North Field Expansion And GLoBE Relief Will Secure Future Stability

Key Takeaways

• Strong asset growth and high liquidity position are expected to support cost-effective expansions and consistent profitability.
  
• Improved asset quality and potential tax relief could enhance net earnings and strategic financial planning.
  
• Net interest margin pressure and sluggish fee income growth, combined with tax uncertainties and reduced Sukuk issuance, could impact Qatar Islamic Bank's profitability.

Catalysts

Provides corporate, retail, and investment banking products and services in Qatar and internationally.

• The bank's strong asset growth, driven by both public sector borrowings and private sector activities related to the North Field expansion, is expected to positively impact future revenue generation.
  
• The bank is maintaining a high liquidity position with a financing-to-deposit ratio well below the QCB maximum requirement, allowing for potential cost-effective expansions and consistent profit margins.
  
• Positive expectations for private and affluent banking growth suggest a strengthening of the bank’s revenue and possibly profit margin due to the high-value nature of these segments.
  
• Reduction in non-performing asset ratios and increased coverage ratios indicate improved asset quality and risk management, which may enhance net margins through reduced provision needs.
  
• Anticipated 5-year potential tax relief under the GLoBE framework could maintain or improve net earnings by avoiding immediate increases in tax liabilities, allowing for strategic financial planning.

Qatar Islamic Bank (Q.P.S.C.) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Qatar Islamic Bank (Q.P.S.C.)'s revenue will decrease by 11.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 39.0% today to 64.5% in 3 years time.
• Analysts expect earnings to reach QAR 5.1 billion (and earnings per share of QAR 2.1) by about May 2028, up from QAR 4.4 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as QAR4.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.6x on those 2028 earnings, up from 11.3x today. This future PE is greater than the current PE for the QA Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.21%, as per the Simply Wall St company report.

Qatar Islamic Bank (Q.P.S.C.) Future Earnings Per Share Growth

Risks

• The bank has experienced net interest margin (NIM) pressure, with some analysts observing a drop in NIMs compared to the previous year, which could affect profitability if interest expenses outpace interest income.
  
• Fee income growth has been sluggish despite good volume growth, influenced in part by the de-consolidation of QInvest, potentially affecting non-interest revenue streams.
  
• There are uncertainties concerning the implementation of corporate tax changes in Qatar, which, if unfavorable, could impact net earnings despite current management provisions aimed to mitigate this risk.
  
• Loan growth projections could be impacted by large repayments from the public sector, leading to fluctuations in net financing revenue if not offset by growth from the private segment.
  
• The bank is not issuing new Sukuks immediately due to market turbulence, which may limit its ability to manage cost-effective long-term financing, potentially influencing interest expense and net margins.

Valuation

• The analysts have a consensus price target of QAR22.536 for Qatar Islamic Bank (Q.P.S.C.) based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of QAR25.4, and the most bearish reporting a price target of just QAR19.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be QAR7.9 billion, earnings will come to QAR5.1 billion, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 19.2%.
• Given the current share price of QAR21.11, the analyst price target of QAR22.54 is 6.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.