National bank of abu dhabi nbad

national bank of abu dhabi (nbad)

3Q2008 ? Steady Earnings

uae | banking

22 october 2008

ST Rec. : Accumulate LT Rec. : Accumulate

Current Price*: AED 13.65 LT Fair Value : AED 25.01

? Headline 3Q2008 Net Income Rises 13% Y-o-Y: 3Q2008 net profit of AED651 million rose 13% Y-o-Y, but in spite of dropping 35% Q-o-Q, still beat our forecasts by 22%. The variance was entirely within revenues which declined 17% Q-o-Q, but nevertheless beat our forecasts by 24%. Costs were broadly flat, rising just 2% Q-o-Q, against our expectations of a 1% increase. This large positive variance from revenues was partially offset by provisioning, which jumped 130% Q-o-Q to exceed our forecasts by 123%.

? Little Sign of Balance Sheet Trouble: Total assets slipped 3% Q-o-Q, to match our expectations. However, customer items were strong with deposits rising 8% Q-o-Q to beat our expectations by 2% and loans rising 6% Q-o-Q to exceed our expectations by 3%. Deposit growth was boosted by sundry creditors, who were keeping funds available for an IPO at the end of 2Q2008, switching back to mainstream deposits. Consequently, loan growth was funded predominantly by reductions in the net liquid position, although NBAD also successfully raised USD550 million of medium-term financing at the end of the quarter. With reductions in both interbank assets and liabilities, we might have expected some spread improvement, but actually this was more or less steady, rising just 3 basis points, perhaps due to greater proportion of time deposits. Overall, therefore, net interest income rose 3% Q-o-Q to beat our forecast by a similar 3%.

? Non-Interest Income Boosted by FX Gains: While net interest income was broadly in line with expectations, total revenue sharply outperformed. Fees & commissions dipped 4% Q-o-Q, but exceeded our forecasts by 7%, probably due to lower capital market exposure than expected. However, it was really trading income, which benefitted from continued strong foreign exchange gains, as well as significantly lower losses on the investment book than expected. In addition, negative revaluations are estimated to have amounted to just AED211 million versus our expectation of AED1,011 million.

? Cost Steady, But Jump in Provisions: Expenses increased just 2% Q-o-Q, in line with expectations, in spite of the opening of a new Libyan rep office and the acquisition of a 70% stake in Egyptian brokerage Al Salam. However, it was the jump in provisioning, rising 130% Q-o-Q that moderated an otherwise strong outperformance. This, however, did not reflect a deterioration in NPLs, but took the coverage ratio upwards by 13 percentage points, suggesting additional caution on the outlook.

? In Line Performance: There was a modest amount of outperformance across all areas of the financial statements, with significantly less pressure from trading losses and negative revaluations. The only disappointment was on provisioning, although this was merely anticipatory in nature. Overall, we see little to be disappointed with here, and are happy with our generally positive thesis. We will be adjusting our existing estimated LTFV of AED25.01, suggesting 83% upside to the current share price, in order to reflect greater uncertainty and risk aversion, but do not anticipate significant negative adjustments to our forecasts. We maintain our recommendation of ST/LT Accumulate.

21-Oct-07 21-Nov-07 21-Dec-07 21-Jan-08 21-Feb-08 21-Mar-08 21-Apr-08 21-May-08 21-Jun-08 21-Jul-08 21-Aug-08 21-Sep-08 21-Oct-08

flash note

26

Price (AED)

24

22

20

18

16

14

12

10

8

Raj Madha, CFA +971 4 363 4009 rmadha@efg-

1

kindly refer to the

*prices as of 21 October 2008

important disclosures and

disclaimers on back page

ADI (Rebased)

2008e 2009e

EPS P/E* (x) DPS Div. Yield* BVPS P/BV* (x)

1.71 8.0

0.37 2.7% 7.49

1.8

1.86 7.3

0.36 2.6% 8.99

1.5

Figures in AED unless otherwise stated Figures are not revised

2010e

1.99 6.9

0.64 4.7% 10.34

1.3

Stock Data

Last / Next Ex-Div Date Mkt. Val. ( mn) Shares (mn) Av. Mthly Liqd. (mn) 52-Week High / Low Bloomberg / Reuters Est. Free Float

AED0.40 on 03 Apr 2008 AED 26,981 1,976.6 AED 161.6 AED21.85 / 10.20 NBAD UH / NBAD.AD 30%

national bank of abu dhabi (nbad)

flash note

22 october 2008

Table 1: Results in Summary

(AED mn)

Balance Sheet Loans & Islamic Financing Financial instruments Total Assets Customer deposits & Islamic Funding Capital Market Liabilities Total Liabilities Net Liquid Assets Shareholders' Equity

3Q2007a 2Q2008a

73,073 12,328 44,395 70,897 9,916 107,095 5,791 10,373

106,460 14,290 58,958 89,275 10,192 151,714 (1,843) 13,704

3Q2008a

3Q2008e

112,536 14,647 47,111 97,234 12,128 145,503 (4,236) 14,144

109,264 11,339 49,668 94,883 10,192 145,684 (1,012) 13,248

Income Statement Net Interest & Islamic Returns

Fees & Commissions Trading & Investments Total Non-Interest Income Total Banking Income Total Operating Expenses Provisions for loans losses Pretax Income Net Attributable Income

606

823

186

322

53

286

252

631

858

1,455

(252)

(357)

(15)

(77)

591

1,021

574

1,002

845 310 35 368 1,213 (364) (178) 670 651

817 290 (154) 159 976 (359) (76) 542 531

Source: Quarterly Results and EFG-Hermes estimates

Y-o-Y Q-o-Q v Est.

54%

6%

3%

19%

2%

29%

6% -20%

-5%

37%

9%

2%

22% 19%

19%

36%

-4%

0%

36%

3%

7%

40% 67% -34% 46% 41% 45% 1079% 13% 13%

3% -4% -88% -42% -17% 2% 133% -34% -35%

3% 7% n/a 131% 24% 1% 135% 24% 22%

kindly refer to the

2

important disclosures and

disclaimers on back page

egypt sales team

Local call center 16900 Int'l call center +20 2 33 33 94 00 cc-hsb@efg-

Head of Western Institutional Sales Mohamed Ebeid +20 2 33 32 1054 mebeid@efg-

Local Institutional Sales Amr El Khamissy +20 2 33 32 1045 amrk@efg-

Head of GCC HNW Sales Ahmed Salem +20 2 33 32 1078 asalem@efg-

uae sales team

call center +971 4 306 9333 uaerequests@efg-

Western Institutional Sales Julian Bruce +971 4 363 4092 jbruce@efg-

Head of GCC Institutional Sales Amro Diab +971 4 363 4086 adiab@efg-

Gulf HNW Sales Chahir Hosni +971 4 363 4090 chosni@efg-

UAE Retail Sales Reham Tawfik +971 4 306 9418 rtawfik@efg-

ksa sales team

call center +800 123 4566 ksa-callcenter@efg-

Head of KSA Brokerage Hesham Khalil +9661 211 3040 hkhalil@efg-

Head of KSA Sales Mohsen Mansour +9661 211 3008 mohsenm@efg-

research management

Cairo General + 20 2 33 38 8864 UAE General + 971 4 363 4000 efgresearch@efg-

Head of Research Eiji Aono +971 4 363 4006 eaono@efg-

Head of Egypt Research Wael Ziada +20 2 33 32 1154 wziada@efg-

Head of Publ. and Distribution Rasha Samir +20 2 33 32 1142 rsamir@efg-

disclosures

I, Raj Madha, hereby certify that the views expressed in this document accurately reflect my personal views about the securities and companies that are the subject of this report. I also certify that neither me nor my spouse or dependants (if relevant) hold a beneficial interest in the securities that are traded in the UAE Stock Exchanges.

EFG-Hermes Holding hereby certifies that neither it nor any of its subsidiaries owns any of the securities that are the subject of this report. Funds managed by EFG-Hermes Holding and its subsidiaries for third parties may own the securities that are the subject of this report. EFG-Hermes may own shares in one or more of the aforementioned funds or in funds managed by third parties. The authors of this report may own shares in funds open to the public that invest in the securities mentioned in this report as part of a diversified portfolio over which they have no discretion.

The Investment Banking division of EFG-Hermes may be in the process of soliciting or executing fee earning mandates for companies that are either the subject of this report or are mentioned in this report.

disclaimer

Our investment recommendations take into account both risk and expected return. We base our long-term fair value estimate on a fundamental analysis of the company's future prospects, after having taken perceived risk into consideration. We have conducted extensive research to arrive at our investment recommendations and fair value estimates for the company or companies mentioned in this report. Although the information in this report has been obtained from sources that EFG-Hermes believes to be reliable, we do not guarantee its accuracy, and such information may be condensed or incomplete. Readers should understand that financial projections, fair value estimates and statements regarding future prospects may not be realized. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This research report is prepared for general circulation and is intended for general information purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. It is not tailored to the specific investment objectives, financial situation or needs of any specific person that may receive this report. We strongly advise potential investors to seek financial guidance when determining whether an investment is appropriate to their needs. No part of this document may be reproduced without the written permission of EFG-Hermes.

efg-hermes (uae), level 6, the gate, west wing, difc dubai - uae tel +971 4 363 4000 | fax +971 4 362 1170 bloomberg efgh reuters pages .efgs .hrms .efgi .hfismcap .hfidom

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