursuing growth opportunities in these emerging markets. The bank has plans to expand its operations in 16 countries by 2010.
The bank’s capital expansion through the rights issues will allow the bank to leverage its balance sheet. This will help the bank to finance its regional expansion plan and ensure that it is adequately capitalized at all times to meet the diverse needs of its rapidly expanding business at home and overseas.
At the current market price of QR121.6 (April 27, 2008), the bank trades at 13.5x and 10.9x of its earnings and 3.8x and 3.5x of its book value for FY2008E and FY2009E respectively. The estimated fair value for Qatar Islamic Bank works out to QR137.4 based on the DDM and peer group valuation methods, which is 13% above the market price on April 27, 2008. Hence we initiate our coverage on the stock with a “BUY” recommendation.
