Joud Account And Public Financing Will Secure Future Stability

Key Takeaways

• The introduction of the Joud account has successfully attracted new retail customers, enhancing the bank's funding base and potentially increasing future net interest margins.
  
• Improved asset quality and reduced non-performing loan ratios are expected to enhance profitability, while optimizing funding costs could bolster net operating income.
  
• Decline in assets, reliance on quasi-equity, and market uncertainties pose risks to revenue growth and earnings stability.

Catalysts

Provides banking, financial, and investment solutions.

• The bank has implemented a new saving account product, the Joud account, designed to attract retail customers by offering monthly, quarterly, and annual prizes. This innovative product has already successfully added over 4,000 new accounts, offering a low-cost funding base, which is expected to enhance future net interest margins and revenue.
  
• The financing asset growth of 1.5% in Q1 2025 and an expected growth target between 4-5% for the full year 2025 implies future increases in revenue from expanded customer participation in financing activities.
  
• The strategic increase in government and public sector financing from 4% to 7% of the total financing assets may yield stable revenue growth from low-risk and potentially high-volume contracts, enhancing the bank's revenue stability and margins.
  
• Enhanced asset quality with a significant reduction in the non-performing loan (NPL) ratio from 3.3% to 2.9%, coupled with a solid increase in coverage ratios, indicates better profitability and reduced impairment charges, which could positively impact net margins and earnings.
  
• The bank's ability to optimize its funding costs, lowering them by 36 basis points in Q1 2025 compared to Q1 2024, directly improves net interest margins and potentially allows for greater net operating income if sustained or further improved.

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

Assumptions

• Analysts are assuming Qatar International Islamic Bank (Q.P.S.C)'s revenue will decrease by 12.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 32.8% today to 60.4% in 3 years time.
• Analysts expect earnings to reach QAR 1.4 billion (and earnings per share of QAR 0.93) by about April 2028, up from QAR 1.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.8x on those 2028 earnings, up from 13.2x today. This future PE is greater than the current PE for the QA Banks industry at 10.7x.
• Analysts expect the number of shares outstanding to decline by 1.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.86%, as per the Simply Wall St company report.

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

Risks

• A decline in total assets by 1.1% compared to year-end 2024 may indicate potential challenges in maintaining or increasing revenue and net asset growth in the future.
  
• The cost of risk adjustments, while reducing, depend heavily on achieving high coverage ratios, which could impact net profits if not sustained or managed efficiently over the following quarters.
  
• Uncertainty in global markets and potential interest rate cuts by the Federal Reserve could affect net interest margins, potentially leading to a decline in earnings.
  
• The reduction in investment income due to lower yields in the market and a smaller investment portfolio may negatively impact net income if not offset by strong gains elsewhere.
  
• A significant reliance on quasi-equity for funding (60%) suggests potential volatility in future revenue streams if there are shifts in investor sentiment or changes in regulatory requirements.

Valuation

• The analysts have a consensus price target of QAR10.98 for Qatar International Islamic Bank (Q.P.S.C) based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be QAR2.4 billion, earnings will come to QAR1.4 billion, and it would be trading on a PE ratio of 18.8x, assuming you use a discount rate of 19.9%.
  
• Given the current share price of QAR10.35, the analyst price target of QAR10.98 is 5.7% 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.