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Market Report – 10th September 2021


Faida Research - September 16, 2021 - 0 comments

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Feature of the week:

I&M Group Posts a 32.2% Growth in After Tax Profits for 1H2021

I&M Group registered a 32.2% y/y increase in after tax profits for 1H2021 to KES 4.0 billion. The growth in profitability was primarily driven by higher net interest income.

Total interest income rose by 11.6% y/y to KES 14.6 billion mainly attributed to a 92.6% y/y growth interest income from government securities to KES 4.1 billion as the group’s investment in government securities grew by 43.3% y/y to KES 103.6 billion. The yield on government securities rose to 8.1% (1H2020: 7.9%).

Interest income from loans and advances declined by 3.6% y/y to KES 10.4 billion as the yield on net loans declined to 10.6% from 12.0% in 1H2020 (declining yields in the foreign loan book). Net loans advanced grew by 10.8% y/y to KES 204.5 billion. Management attributed this to increased lending to the public & private sector as well as contribution from Orient Bank Uganda (total assets boosted by KES 23.5 billion).

Total interest expenses declined by 6.9% y/y to KES 5.8 billion as interest expenses from customer deposits declined by 11.8% y/y to KES 4.8 billion. The cost of funds fell to 3.9% from 4.8% in 1H2020. Customer deposits grew by 9.6% y/y to KES 276.8 billion. As a result net interest income grew by 28.1% y/y to KES 8.9 billion (+70bps y/y growth in net interest margin (NIM) to 5.6%).

Non-funded income fell by 6.4% y/y to KES 3.9 billion mainly due to reduced loan processing fees, forex and treasury income. As a result, the contribution of non-funded income to total operating income declined to 30.8% from 37.8% in 1H2020.

Total operating expenses (excluding provisions) increased by 22.5% y/y to KES 6.2 billion, mainly driven by a 23.7% y/y growth in other expenses (digitization costs) and staff expenses which edged up by 17.0% y/y. The cost-to-income ratio excluding provisions grew to 48.1% (1H2020: 45.1%).

Loan loss provisions grew by 2.1% y/y to KES 1.1 billion. Gross non-performing loans rose by 3.8% y/y to KES 23.0 billion. The NPL ratio (gross NPL/gross loans) declined to 11.0% (1H2020: 12.0%). Cost of risk declined marginally to 1.0% from 1.1% in 1H2020.

Commentary

  • Orient Bank is currently undergoing a rebranding exercise, expected to run into 4Q2021 ahead of integration into the larger group. The Group injected USD 5 million during the period under review with another USD 2.5 million expected in the future. We expect this to firm up operations supporting the group’s lending activities with a boost from the overall group’s strong capital adequacy ratios. Orient Bank’s positioning provides a strong client base for regional synergies. The group remains keen on further acquisitions going forward in line with their expansion strategy.
  • The bank’s digitization strategy remains centered on corporate and business customers, leveraging on cross-selling capabilities. The group also continues to grow its retail digital footprint which we expect to result in cost efficiencies in the medium term.
  • While the Kenyan subsidiary continues to drive the group’s growth, we expect to see sustained growth trajectory in the rest of the subsidiaries
  • With the launch of wealth management services in Kenya, we expect the group to ride on its client base, boosting non-funded income.

 

The counter is trading at a P/B of 0.32x against a banking sector average P/B of 0.76x with a dividend yield of 11.3%.

The recommendation is under review.

Equities Market Summary:

Nairobi Securities Exchange Performance

 The All Share Index (NASI) and the NSE 20 rose by 0.4% w/w and 1.4% w/w to close the week at 180.14 and 2,063.44 respectively. Market turnover edged up by 1.6% to KES 2.0 billion while number of shares traded fell by 17.2% to 65.3 million shares. Notable price declines this week included; BK Group (-17.2% w/w to KES 29.80), Liberty (-8.0% w/w to KES 7.64), Sanlam (-5.5% w/w to KES 9.92), Stanbic (-5.1% w/w to KES 89.25) and Carbacid (-4.3% w/w to KES 11.00). Safaricom rose by 0.8% w/w to KES 42.50. I&M eased by 1.1% w/w to KES 22.50 even as the group announced a 32.2% y/y increase in after tax profits for 1H2021 to KES 4.0 billion. Read more on I&M’s performance in today’s report. In the coming week, we expect price stability.

*We are currently updating our recommendations

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