Jordinvest | AHLI Equity Research Report 14-10-2017

AHLI Equity Research Report 14-10-2017

Report Highlights:

• Jordan Ahli Bank (AHLI) is the third largest local commercial bank in Jordan based on total assets as of the end of 2016. Its assets increased by 12.9% from JOD2.49 billion in 2015 to JOD2.82 billion. During the first half of 2017, the Bank's total assets declined slightly to JOD2.79 billion, primarily as a result of the decline in the financial assets at amortized cost, coupled with a decrease in its cash and deposit balances.
• AHLI's share of direct credit facilities in the Jordanian market amounted to 5.63% in 2016, up from 5.33% the previous year, while its share of indirect facilities increased from 6.29% in 2015 to 8.03%. Holding third position in terms of customer deposits, its market share in 2016 reached 5.66%, up from 4.97% the previous year.
• AHLI posted a 17.9% increase in net credit facilities in 2016, equivalent to JOD219.91 million, while non-performing loans as a percentage of credit facilities net of interest in suspense registered at JOD151.59 million, equivalent to 9.81% of net direct credit facilities. During the first half of 2017, net credit facilities grew to JOD1.48 billion while the balance of non-performing loans net of interest and commissions in suspense decreased to JOD134.35 million, equivalent to 8.52% of the net direct facilities.
• Customer deposits increased from JOD1,782.22 million in 2015 to JOD2,067.29 million in 2016. Time and notice deposits comprised 62.2% of the total customer deposits in 2016 followed by current account and demand deposits, which made up 25.3% of the total. During the first half of 2017, the Bank's customer deposits slumped to JOD2,011.17 million.
• The Bank's net interest income remained stable in 2016 at JOD85.67 million compared to JOD85.58 million in 2015, in spite of a 6.3% increase in the interest income and an 18.2% increase in the interest expense. Over the first six months of 2017, the Bank's net interest income registered at JOD41.43 million compared to JOD42.80 million for the same period in 2016.
• Commissions rose by 4.9% in 2016 to reach JOD21.33 million in 2016. The increase in provisions taken against credit losses, which rose sharply in 2016 by a whopping JoD16.73 million, coupled with the impairment of foreclosed assets of JOD3.39 million, led to a slump in the net profit for the year to JOD6.27 million compared to JOD22.83 million in 2015. In 2017, commissions decreased by 8.8% year-on-year, meanwhile, expenses were reduced in 2017 through a reduction in the doubtful debt provisions. For the six months ended June 30, 2017, net profits after tax stood at JOD9.44 million, up by 23.4% compared to the same period in 2016.
• The General Assembly of the Bank approved the Board of Director's proposal to distribute 5% cash dividends. The General Assembly, through its extraordinary meeting, also approved the increase of the Bank's capital from 175,000,000 JOD/shares to 183,750,000 JOD/shares through the distribution of stock dividends, which emanated from the capitalization of JOD8.75 million from the voluntary reserve.
• Based on our projections of profits of around JOD18.36 million for 2017, we arrive at an estimated EPS for the year of JOD0.100, giving a forecasted P/E ratio for the Bank's stock of 11.71x based on the current share price.
• On the basis of our forecasts, we arrive at a 12-month fair value for the AHLI stock of JOD1.35 per share, offering a 15.3% upward potential over its current price. Therefore, we re-initiate our coverage with a BUY recommendation.

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