Cambridge Forecast Group Blog

Analyst Comment: SABB’s Results For Q3 2008‏

Rabah Abu Khadra (RAbuKhadra@shuaacapital.com)

Thu 10/09/08

SHUAA CAPITAL

Emirates Towers, Level 28
P.O.Box 31045, Dubai, UAE
T: +971 (4) 319-9826 F: +971 (4) 330-3550
www.shuaacapital.com

Good Morning,

Please find a preliminary note on SABB’s Q3 2008 results from our research coverage team:

SABB (1060.SE) has reported a disappointing set of Q3 08 results after the close today (see below for details), with the shares closing at SAR 52.75, losing almost 25% over the week –  of which 7.5% for today’s session alone. We expect these disappointing results to weight on the share price’s performance next week.

SABB’s net profit below estimates on tighter margins: SABB’s  Q3 08 preliminary results displayed SAR 711mn in Net Income, up 9.2% YoY yet down 10.6% QoQ, and coming out 16% below our SAR 852mn forecast. This brings the 9M 08 performance to SAR 2,263mn vs. our SAR 2,404mn expectation.

Lending growth continued to outpace deposits: While loan book grew 54% YoY to SAR 83.6bn, deposits expanded 36% to reach SAR 97.7bn. Both figures are inline with our full year estimates of SAR 91bn and SAR 104bn, respectively.  Liquidity position of the bank remained sound, even given a loans/ stable funds ratio capped at a conservative 85% in the kingdom. SABB’s balance sheet developed 48% YoY to SAR 133bn vs. our SAR 147bn estimate for FY08.

Net special commission income affected by tighter spreads:  Net special commission income expanded SAR 193mn YoY which, according to our calculation, would make it stand at SAR 2.4bn for the 9-month period ending September and at SAR 755mn for Q3 alone. This figure is 22% less than our Q3 estimate of SAR 972mn, which we believe is likely due to a more severe than anticipated drop in interest spreads, on the back of rising funding costs. Correspondingly, 9M 08 non-interest income rose by SAR 352mn YoY to SAR 1.3bn, of which SAR 452mn were generated in Q3 08 itself, matching our SAR 443mn expectation. All in all, SABB’s Q3 08 operating income came out at SAR 1.2bn, 15% shy of our SAR 1.4bn estimate.

Lack of information on expenses and asset quality:  We had estimated a cost efficiency stabilized at 33% for the period. While we do not believe in any surprises on the operating expenses side, we’d rather wait and check the level of incremental provisions written-down by the bank on both its loan book and its investment portfolio during the period. We will come up with additional color on the results when the full financials are disclosed (likely in the next few weeks) and/or we get insight from management.

Please let me know if you require further information or if you would like to speak to the analysts, please do not hesitate to get in touch.

Kind Regards,

Rabah Abu Khadra
Institutional Sales

Investment Banking Group

Emirates Towers, Level 28
P.O.Box 31045, Dubai, UAE
T: +971 (4) 319-9826 F: +971 (4) 330-3550
www.shuaacapital.com

SHUAA CAPITAL

Analyst Comment: SABB’s Results For Q3 2008‏

Rabah Abu Khadra (RAbuKhadra@shuaacapital.com)

Thu 10/09/08