1 | Page Kuwait International Bank – Initiating Equity Coverage Kuwait International Bank (Al Dawli) Category: Islamic Change in the Business Strategy and Guard, Reflected in the Performance *: 01 May , 2016 High Banking in KWD 0.310 Upside Potential 52.5% to 55.0% Margin of Safety Industry Intrinsic Value Range Grossly Undervalued 0.200 0.305 to KFH Capital Rating KFH Capital Outlook CMP* Chart 1 0.180 0.190 0.200 0.210 0.220 0.230 0.240 0.250 0.260 760 800 840 880 920 960 1,000 1,040 1,080 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 KIB Price Movements with Indices KSE Price Index KSE Banking KIB Price KWD Adj. Indices Table 1: Stock Info Parameters (Figures are in KWD) Sector Islamic Banking Reuters Code KIBK.KW Market Price- (1 May-16) 0.200 No. of Issued Shares (Million) 1,037 Market Cap. (Million) 207.47 Beta 1.29 Par Value 0.100 52 Week High/Low 0.265/0.188 Earning Yield* 7.71% P/E(x)* 12.96 P/BV(x) 0.85 Dividend Yield 4.50% Return on Equity* 6.54% *: Based upon FY15 Investment Idea Sustained growth above Industry Average KIB has been able to sustain growth in loans & advances (financing receivables) above industry average. We expect growth in advances will be achieved from high yielding Personal Loans and Corporate portfolio of the bank, on the back of increasing investments, consumer pattern and healthy industrial spike as announced by governments for multiple economic aspects. Going forward, we expect advances to grow at a CAGR of 10% for FY 2016-18. Improving Margins KIB has achieved a healthy Net Interest Margin (NIM) of over 3% in past so many years. Since 2011, it is progressive and it was 3.03% by FY 2015. Going forward, we expect NIM to improve during next 3 years and will reach 3.4% by FY 2018. It will be achieved primarily due to: - a) Rising advances with a rate of 10% in totality for next 3 years b) Better asset allocation towards more productive asset class c) Better margin on lending and deposits
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1 | P a g e
Kuwait International Bank –
Initiating Equity Coverage
Kuwait International Bank (Al Dawli) Category: Islamic
Change in the Business Strategy and Guard, Reflected in the Performance
*: 01 May , 2016
High Banking
in KWD
0.310
Upside Potential
52.5% to 55.0%
Margin of
SafetyIndustry
Intrinsic Value
Range
Grossly
Undervalued 0.200 0.305 to
KFH Capital
Rating
KFH Capital
OutlookCMP*
Chart 1
0.180
0.190
0.200
0.210
0.220
0.230
0.240
0.250
0.260
760
800
840
880
920
960
1,000
1,040
1,080
Apr-
15
May-1
5
Jun-1
5
Jul-15
Aug-1
5
Sep-1
5
Oct-15
Nov-1
5
Dec-1
5
Jan-1
6
Feb-1
6
Mar-
16
Apr-
16
May-1
6
KIB Price Movements with Indices
KSE Price Index KSE Banking KIB Price KWDAdj. Indices
Table 1: Stock Info
Parameters (Figures are in KWD)
Sector Islamic Banking
Reuters Code KIBK.KW
Market Price- (1 May-16) 0.200
No. of Issued Shares (Million) 1,037
Market Cap. (Million) 207.47
Beta 1.29
Par Value 0.100
52 Week High/Low 0.265/0.188
Earning Yield* 7.71%
P/E(x)* 12.96
P/BV(x) 0.85
Dividend Yield 4.50%
Return on Equity* 6.54%
*: Based upon FY15
Investment Idea
Sustained growth above Industry Average
KIB has been able to sustain growth in loans &
advances (financing receivables) above industry
average. We expect growth in advances will be
achieved from high yielding Personal Loans and
Corporate portfolio of the bank, on the back of
increasing investments, consumer pattern and
healthy industrial spike as announced by
governments for multiple economic aspects. Going
forward, we expect advances to grow at a CAGR of
10% for FY 2016-18.
Improving Margins
KIB has achieved a healthy Net Interest Margin (NIM)
of over 3% in past so many years. Since 2011, it is
progressive and it was 3.03% by FY 2015. Going
forward, we expect NIM to improve during next 3
years and will reach 3.4% by FY 2018. It will be
achieved primarily due to: -
a) Rising advances with a rate of 10% in totality
for next 3 years
b) Better asset allocation towards more
productive asset class
c) Better margin on lending and deposits
2 | P a g e
Kuwait International Bank –
Initiating Equity Coverage
Growing Fee Income
KIB has attained a high growth of average 25% in its
Fee & Commission Income in past 5 years, with an
exception of 2015 where it witnessed a growth of 3%
only. We foresee a constant mode of growth further.
Increased number of transactions for banking
services and treasury income remained key reasons
behind the offshoot. We expect a moderate fee
growth at 10-12% during 2016-2018 period, due to:
a) Mega projects being implemented by the
government
b) Growth in fee income in line with growth in
advances
Higher Productivity
Optimum utilization of available resources is the best
way to improve business aspects and to control the
cost. KIB has been a front runner to this, as its cost to
income ratio is one of lowest among the industry.
Though, it was quite high in 2010 and 2011 (above
50%) due to falling topline which in fact pulled down
overall total revenues. But the same has dropped
remarkably to 33% by FY 2015, and removing one
time gain it stood at 41%. Further, as per our talks
with the management, it will remain around 40-45%
in coming years too.
Widening Footprint
The lender had a network of 28 branches by year end
2015 and planning to add another 3 due to rising
banking opportunities, thus it will take total tally to 30.
We expect this addition will help to attract more
customer deposits at lower rate as well as tap new
small and large business clients.
Improving Asset Quality
Asset Quality has been a major concern for all
lenders in Kuwait and so for KIB. But with spurt in
economic growth and efforts taken by the bank to
recover and minimize any new slippages, we expect
NPL levels to range in comfortable zone. More
specifically, the lender may take Average 1.5% of
total advances & loans as “Provision for impairment”
to its Income Statement during 2016-18 period.
Improved recoveries, lower slippages and adequate
provisioning will further strengthen the financial
position of KIB.
Valuation
Based upon our conservative assumptions in loans at
around 10+%, earnings will grow and reach KWD 19
million in 2016 and inflated further to reach KWD 26
million by FY 2018. Asset quality will advance for
improvement, post the shocked era of financial crisis.
Summing up, amid healthy growth in topline, lower
payout to Customer Deposits and superb growth in
Fee & Commission, we believe KIB is trading at
discount with better return profile.
KIB is currently trading at 0.85x of P/BVx as against
the banking sector average of 1.41x. From 2018, it is
trading at 0.58x and the forward P/Ex is trading at
mere 7.96 times of FY2018 earnings. We initiate the
coverage on KIB with BUY and Target Price in the
range of KWD 0.305 to 0.310
Shareholding Structure
Table 2: Major Shareholders Type Holding (%)
Bukhamseen Holding Group Corporate 21.73%
The Public Institution for Social Security Government 9.13%
Al Hoda for Hotels and Tourism Company Corporate 7.25%
Al Barakah Kuwait General Trading & Contracting Co Corporate 5.83%
Public - 56.06%
Source: Zaw ya Website
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Kuwait International Bank –
Initiating Equity Coverage
Lender Background
Incorporated in 1973, Kuwait International bank
(KIB), was formerly known as Kuwait Real Estate
Bank. The bank embraced Islamic Principles for its
business operations and instigated a new journey on
July 1st, 2007. As an Islamic bank, KIB’s business
covers all banking services including:
a) Acceptance of Deposits
b) Financing Transactions
c) Direct Investment
d) Murabaha (auto, real estate and
commodities)
e) Ijara Muntahia Bittamleek (Lease-to-own)
f) Istisna’a, Tawarruq, Credit Cards, Wakala
and other products.
Corporate projects and finance, Treasury Services,
Issuing Letters of Credit (L/Cs), Letter of Guarantee
(L/Gs) and Real Estate Dealings and Management of
Properties are another value added services the
lender operates amid its business segment.
Shariah Supervisory Board
A dedicated group of Islamic scholars entrusted to
review KIB’s new products, contracts and investment
transactions to certify that all KIB’s financial activities
are conducted in compliance with the principles and
provisions Islamic Shariah.
Corporate Social Responsibility
In the framework of Social Responsibility Program,
the Bank is actively filling and justifying its Corporate
Social Responsibility role. Women arena, schooling,
sports, excellence awards in various academic role
and multiple social fronts remain in limelight for the
lender, where KIB has played its CSR effectively.
Corporate Awards
KIB's successive achievements, honor and awards
are a clear recognition of its distinction and
excellence. KIB was awarded “Best Islamic Bank in
Kuwait” during 2014, 2015 and 2016 by World
Finance magazine in recognition of its unique
achievements over the past 3 years. The bank has
also received the Golden Medal Award of merit 2013
from Tatweej Academy for Excellence and Quality in
the Arab Region and the upgraded credit rating from
A- to A+ from Fitch due to its robust capitalization,
liquidity profile and strong capital ratios.
Investment Concerns
Building up of provisions, remain a key
operating concern for the bank. Being a Real
Estate Bank earlier, and carrying on a higher
exposure towards the troubled sector, is weighing
heavily on the performance. Though, the lender
has an adequate margin of safety as collateral for
all such advances, yet continuity in provisions is a
major concern. However, on the positive side, the
management is very keen to tackle this issue and
doing its best to grab. As a result, we have seen a
prominent decline in the provisions part in past 2
years.
Lower business growth due to any economic
shock and delay in new upcoming major projects,
can stress the profitability.
Lending Rate: Under pressure lending rate, will
continue to restrict a significant growth in the top
line unless the bank adopted an aggressive
growth plan on loans and advances, which is
highly unlikely amid quality concerns. However,
lending rate benchmark is influenced by the
Central Bank Discount Rate (CBDR).
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Kuwait International Bank –
Initiating Equity Coverage
Financial Performance - 1Q-2016 & Full Year 2015 Performance
Table 3 :Income Statement Snapshot (Figures are in KWD million)
Non Controlling Interest (14,000) (58,000) (78,000) (80,000) (80,000) (80,000)
Net Profit for the year 16,754,000 10,841,000 13,165,000 13,208,000 13,677,000 16,002,000 18,977,105 21,912,909 26,038,726
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Kuwait International Bank –
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تنصل
من أي فإن ، هذا التقرير. وتبعا لذلك في دةالوار معلومات من أي عن لإلستثمار بيتك كابيتال شركة قبل من مستقلة بصفة التحقق يتم لم. وموثوقة دقيقة تكون ان يعتقد مصادر من هذا التقرير مستمدة في الواردة المعلومات إن
أوالشراء رويج أو التماس لإلكتتابدعوة أو ت أو ، عرض بأنها تفسر أن المعلومات لهذه ينبغى وال .المعلومات هذه دقة أو اكتمال أو موثوقية يضمنون أو يدعون أوممثليها أو موظفيها أو مسؤوليها ال لإلستثمار بيتك كابيتال شركة
.إلتزام أو عقد ألي سأسا تشكل أن شأنها من صفقة أو استثمارات أي في للدخول التوصية أو المشورة اطالقا تشكل ال أنها كما فى هذا التقرير، المذكورة المالية الكيانات من البيع أو االحتفاظ ألي أو
كن هذا االعتقاد ال يضمن صحة المعلومات التى تم االعتماد عليها ول يمكن أنه يعتقد عامة مصادر من عليها الحصول تم بناء على معلومات قد لعمالئها لإلستثمار بيتك كابيتال قبل شركة من أعدادها تم قد التقرير هذا في اآلراء
بيتك كابيتال شركة التقرير. حيث تقوم هذا في ورالمذك كيان مالي في أى ملكية أو أسهم بيع أو شراء تقرر دمالإلستثمارعن بيتك كابيتال شركة بها تأخذ أن يمكن التقرير في المنشورة االعتماد عليها العداد هذا التقرير. البحوث
فقد تقوم ذلك، إلى الطويل. وباإلضافة لمدىا على البيع أو بالشراء لإلستثمار بيتك كابيتال إستراتيجية شركة مع تتعارض أو تتوافق التي األجل القصيرة الفرص لتحدد الشركات من مختارة لنخبة تحليلي بحث بأجراء لإلستثمار
بناء العمالء من والشراء البيع و التقرير، هذا عم يتعارض نحو على األوراق المالية معامالت في الدخول أيضا ويمكن القصير المدى على المحللين اقتراحات نتيجة الخاص، لحسابها االتجار أو لالستثماربالتداول بيتك كابيتالشركة
.لالستثمار بيتك كابيتالعلى معايير اساسية تضعها شركة
سابق دون للتغيير وقابلة لإلستثمار بيتك كابيتال ركةش آراء عن بالضرورة تعبر ال وهي التقرير. هذا تاريخ من اعتبارا تقرير معد ال إليها توصل التي الحالية النتيجة التقرير هذا في الواردة التقديرات و والتوقعات اآلراء وتشكل
وت عدم صحة فى وقت الحق الى من اآلراء أو أو ثب تغيير أي أو التقرير، في تغيير أي عن القارئ إبالغ أو التقرير هذا تغيير أو تعديل أو لتحديث التزام أي لإلستثمار بيتك كابيتال شركة على ليس ، ذلك على وعالوة .إنذار
القرارات االستثمارية اتخاذ المستثمرين على ويجب ين،المستثمر لجميع مناسبة تكون ال قد التقرير هذا استخالصها في تم التي والنتائج نوقشت التي المالية المواضيع . إنالتقرير هذا في المبينة التوقعات أو التقييماتالتقديرات أو
المعلومات التاريخية في هذا التقرير لمستقبلية و ا النتائج على مؤشرا بالضرورة ليس الماضي في األداء وأهدافهم االستثمارية. الخاصة المالية أوضاعهم تناسب استثمارية قرارات التخاذ المستقلين مستشارينهم باستخدام و بأنفسهم
.المنشور هذا مضمون نم مستوحاة أو مماثلة صفقة أي في الدخول قبل والمالية القانونية براءالخ مشورة باتخاذ المستثمرين وينصح ، عن الشركات و األسواق و األدوات المالية ال تضمن أدائها المستقبلي
سؤولين عن أى يها أو مسئوليها ميها أو موظفلالستثمار أو ممثل بيتك كابيتالو لن تكون شركة إن استخدام أي معلومات وردت في هذا التقرير و اتخاذ أي قرارات إستثمارية عليها تعتبر من مسؤولية القاريء و من ضمن مخاطرته
رة. و غير مباشردة فى هذا التقرير سواء بصورة مباشرة أقرارات إستثمارية أو أضرار أو فرص فائتة أو خسائر ناتجة عن أو متعلقة بإستخدام المعلومات أو البيانات أو التحليالت أو االراء الوا
.التقرير من مقتطفة معلومة يأ نقل حالة في المصدر ذكر ويرجى لإلستثمار. بيتك كابيتال شركة من مسبقة خطية موافقة على الحصول قبل غرض وألي شخص أي قبل من نشره و توزيعه أو استنساخه يمكن ال التقرير هذا
ركتنا.شركتنا او نسخ شعار الشركة بأى شكل أو اسلوب أو وسيلة بدون موافقة خطية مسبقة من ش سنحتفظ بملكية حقوق الطبع و كل حقوق الملكية الفكرية االخرى. وال يجوز لكم استخدام اسم
اإلستشارية. والدراسات البحوث قائمة ضمن (www.kfhcapital.com.kwاإلنترنت ) بشبكة الشركة موقع على للجميع متاحة المعلومات وهذه
لحصري التابع لمحاكم دولة ارونى إلى القضاء موقع االلكتوُتقّدم كافة النزاعات الناشئة عن أو المتّصلة بهذا التنصل و المحتويات المتعلقة باآلراء و المعلومات المندرجة فى هذا الويخضع هذا التنصل القانوني لقوانين دولة الكويت.
نها الخاصة.أخرى تخضع لقواني بلدانأي مسؤولية في حالة إستخدام محتويات هذا الموقع في تثمارلالس بيتك كابيتالالكويت بما ال يتعارض وأحكام الشريعة اإلسالمية الغراء. وال تتحمل شركة
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