Kuwait International Bank (Al Dawli) Table 1: Stock Info ... Market Report... · Kuwait...

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Kuwait International Bank –

Initiating Equity Coverage

Kuwait International Bank (Al Dawli) Category: Islamic

Change in the Business Strategy and Guard, Reflected in the Performance

*: 01 May , 2016

High Banking

in KWD

0.310

Upside Potential

52.5% to 55.0%

Margin of

SafetyIndustry

Intrinsic Value

Range

Grossly

Undervalued 0.200 0.305 to

KFH Capital

Rating

KFH Capital

OutlookCMP*

Chart 1

0.180

0.190

0.200

0.210

0.220

0.230

0.240

0.250

0.260

760

800

840

880

920

960

1,000

1,040

1,080

Apr-

15

May-1

5

Jun-1

5

Jul-15

Aug-1

5

Sep-1

5

Oct-15

Nov-1

5

Dec-1

5

Jan-1

6

Feb-1

6

Mar-

16

Apr-

16

May-1

6

KIB Price Movements with Indices

KSE Price Index KSE Banking KIB Price KWDAdj. Indices

Table 1: Stock Info

Parameters (Figures are in KWD)

Sector Islamic Banking

Reuters Code KIBK.KW

Market Price- (1 May-16) 0.200

No. of Issued Shares (Million) 1,037

Market Cap. (Million) 207.47

Beta 1.29

Par Value 0.100

52 Week High/Low 0.265/0.188

Earning Yield* 7.71%

P/E(x)* 12.96

P/BV(x) 0.85

Dividend Yield 4.50%

Return on Equity* 6.54%

*: Based upon FY15

Investment Idea

Sustained growth above Industry Average

KIB has been able to sustain growth in loans &

advances (financing receivables) above industry

average. We expect growth in advances will be

achieved from high yielding Personal Loans and

Corporate portfolio of the bank, on the back of

increasing investments, consumer pattern and

healthy industrial spike as announced by

governments for multiple economic aspects. Going

forward, we expect advances to grow at a CAGR of

10% for FY 2016-18.

Improving Margins

KIB has achieved a healthy Net Interest Margin (NIM)

of over 3% in past so many years. Since 2011, it is

progressive and it was 3.03% by FY 2015. Going

forward, we expect NIM to improve during next 3

years and will reach 3.4% by FY 2018. It will be

achieved primarily due to: -

a) Rising advances with a rate of 10% in totality

for next 3 years

b) Better asset allocation towards more

productive asset class

c) Better margin on lending and deposits

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Growing Fee Income

KIB has attained a high growth of average 25% in its

Fee & Commission Income in past 5 years, with an

exception of 2015 where it witnessed a growth of 3%

only. We foresee a constant mode of growth further.

Increased number of transactions for banking

services and treasury income remained key reasons

behind the offshoot. We expect a moderate fee

growth at 10-12% during 2016-2018 period, due to:

a) Mega projects being implemented by the

government

b) Growth in fee income in line with growth in

advances

Higher Productivity

Optimum utilization of available resources is the best

way to improve business aspects and to control the

cost. KIB has been a front runner to this, as its cost to

income ratio is one of lowest among the industry.

Though, it was quite high in 2010 and 2011 (above

50%) due to falling topline which in fact pulled down

overall total revenues. But the same has dropped

remarkably to 33% by FY 2015, and removing one

time gain it stood at 41%. Further, as per our talks

with the management, it will remain around 40-45%

in coming years too.

Widening Footprint

The lender had a network of 28 branches by year end

2015 and planning to add another 3 due to rising

banking opportunities, thus it will take total tally to 30.

We expect this addition will help to attract more

customer deposits at lower rate as well as tap new

small and large business clients.

Improving Asset Quality

Asset Quality has been a major concern for all

lenders in Kuwait and so for KIB. But with spurt in

economic growth and efforts taken by the bank to

recover and minimize any new slippages, we expect

NPL levels to range in comfortable zone. More

specifically, the lender may take Average 1.5% of

total advances & loans as “Provision for impairment”

to its Income Statement during 2016-18 period.

Improved recoveries, lower slippages and adequate

provisioning will further strengthen the financial

position of KIB.

Valuation

Based upon our conservative assumptions in loans at

around 10+%, earnings will grow and reach KWD 19

million in 2016 and inflated further to reach KWD 26

million by FY 2018. Asset quality will advance for

improvement, post the shocked era of financial crisis.

Summing up, amid healthy growth in topline, lower

payout to Customer Deposits and superb growth in

Fee & Commission, we believe KIB is trading at

discount with better return profile.

KIB is currently trading at 0.85x of P/BVx as against

the banking sector average of 1.41x. From 2018, it is

trading at 0.58x and the forward P/Ex is trading at

mere 7.96 times of FY2018 earnings. We initiate the

coverage on KIB with BUY and Target Price in the

range of KWD 0.305 to 0.310

Shareholding Structure

Table 2: Major Shareholders Type Holding (%)

Bukhamseen Holding Group Corporate 21.73%

The Public Institution for Social Security Government 9.13%

Al Hoda for Hotels and Tourism Company Corporate 7.25%

Al Barakah Kuwait General Trading & Contracting Co Corporate 5.83%

Public - 56.06%

Source: Zaw ya Website

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Lender Background

Incorporated in 1973, Kuwait International bank

(KIB), was formerly known as Kuwait Real Estate

Bank. The bank embraced Islamic Principles for its

business operations and instigated a new journey on

July 1st, 2007. As an Islamic bank, KIB’s business

covers all banking services including:

a) Acceptance of Deposits

b) Financing Transactions

c) Direct Investment

d) Murabaha (auto, real estate and

commodities)

e) Ijara Muntahia Bittamleek (Lease-to-own)

f) Istisna’a, Tawarruq, Credit Cards, Wakala

and other products.

Corporate projects and finance, Treasury Services,

Issuing Letters of Credit (L/Cs), Letter of Guarantee

(L/Gs) and Real Estate Dealings and Management of

Properties are another value added services the

lender operates amid its business segment.

Shariah Supervisory Board

A dedicated group of Islamic scholars entrusted to

review KIB’s new products, contracts and investment

transactions to certify that all KIB’s financial activities

are conducted in compliance with the principles and

provisions Islamic Shariah.

Corporate Social Responsibility

In the framework of Social Responsibility Program,

the Bank is actively filling and justifying its Corporate

Social Responsibility role. Women arena, schooling,

sports, excellence awards in various academic role

and multiple social fronts remain in limelight for the

lender, where KIB has played its CSR effectively.

Corporate Awards

KIB's successive achievements, honor and awards

are a clear recognition of its distinction and

excellence. KIB was awarded “Best Islamic Bank in

Kuwait” during 2014, 2015 and 2016 by World

Finance magazine in recognition of its unique

achievements over the past 3 years. The bank has

also received the Golden Medal Award of merit 2013

from Tatweej Academy for Excellence and Quality in

the Arab Region and the upgraded credit rating from

A- to A+ from Fitch due to its robust capitalization,

liquidity profile and strong capital ratios.

Investment Concerns

Building up of provisions, remain a key

operating concern for the bank. Being a Real

Estate Bank earlier, and carrying on a higher

exposure towards the troubled sector, is weighing

heavily on the performance. Though, the lender

has an adequate margin of safety as collateral for

all such advances, yet continuity in provisions is a

major concern. However, on the positive side, the

management is very keen to tackle this issue and

doing its best to grab. As a result, we have seen a

prominent decline in the provisions part in past 2

years.

Lower business growth due to any economic

shock and delay in new upcoming major projects,

can stress the profitability.

Lending Rate: Under pressure lending rate, will

continue to restrict a significant growth in the top

line unless the bank adopted an aggressive

growth plan on loans and advances, which is

highly unlikely amid quality concerns. However,

lending rate benchmark is influenced by the

Central Bank Discount Rate (CBDR).

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Financial Performance - 1Q-2016 & Full Year 2015 Performance

Table 3 :Income Statement Snapshot (Figures are in KWD million)

Parameters 1Q-16 1Q-15 y-o-y Chg. FY15 FY14 y-o-y Chg.

Income from Murabaha, Wakala & Ijara 16.70 14.28 16.9% 63.16 53.99 17.0%

Less: Distribution to Depositors & Finance Cost (5.17) (3.36) 54.0% (15.30) (11.39) 34.3%

Net Financing Income 11.53 10.93 5.5% 47.86 42.60 12.4%

Other Income (Investment, Fee etc.) 3.99 4.78 -16.6% 32.88 15.66 110.0%

Total Income 15.51 15.70 -1.2% 80.74 58.26 38.6%

Operating Expenses (6.45) (5.37) 20.0% (26.82) (25.40) 5.6%

Pre-Provision Profit 9.06 10.33 -12.3% 53.93 32.86 64.1%

Less: Provisions & Impairment (2.04) (4.23) -51.7% (36.64) (18.17) 101.7%

Profit before KFAS, Zakat & NLST 7.02 6.10 15.1% 17.28 14.69 17.7%

Less: KFAS, Zakat & NLST (0.28) (0.27) 1.8% (1.20) (0.95) 26.1%

Less: Non Controlling Interest (0.01) (0.04) -81.1% (0.08) (0.06) 34.5%

Net Profit Attributable to Shareholders 6.73 5.79 16.3% 16.00 13.68 17.0%

EPS (Fils) 7.21 6.20 16.3% 17.14 14.65 17.0%

Cost to Income 0.42 0.34 21.5% 0.33 0.44 -23.8%

Source: KIB Financials & KFH Capital

Q1-2016 PERFORMANCE

KUWAIT INTERNATIONAL BANK (KIB) declared its 1Q-

2016 results, where the Islamic lender reported an

improving performance with a net profit of KWD

6.73 million; a surge of 16.3% over the

corresponding last year results. Growth in

financing income (+16.9%), and a better asset

quality control through lower provisions (down

by 51.7%) were the key drivers for the bank’s

growth.

During the 1Q-2016, income from main stream line

“Murabaha, Wakala and Ijara” grew by 16.9% to

reach KWD 16.70 million from KWD 14.28 million a

year ago. In line, “Distribution to Depositors” surged

sharply by 54.0% to cost KWD 5.17 million compared

to KWD 3.36 million a year ago. Thus, growth in Net

Financing Income was limited to 5.5%, as it reached

KWD 11.53 million from KWD 10.93 million a year

ago.

Other Income reported a de-growth of 16.6% (y-o-

y), mainly due to lower investment income. Total

investment income dropped to KWD 0.42 million from

KWD 1.42 million; a decline of 75.1% y-o-y. However,

fees & commissions income edged up marginally by

2.95%. Following the trend, net foreign exchange

gains grew by 6.3% to KWD 0.252 million against

KWD 0.237 million in 1Q-2015.

Operating expenses increased by 20.0% (y-o-y),

mainly driven by a surge of 56.3% and 7.6% in

general & administrative and staff costs respectively.

Staff costs stood at KWD 3.63 million representing

56.3% of total expenses.

Due to the sharp increase in operating expenses

and lower investment income, the “Cost to Income”

ratio moved up to 0.42 from 0.34 in 1Q-2015.

On the provisioning front, the lender looked in a

perfect shape, as NPLs decreased to reach 1.29%

and provision coverage ratio increased to 225%.

Net Financing Income Margin (net financing

income over average earning assets) improved

marginally by 4 bps to stand at 3.07% (FY’15: 3.03%).

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FULL YEAR 2015 PERFORMANCE

KUWAIT INTERNATIONAL BANK (KIB / AL-DAWLI)

declared its FY-2015 results, where the Islamic

lender reported a net profit of KWD 16.0 million; a

growth of 17.0% over its previous year results.

Growth in financing income (+17.0%), surge in

investment income (+25.4%), and a settlement

gain of KWD 16.63 million were the key drivers for

the bank’s growth which was heavily affected and

limited by the sharp increase in distribution to

depositors (+34.3%) as well as the doubling

provisions.

During FY-2015, income from main stream line

“Murabaha, Wakala and Ijara” grew by 17.0% to

reach KWD 63.16 million from KWD 53.99 million a

year ago. Meanwhile, “Distribution to Depositors”

surged sharply by 34.3% to cost KWD 15.30 million

compared to KWD 11.39 million a year ago. Thus,

growth in Net Financing Income was limited to

12.4%, as it reached KWD 47.86 million from KWD

42.60 million a year ago.

Other Income grew prominently by 110% (y-o-y),

where a gain from final settlement of dues by a

corporate customer of KWD 16.63 million played a

vital role in the bank’s earnings and mitigated the

inevitable negative outcomes of soaring provisions.

Also, investment income improved by 25.4% to KWD

5.39 million compared to KWD 4.30 million a year

ago, and fees & commissions income edged up

marginally by 2.98%. However, net foreign exchange

gains dropped by 7.8% to KWD 0.91 million against

KWD 0.99 million in FY14.

Operating expenses increased by 5.6% (y-o-y),

despite of 33.1% decline in depreciation, which

remains the smallest constitute in operating

expenses by sharing around 7.7% of total expenses.

The increase in operating expenses was mainly

driven by a surge of 22.1% and 4.4% in general

administrative and staff costs respectively. Staff costs

stood at KWD 14.65 million representing 54.6% of

total expenses while General & Administrative

expense reached KWD 10.1 million sharing 37.6% of

total expenses in FY15.

Due to the sharp increase in total income, the “Cost

to Income” ratio improved and moved down to 0.33 in

FY15 from 0.44 a year ago. However, when the one-

time gain of KWD 16.63 million is removed from total

income, the ratio would stand at 0.42.

On the provisioning front, the expenses increased

hugely by 101.7% (y-o-y) to KWD 36.64 million in

FY15 compared to KWD 18.17 million a year ago.

This represented a heavy burden on the bank’s

earnings growth, as profit before provisions increased

sharply by 64.1% while net profit grew only by 17.0%.

Net Financing Income Margin (net financing

income over average earning assets) improved

marginally by 7 bps to stand at 3.03% during FY15.

Meanwhile, gross financing income on average

earning assets has risen profoundly to 4.0% from

3.75% a year ago.

Reasons to Invest

Sustained growth above Industry Average

959.79

1,081.60

1,341.53

1,495.51

1,630.98

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

2011 2012 2013 2014 2015

Loans & Advances KWD Million

Source: KIB Financials, KFH Capital Research

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KIB loans and advances have been at a higher

growth than industry average (Islamic) lately. KIB has

achieved a growth of 9.1% in 2015; higher than

industry average of 3.6%. On a five years’ scope, KIB

managed to add KWD 671.19 million (+69.9%) in its

books as total loans and advances touched KWD

1,630.98 million by 2015 opposed to KWD 959.79

million in 2010.

As per our talks with the management, the lender is

very keen to diversify its lending in the new economic

development and concentrating over all industries,

apart from its core focus of the Real Estate earlier.

Citing, the potential in infrastructure, services and

consumer services industry, the lender is poised to

improve its assets quality and will benefit from

economic turnaround in macro sense.

We expect the bank to clock 10%+ growth in this

portfolio for the period of 2016-2018.

Improving Margins

30.72

35.40

44.16 42.60

47.86 3.07%

3.43%

3.58%

2.96%

3.03%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

-

10.00

20.00

30.00

40.00

50.00

60.00

2011 2012 2013 2014 2015

Net Financing Income, Net Margin

Net Financing Income Net Profit Income (Margin)

KWD Million


KIB has been able to maintain its Net Financing

Income Margin (NIM) above the Industry level during

the last three years. NIM stood at 2.91% in 2015

compared to the industry average of 2.85%. In the

previous two years, the bank’s NIM stood at 2.82%

and 3.23%, opposed to the Kuwait’s Islamic industry

average of 2.71% and 2.96% in 2014 and 2013

respectively.

The bank witnessed an 8.8% growth in its earning

assets in FY 2015 as they reached KWD 1.65 billion

from KWD 1.51 billion in FY 2014. And when

compared to 2011, the bank’s interest earning assets

grew sharply by 70.3% where industry’s growth was

59.0%.

Growing Fee Commission & Forex

4.86

5.91

7.50

9.08 9.25

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

2011 2012 2013 2014 2015

Fees & Commissions & FX GainsKWD Million


Fees & Commissions combined with Foreign

Exchange Gains have grown sharply in past few

years as shown in the above graph. The total income

moed up by 90.2% from KWD 4.86 million in 2011 to

KD 9.25 million in 2015.

However, the growth recently was restricted to 2%

only. Increasing transactions services and adding

variety of services in past few years, has delivered its

best to KIB. The growth is in line to loans and

advances growth; which means that corporate

activities and market sentiments are improving. The

bank plans to further enhance non-fund based

business, to further enhance its non-fund based

activities.

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Improved Productivity

39.27 44.91

56.95 58.26

80.74

19.83 23.10 24.75 25.40 26.82

0.51 0.51

0.43 0.44

0.33

-

0.10

0.20

0.30

0.40

0.50

0.60

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

2011 2012 2013 2014 2015

Operating Revenues, Expenses and Cost to Income

Total Operating Income Operating Expenses Cost to Income

KWD Million


KIB has been efficient in utilizing its available

resources in order to improve its business

performance and to control the cost, as its cost to

income ratio is lower than the industry average for

the past three years.

Throughout the past five years, operating income

grew by 105.6% from KWD 39.27 million in 2011 to

reach KWD 80.74 million in 2015, yet the growth

would be reduced to 63.3% when excluding the one-

time settlement gain of KWD 16.63 million realized in

2015. Meanwhile the cost grew just by 35.2% from

19.83 million to KWD 26.82 million, thus improving

the bank’s profitability.

In terms of business per employees, total revenue

stands at KWD 117,020 by 2015 while the expenses

stood at KWD 38,868; thus marking healthy 67%

margin productivity on staff.

Improving Asset Quality

Asset Quality has been a major concern for all

lenders in Kuwait and so for KIB. But with a spurt in

economic growth and efforts taken by the bank to

recover its bad quality loans as well as control on

fresh lending, brought cheer as the percent of NPLs

to overall Gross Loans came down drastically; from

9.3% in 2011 to 1.4% by 2015, Going forward, we

760.05

869.54

1,077.98

1,186.34

1,295.06

71.03 51.43 57.61 58.43 17.59

9.3%

5.9%5.3%

4.9%

1.4%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

2011 2012 2013 2014 2015

Gross Loans, NPLs and Ratio

Gross Loans NPL NPL to Loans

KWD Million


expect the bank, will maintain the improved

performance on this front and we assume a 1.5% of

loans provisions for coming 3 years, to be on the

safer side.

Historical Financial Performance

Customer Deposits & Cost

694.51 784.76 939.27 988.74 1,018.05

1.79%

1.22%

0.76%

1.15%

1.50%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

0

200

400

600

800

1000

FY11 FY12 FY13 FY14 FY15

KD

M

n

Customer Deposits Cost of Distribution to Depositors


Customer Deposits have been in the growth phase

during the past five years as they surged by 46.6%

from KWD 694.51 in 2011 to reach KWD 1,018.1

million by 2015. On the cost of distribution front,

distribution to depositors has shrunk to 0.76% in

FY13 from 1.79% in FY11, and then it has rebounded

to 1.50% by FY15. Also, the bank managed to pay its

8 | P a g e



customers less than the overall Islamic Banking

which is around 2.01% in FY15.

Earning Assets Growth & Topline

966.857 1100.221 1367.897 1513.131 1646.88

86.5%

88.1%

91.0%

91.0% 92.0%

80%

84%

88%

92%

96%

0

200

400

600

800

1000

1200

1400

1600

1800


KD

M

n

Earning Assets % of Total Assets


In line with its Customer Deposits, the bank Earning

Assets, which are basically all assets except

Investments, Property & Equipment, and Other

Assets, grew prominently during the past five years

(+70.3%), as by 2015 they represented 92% of the

bank’s total assets opposed to 86.5% in 2011. The

three main items include Financing Receivables

(71.2% of Earning Assets), Due from Banks & Other

Financial Institutions (27.8%) and Cash & Balances

with Banks (1.0%).

Investment Income is on Surge

121.736 118.987 103.268 115.092 109.019

3.67 3.52

5.01

4.30

5.39

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0


KD

M

n

KD

M

n

Total Investments Investment Income


KIB’s Investments have been volatile during the past

five years as well as investment Income (as total

amount and as a percentage of total investments)

which affected the consistency of the lender’s bottom

line. Total Investments, which represents 6.1% of

total Assets, currently consists of four items;

Financial Assets Available for Sale (59.3% of total

Investments), Investment Properties (37.0%),

Investments in Associates (3.6%) and Investments

carried at fair value through IS (0.1%). As for

investment Income, it reached to KWD 5.39 million in

FY15 which is around 4.95% of total Investments; the

highest rate during the analyzed five-year period.

Operating Expenses on Rise; But Better Earnings

Restricting Adverse Impact

11.06112.403 13.202 14.03 14.65

4.7466.273

7.744 8.27110.097

4.026 4.425 3.8 3.0972.072

19.8

23.124.7 25.4

26.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0


KD

M

n

Staff Cost General & Administration Depreciation Total expenses


Operating expenses have soared by 35.2% from

KWD 19.83 million in FY11 to KWD 26.82 million in

FY15, yet Operating revenues grew at a higher pace

of 105.6% (63.3% excluding nonrecurring gains)

which made the bank able to maintain profitability

growth over the period.

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Provisions Continue to Mark their presence

760 870 1,078 1,186 1,295

67.62

87.72

98.19

113.67122.12

0

20

40

60

80

100

120

140

0

200

400

600

800

1,000

1,200

1,400


KD

Mn

KD

Mn

Financing Receivables and Loans & Advances (pre Prov)

Provisions (Inc. Deferred Profit)


KIB’s Financing Receivables include Murabaha

(82.65% of Fin. Rec.), Ijara (15.79%) and Other

Receivables (1.56%) and Loans & Advances which

decreased to zero in FY13 as the bank had gradually

taken it off its books after it became an Islamic entity

in 2007. The total receivables grew notably by

23.97% and 14.41% in FY13 and FY12 respectively,

while the provisions climbed by 131.17% in FY13

while it has remained stable during FY12.

As a percentage of total receivables, Provisions

represents 1.64% in FY13 up from 0.88% of Fin. Rec.

in FY12 and it was in the highest level in FY09 at

3.12% which was around KWD 26.34 million.

Net Profit: No Look Back, Post 2009

10.8 13.2 13.2 13.7 16.0

11.61

14.10

14.15 14.65

17.14

0.0

4.0

8.0

12.0

16.0

20.0

0.0

5.0

10.0

15.0

20.0


KD

Mn

Net Profit EPS (as reported)

Fils


KIB’s Earnings were volatile to some extent during

the period of five years with incurring net losses in

FY09 as the bank was adversely affected by the

financial crisis back then. Provisions played a major

role in the inconsistency of the lender’s bottom line as

the total operating revenue (profit before provisions

and taxes) was more stable during the same

analyzed period. EPS stood at 14.15 Fils in FY13 and

it was at the highest level of 17.94 Fils in FY10

mainly due to the reversal of provisions during that

period.

Profitability Ratios: Under Check

0.97% 1.05%0.88% 0.82% 0.89%

5.22%

6.08% 5.89% 5.75%

6.54%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%


ROA ROE


As for profitability of KIB in comparison to the overall

Islamic Banking (a group of five Islamic banks

including KIB), the lender’s ROA stood at 0.89 % in

FY15 slightly below the overall Islamic Banking ROA

of 0.92%. Further, the lender’s ROE was below the

group as it stood at 6.54% whereas the Islamic group

ROE stood at 8.63% in FY15. However, we believe

that post the conversion to Islamic entity; the bank

which was earlier having a huge exposure to the

troubled real estate sector; is in process to enhance

its exposure to other sectors while restricting its

exposure to the real estate with a pace as it used to

do earlier. Such a key strategy will simply garner

better returns in the coming time, and going ahead,

we believe the new lender can beat market returns

too.

10 | P a g e



0.70% 0.74%0.80% 0.84%

0.92%0.97%

1.05%

0.88%0.82% 0.89%

0.00%

0.25%

0.50%

0.75%

1.00%

1.25%

1.50%


ROA

Overall Islamic Banking KIB

6.34%6.98%

7.10%

7.99%8.63%

5.22%

6.08%5.89% 5.75%

6.54%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%


ROE

Overall Islamic Banking KIB


11 | P a g e



Intrinsic Valuation

We value KIB’S intrinsic value between KWD

0.305 (in Base Case Scenario) to KWD 0.310 (in

Best Case Scenario). Our valuation technique

comprises of 4 models – Discounted Cash Flow,

Price to Earnings, Price to Book Value and

Dividend Yield (Kuwait only) methodology.

** Discounted Cash Flow Valuation (DCF), where

we have calculated free cash flow available to equity

holders by adjusting the net profit, projected capital

expenditure and depreciation.

Our forecast for the net income is over next three

years till 2018. Our estimate for the Net Income is

KWD 18.98 million in 2016 and is estimated to reach

KWD 26.03 million by 2018. Our assumptions are

discussed in our forecast section.

We discounted all Future Cash Flow Estimated

(FCFE) at the calculated Weighted Average Cost of

Capital (WACC) at 11.72%, considering:

Perpetual growth rate 4.00%

Beta 1.29

Risk free Rate 3.98%

Equity Risk Premium 6.00%

Assumptions: Beta is as per data available since the

lender got listed; while Risk Free rate is calculated by

considering 10 Year US treasury and adjusting the

US inflation data to Kuwait Inflation data. For Equity

Risk Premium (ERP), the source is Aswath

Damodaran latest available stats.

Price to Book Value (P/BVx) and Price to Earnings

(P/Ex) are two very known and preferred

techniques by investors across the globe.

Considering the lenders operation reach, we have

assigned local market multiples only.

In order to arrive at an average Intrinsic Value, we

assign 70% weight to DCF Model and 20% to Price

to Book Value while 5% each to P/Ex and Dividend

Yield. The rationale for DCF method assigned higher

weightage is the predictability of income statement

and better asset allocation as planned under the new

“3-year business strategy”.

Forecast 2016-2018

The bank has improved its “earning-power” on its

earning assets in 2015 and it reached 3.84%. Under

the new management approach and restructuring of

the loan portfolio, where the retail and personal

advances will get more weightage, we are convinced

that the lender will easily achieve the similar or better

earning rate in next 3 years. For coming years, on the

Base case side, the lender can easily achieve an

earning rate of 3.90% on its total earning assets

which will get a pace, up by 7.5 basis points each

year from 2016. On the Best case side, the same can

spurt to 4.10% in 2018, amid improving asset quality

and revival of economic business cycle.

Also, growing loans and advances will further support

our assumption for a better lending in future. The

bank has seen a stupendous growth in its loan and

advances portfolio in 2013 (+25.3%), however the

momentum faced a slowdown later. In the new

developments of economy and meetings with the

management, we believe the bank can sustain at

least a double digit growth of 10% or more, during

2016 to 2018 era.

Rising provisions, remains a key concern and we

have adopted an aggressive provision allocation

policy for a better margin of safety, thus assigning

1.5% of Gross Receivables as new provisions every

year despite the management remains hopeful to

control this drain on the impairment.

Industry Analysis

The bright prospects of Kuwait’s banking sector,

which were floating before oil crisis, are in a bit dull

right now. With a steep fall in oil prices, the pressure

is surging on banking activities too. Undoubtedly, the

commercial banking will see undergo a notable

slowdown in deposit growth over the coming

quarters, with lending opportunities offered some

respite due to the government's development plans.

12 | P a g e



Providing a sort of fear about the growth, which will

be muted over the coming quarters, given the lower

oil prices and the concomitant cutbacks in public, the

best thing happened in the crisis is the

government announcement of mega expenditure

plans, which has somewhat mitigated the impact

of slowing business confidence and consumer

spending.

The Budget Plan is already in full swing, which

envisages spending of around KWD 34 billion (USD

116 billion) on 521 development projects. The plan

covers spending on infrastructure projects, hospitals,

power stations, refinery and more than 100,000

residential housing units. The government, with a

relatively supportive parliament, has been able to

progress on long-stalled infrastructure development

projects and implement increases in public capital

expenditure. Indeed, capital spending stood at KWD

0.6 billion for the fiscal year to September, up 16% y-

o-y. It currently stands at 23% of the full-year budget,

five percentage points above the five-year average.

Annual credit growth in the private sector ticked up

slightly over the first eleven months of 2015 to 5.7%

as the government has embarked on its next five-

year development plan. (Data sourced through BMI)

The GDP forecast by Business Monitor group for

2016 and 2017 is revised to 1.2% and 1.9%

respectively, way lower than 3%+ before the oil

plunge.

Key Factors of Commercial Banking Sector:

SWOT Analysis of Kuwait’s Banking

Strengths

Well Established, Capitalized and Closely

Regulated

Fundamentally, all key ratios have improved

in past few years.

Remained relatively less impacted due to

global crisis because of its closed structure

and closely regulatory supervision.

Weakness

Due to the closed structure, majority of

lending are towards domestic projects only,

which impact its advances due to project

delay or political tussle.

Yet to find a bigger scale on International

Arena either locally or globally.

Opportunities

Islamic finance is growing too rapidly across

the globe, which can benefit Kuwait too by

becoming a major partner in Islamic deals as

all lenders are well placed in this category.

Lenders can play their role by participating in

various building-construction projects in Iraq

and other nearby states.

Threats

Many lenders are operating locally only, and

yet to face international/foreign competition in

local or global market.

Kuwait Banking Realities

Source: CBK, BMI

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f 2019f

Lending Oppotunities Better Insulated From Slowdown

Client loans, % y-o-y, CBK / BMI Client deposits, % y-o-y, CBK / BMI

13 | P a g e



Lending rates are in better shape in the coming

years, where the annual credit growth in the private

sector ticked up slightly over the first eleven months

of 2015 to 5.7% as the government has embarked on

its next five-year development plan.

The three-month Kuwait Interbank Offered Rate

(KIBOR) has risen to 1.75% - the highest level in

more than four years, a significant increase from

0.75% in mid-2013. With Kuwaiti banks generally

linking their domestic lending rates to KIBOR, the

recent uptick in the interbank rate will therefore

increase costs for private sector borrowers and add

to the slight slowdown in economic growth.

Kuwait & GCC – Client Loans

Source: BMI & Respective Central Banks

Four Key Characteristics of the Kuwaiti

Banking Sector

Asset Quality: With non-performing loans (NPLs)

around 3.5% of total loans in the first half of 2015, the

credit quality of the sector remains strong. This figure

has fallen significantly since the 7.3% recorded in

2011. There is a substantial variety between banks

however, with some more vulnerable to the slump in

energy prices particularly in real estate. With a much

lower oil price environment it is likely that NPLs will

see a small rise over the coming years, but pose little

risk to the health of the banking sector.

FX Exposure: Kuwaiti banks are among the most

conservative in the Middle East and have a very

limited overseas presence, especially compared to

those of the UAE and Qatar. The FX risk is mitigated

by the fact that there is little FX exposure and those

that are abroad are almost solely focused in the rest

of the Gulf with open foreign exchange positions are

largely in US dollars - which makes the largest

component of the Kuwaiti dinar's basket.

Funding Structure: The decline in oil and gas prices

will continue to weigh on financial sector liquidity,

forcing Kuwaiti banks to rely more on external and

wholesale funding. Net interbank borrowing from

foreign banks has risen since H115 in expectation of

higher rates. Timely interventions by the monetary

authorities could help to mitigate these pressures, but

banks' funding costs are set to increase from 2016

onward.

Capital Adequacy: Kuwait banks’ adoption of Basel

III standards (completed by the end of 2015) will

continue to put some pressure on banks to

strengthen their capital positions. However, with the

Kuwaiti banking sector's average capital adequacy

ratio standing at 15.6% in Q315, compared to a

regulatory requirement of 10.5% under Basel III

(CBK’s requirement of 12% for YE 2015), the

commercial banking sector is well insulated against

potential shocks

Islamic Banking Growth Aspects

Internationally, we maintain our bullish outlook on the

global Islamic Banking sector over the coming years.

And such a hype growth will not come as a free lunch

but with numerous obstacles.

Growth in the Islamic banking will be driven by new

markets, and more established centers. However,

overall, expansion rates are likely to be lower over

the coming years on the back of higher base effects,

lower oil prices and several significant impediments.

Broadly, the end of the ultra-low interest rates and

huge monetary stimuli means that growth in most

14 | P a g e



banking sectors will slow, affecting Islamic banking

as well as conventional finance.

Islamic Bonds & Sukuks: The oil price-trauma, has

already a marked impact on the Islamic banking

sector. Islamic bond issuance from the GCC has

plunged 53%, the steepest decline for the region

since at least 2007. About USD 5.5 billion has been

raised, compared to USD 11.7 billion in the same

period last year (as per the BMI report).

Over the coming years, GCC governments will try

their best to make GCC as regional hubs for the

Islamic banking industry as it grows, but there is little

coordination on a global level which combines with

lower expansion rate on the back of higher base

effects and several significant impediments.

New Group for Islamic Banking “QISMUT +3”

Qatar, Indonesia, Saudi Arabia, Malaysia, United

Arab Emirates and Turkey is named as QISMUT by

Ernst & Young in its recent report on World Islamic

Banking. The other three new entrants in the group

are Kuwait, Bahrain and Pakistan. The report

stresses the importance of the Islamic banking and

its robust growth factors.

Globally, Islamic banking assets are poised to grow

to USD 2.6 trillion by 2020 (source: DIEDC), mainly

due to stability in Islamic finance field, better

connectivity across high-growth markets and

enhancing capabilities and capacities of Islamic

banks across the globe.

Internationalization and operational efficiency across

the board will remain key factors to boost overall

Islamic banking profitability in coming years. EY

forecasts that Islamic banking pool profit can reach

USD 30.3 billion by 2020 across the group, out of

which USD 27.2 billion will from QISMUT. What is

more important is to see that customers are poised to

touch a mark of 70 million plus by 2018 from

estimated 38 million currently, which translates to

36% CAGR over the 5-year period.

Such a super growth is not a just number, but well

supported by the fact that in top 10 countries (for

corporate transactions and global venture capital

activities), does not have any GCC member or even

Islamic state. Malaysia comes at 25 position and

Saudi Arabia at 28, which leaves a huge potential to

tap for Islamic venture activities in future. Kuwait

stands relatively lower at 42 to its peers in the tally,

but emerging of Islamic entities will certainly provide

a boost to strengthening her position in next few

years.

On the local side, Kuwait basically is passing through

a transformation phase, where Kuwait Finance

House is well established entity across the region as

well as international arena, but many new entrants

have joined last years like Ahli United Bank, Kuwait

International Bank, Boubyan Bank and youngest

lender called Warba Bank. The lenders are trying

their best to provide quality services to its Islamic

clients in all possible manners especially if it comes

to new products, wealth management and

technological ease.

As per EY survey, the lenders are serious on three

main working aspects:

Cross Selling: Average product holding of 2.1 is well

below the class leading 4.9 products per customer by

conventional peers. A targeted product holding will

certainly boost overall profitability of Islamic

institutions.

Wealth Management: Islamic banks can provide

select products to all its wealthy clients which will

further strengthen its operational aspects and overall

product stream. Currently, very few institutions

provide such facilities, which drive potential bigger

clients away from the market.

Service Quality: Many lenders have launched a

service quality program where they are trying to

sharpen their employee’s skills so as to thrash

disadvantage on their cost to income ratio. Indeed,

we have seen lenders reducing their cost to income

ratio sharply, and KIB stands an excellent example

on the stage.

15 | P a g e



Kuwait Islamic Banking Sector – On the

Right Path

Total Assets Growth

Islamic peer group has witnessed a solid and

consistent growth in terms of banking assets;

however, in the recent 2015, growth was limited to

1.74% compared to 3.94% in “Conventional” peers.

5.46%

14.10%

11.75%12.22%

3.94%

7.80%

9.22%

13.05%13.88%

1.74%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

2011 2012 2013 2014 2015

Total Assets Growth (Kuwait)

Conventional IslamicSource: KIB Financials, KFH Capital Research

Total banking assets reached KWD 70.39 billion by

2015; where the Islamic group shared 37% of assets

at KWD 26.13 billion while rest is shared by

Conventional. The share pie has gone down from

38.03% in 2011.

Islamic stream total assets reported a CAGR of 7.4%

in past five years, below its conventional peers which

reported a CAGR of 8.3%.

Total Loans & Advances Growth

4.51%

12.73%

5.96%

13.54%

1.72%

5.12%

10.38%

18.15%

14.99%

3.63%

0.00%

3.00%

6.00%

9.00%

12.00%

15.00%

18.00%

21.00%

2011 2012 2013 2014 2015

Total Loans & Advances Growth (Kuwait)

Conventional Islamic Source: KIB Financials, KFH Capital Research

As for the total Loans & Advances (L&A), Islamic

peer group has maintained a higher growth level in

past five years compared to Conventional banking

peers, except for year 2012.

Total Banking L&A reached KWD 51.24 billion by

2015; where the Islamic group shared 37.74% at

KWD 19.34 billion while rest is shared by

Conventional. The Islamic share has increased from

34.99% in 2011.

Islamic stream has surpassed its conventional

banking; as total L&A for the former achieved a

CAGR of 9.2% in past five years compared to 6.6%

CAGR reported by conventional peers and 7.6% by

total banking sector.

Total Customer Deposits Growth

5.92%

20.05%

12.13%

6.60%

2.71%

18.02%

7.84%

11.83%

11.45%

3.51%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2011 2012 2013 2014 2015

Total Customer Deposits Growth (Kuwait)

Conventional IslamicSource: KIB Financials, KFH Capital Research

The Islamic peer group has seen slightly volatile

growth in its customer deposits where the highest

level was in year 2011 at 18.02% and the lowest in

2015 at 3.51%. Total banking customer deposits

stood at KWD 42.82 billion by 2015; where the

Islamic group shared 40.52% at KWD 17.35 billion.

Customer deposits for the Islamic group posted a

CAGR of 6.8% in past five years compared to 8.1%

CAGR reported by conventional peers and 7.6% by

total banking sector.

16 | P a g e



Return on Average Assets

1.50%

1.33%

0.97%1.50%

1.09%

0.72%0.77%

0.85% 0.89%0.93%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

2011 2012 2013 2014 2015

ROAA (Kuwait)


On profitability measures, the Islamic peer group has

been improving its Return on Average Assets

(ROAA) during the past five years as it increased its

ROAA from its lowest level of 0.72% in 2011 to

0.93% in 2015. When compared to Conventional

banking, the group is still underperforming its

Conventional peers where they had an ROAA of

1.09% in 2015.

Return on Average Equity

10.6%

9.8%

7.8%

9.4%9.5%

6.3%7.1%

7.8%8.2%

8.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2011 2012 2013 2014 2015

ROAE (Kuwait)


As for the Return on Average Equity (ROAE)

measure, the Islamic group managed to enhance its

return to equity holders on a faster pace from 6.3% in

2011 to 8.8% in 2015. However, the Conventional

peers still have a marginally higher ROAE at 9.5%.

Cost to Income

0.31 0.30

0.34 0.33 0.34

0.50 0.49

0.45 0.49 0.45

-

0.10

0.20

0.30

0.40

0.50

0.60

2011 2012 2013 2014 2015

Cost to Income (Kuwait)


The Islamic banking seems to be not that efficient in

terms of cost management as it has been incurring a

higher level of Cost to Income ratio than the

Conventional peers for the past five years in a row.

For instance, the Islamic banking had a cost to

income ratio at 0.45 in 2015 whereas the

conventional banking had the ratio at a lower level of

0.34.

Net Interest Margin

2.97%2.73% 2.82%

2.46%2.57%

4.06%

3.46%

2.96% 2.95% 2.85%

0.00%

0.65%

1.30%

1.95%

2.60%

3.25%

3.90%

4.55%

2011 2012 2013 2014 2015

NIM (Kuwait)

Conventional Islamic

The Islamic peer group had a relatively stable Net

Interest Margin (NIM) during the past three years and

was at 2.85% in 2015, yet it has declined from a

notably higher level 4.06% and 3.46% in 2011 and

2012 respectively. Even so, it is still surpassing the

Conventional peers which had NIM at 2.57% in 2015;

but the gap has been reduced as shown in the graph

above.

17 | P a g e



Stock Rating Methodology

KFHCapital Rating KFHCapital Outlook Margin of Safety Current Market Price to IV*

Grossly Undervalued Huge Upside Potential of more than 30%

Fairly Undervalued High Upside Potential of 20-30%

Undervalued Average Upside Potential of 10-20%

Fully Valued Low Upside Potentialt of less than 10%

Overvalued None Upside Potential of more than 1%

*IV: Intrinsic Value

We, at KFHCapital, believe that purchasing blue chip businesses at superior discounts to their intrinsic value is

the guaranteed way to create wealth in the stock market.

In the process of a stock valuation, our team neither believes in a precise intrinsic value nor do we have any faith

in keeping a single-thought approach for any identified pick. Saying so, on intrinsic valuation part, our approach

varies from a base case scenario to a best case scenario, thus resulting in two intrinsic values which give a fair

valuation range to investors.

On valuation-model part, we prefer Discounted Cash Flow (DCF) model at the very first stance to value a stock

(or business), however in a bid to value a stock in a more healthy sense, we do consider other relative valuation

techniques like sector’s P/Ex, P/BVx, Dividend Yield, PEG ratio and similar decent methodologies, if applicable.

Once a fair value is arrived by applying a combination of various techniques, the next move is to calculate the

margin of safety between current market price and calculated intrinsic value. In normal terms, Margin of Safety is

the difference which allows an investment to be made with minimum downside risk.

For instance, company X’s share is worth KWD 1.000 and buying it at current market price of KWD 0.800 will

provide a cushion of high Margin of Safety (20% here), in case analysis turns out to be incorrect and the

company’s share worth only KWD 0.900.

On the rating scale of 1 to 5 stars, we assign 5 stars to the best stock which has a tremendous potential to

reward investors while spacing huge Margin of Safety while 1 star stands for the least potential stock with no

margin of safety. The rating is given on the Base Case valuation, not on Best Case valuation. In above

mentioned example, where company X is trading at a discount of 20.0% to its intrinsic value or in other words

carries 25.0% upside potential, and is assigned 4-stars, meaning that it is “Fairly Undervalued” and has “High”

Margin of Safety, according to our defined rating scale (refer to our table given above)

We hereby need to clarify that any rating affiliated to a particular stock at any given point of time, is analyzed by

its past performance with a combination of forecasting its business performance, by prevailing business factors.

It means that today’s stock valuation may not remain same in the future, depending upon the business trends of

that industry under which it operates.

Prepared By: Shoyeb Ali Maryam Al Qandi

Vice President Senior Financial Analyst

[email protected] [email protected]

mailto:[email protected]

mailto:[email protected]

18 | P a g e



Annexure

Ratio Analysis 2011 2012 2013 2014 2015 2016 2017 2018

Growth

Net Income from Murabaha 11.3% 15.3% 24.7% -3.5% 12.4% 12.4% 14.1% 12.1%

Other Operating income 114.0% 11.1% 34.6% 22.4% 110.0% -57.9% 7.9% 8.2%

Total Income 24.3% 14.4% 26.8% 2.3% 38.6% -16.2% 12.8% 11.4%

Operating profit -33.4% 20.0% 2.4% 1.4% 17.7% 19.5% 14.9% 17.9%

Net Profit -35.3% 21.4% 0.3% 3.6% 17.0% 18.6% 15.5% 18.8%

Interest Earning Assets -6.5% 13.8% 24.3% 10.6% 8.8% 10.4% 9.0% 9.2%

Total Assets -2.1% 11.7% 20.3% 10.6% 7.7% 9.4% 8.2% 8.4%

Shareholders Equity 5.9% 4.3% 3.6% 5.9% 2.9% 26.2% 7.1% 7.9%

Asset Structure Ratios

Average Interest Earning Assets / Total Assets 89.5% 82.7% 82.1% 86.6% 88.3% 88.5% 89.8% 90.3%

Customer Deposits/ Total Assets 62.1% 62.8% 62.5% 59.5% 56.9% 54.6% 53.0% 51.3%

Deposits + Due to Banks & FI's/ Total Assets 79.5% 80.6% 82.8% 83.3% 83.9% 81.8% 81.9% 82.0%

Financing Receivables / Total Assets 61.9% 62.6% 65.2% 64.5% 65.5% 66.1% 67.5% 68.6%

Net Loans / Total Assets 85.8% 86.6% 89.2% 90.0% 91.1% 91.4% 92.7% 93.7%

Investment Assets / Total Assets 10.9% 9.5% 6.9% 6.9% 6.1% 5.4% 4.9% 4.4%

Shareholders Equity / Total Assets 18.6% 17.3% 14.9% 14.3% 13.7% 15.8% 15.6% 15.5%

Equity to Net Loans 21.6% 20.0% 16.7% 15.9% 15.0% 17.3% 16.8% 16.6%

Asset Quality Ratios

Provisions for Loans & Adv. / Gross Loans 0.7% 0.7% 1.2% 1.1% 2.1% 1.0% 1.0% 1.0%

Provisions for Impairment / Gross Loans 6.6% 7.5% 6.8% 7.1% 7.0% 6.8% 6.6% 6.4%

Non Performing Loans / Gross Loans 9.3% 5.9% 5.3% 4.9% 1.4% 1.4% 1.3% 1.2%

Provisions for Impairment/Financing Lease 1.01% 0.88% 1.64% 1.53% 2.83% 1.4% 1.4% 1.3%

Liquidity Ratios

Net Loans / Customer Deposits 138.2% 137.8% 142.8% 151.3% 160.2% 167.4% 174.9% 182.6%

Net Loans / Total Deposits 108.0% 107.4% 107.8% 108.0% 108.6% 111.8% 113.2% 114.3%

Customer Deposits/ Total Deposits 78.1% 78.0% 75.5% 71.4% 67.8% 66.8% 64.7% 62.6%

Liquid Assets/ Customer Deposits 39.5% 40.6% 41.3% 44.5% 46.6% 49.0% 49.3% 50.0%

Liquid Assets/ Total Deposits 30.9% 31.6% 31.2% 31.8% 31.6% 32.7% 31.9% 31.3%

Liquid Assets Ratio 24.5% 25.5% 25.8% 26.5% 26.5% 26.7% 26.2% 25.7%

Profitability Ratios

Return on Assets (ROA) 1.0% 1.1% 0.9% 0.8% 0.9% 1.0% 1.0% 1.1%

Return on Equity (ROE) 5.2% 6.1% 5.9% 5.8% 6.5% 6.1% 6.6% 7.3%

Return on Average Assets (ROAA) 1.0% 1.1% 1.0% 0.9% 0.9% 1.0% 1.1% 1.2%

Return on Average Equity (ROAE) 5.4% 6.2% 6.0% 5.9% 6.6% 6.9% 6.9% 7.6%

Margin Analysis

Interest Income/ Avg Int Earning Assets 4.3% 4.4% 4.2% 3.7% 4.0% 3.7% 3.8% 4.1%

Net Interest Margin 3.1% 3.4% 3.6% 3.0% 3.0% 2.9% 3.1% 3.3%

Distribution to Depositors/ Avg. Cust.Deposits 1.8% 1.3% 0.8% 1.2% 1.5% 1.5% 1.4% 1.3%

Contribution Analysis

Net Income from Murahaba / Total Income 78.2% 78.8% 77.5% 73.1% 59.3% 79.5% 80.4% 81.0%

Non Interest Income / Total Income 21.8% 21.2% 22.5% 26.9% 40.7% 20.5% 19.6% 19.0%

Cost To Income Ratio 50.5% 51.4% 43.5% 43.6% 33.2% 40.8% 40.9% 41.1%

19 | P a g e



Balance Sheet 0 0 0 0 0 0

KD 2011 2012 2013 2014 2015 2016 2017 2018

Assets

Total Cash & balances w ith banks 7,066,000 18,624,000 26,365,000 17,618,000 15,904,000 28,715,388 19,522,781 12,724,081

Due from Banks & Other Financial Institutions 267,360,000 299,774,000 361,741,000 422,841,000 458,041,000 494,684,280 534,259,022 576,999,744

Receivables 692,431,000 781,823,000 979,791,000 1,072,672,000 1,172,935,000 1,294,929,494 1,428,339,997 1,575,483,306

Investments carried at fair value thorugh income statement1,715,000 1,627,000 100,000 68,000

Financial Assets Available for sale 65,835,000 67,475,000 57,599,000 60,978,000 64,663,000 65,401,600 65,911,640 66,434,431

Investments in associates 5,086,000 5,004,000 - 3,875,000 3,935,000 3,935,000 3,935,000 3,935,000

Investment Properties 49,100,000 44,881,000 45,669,000 50,139,000 40,353,000 37,269,768 34,040,081 30,656,985

Property & equipment 25,861,000 24,072,000 20,568,000 25,017,000 25,997,000 24,697,150 23,462,293 22,289,178

Other assets 3,915,000 6,216,000 11,710,000 9,339,000 8,151,000 7,947,225 7,748,544 7,554,831

Total Assets 1,118,369,000 1,249,496,000 1,503,443,000 1,662,579,000 1,790,047,000 1,957,579,905 2,117,219,359 2,296,077,556

Liabilities and Shareholders Equity

Due to banks & other Fin.Inst. 194,184,000 221,934,000 305,141,000 395,419,000 483,958,000 532,353,800 612,206,870 704,037,901

Depositors' accounts 694,509,000 784,756,000 939,272,000 988,744,000 1,018,050,000 1,068,952,500 1,122,400,125 1,178,520,131

Other Liabilities 22,047,000 26,233,000 31,647,000 37,600,000 40,235,000 44,258,500 48,684,350 53,552,785

Total Liabilities 910,740,000 1,032,923,000 1,276,060,000 1,421,763,000 1,542,243,000 1,645,564,800 1,783,291,345 1,936,110,817

Non Controlling Interest 3,021,000 3,122,000 3,151,000 3,151,000 3,151,000 3,151,000

Shareholders Equity:

Share Capital 103,732,000 103,732,000 103,732,000 103,732,000 103,732,000 103,732,000 103,732,000 103,732,000

Total Shareholders Equity 207,629,000 216,573,000 224,362,000 237,694,000 244,653,000 308,864,105 330,777,014 356,815,739

Total Liabilities & Shareholders' Equity 1,118,369,000 1,249,496,000 1,503,443,000 1,662,579,000 1,790,047,000 1,957,579,905 2,117,219,359 2,296,077,556

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Income Statement

KD 2010 2011 2012 2013 2014 2015 2016 2017 2018

Operating Income:

Murabaha and other islamic f inancing income 42,553,000 43,146,000 44,965,000 51,326,000 53,989,000 63,159,000 70,914,837 78,789,342 87,690,889

Distribution to depositors (14,944,000) (12,429,000) (9,561,000) (7,169,000) (11,391,000) (15,295,000) (17,103,240) (17,397,202) (18,856,322)

Net Income From Murabaha 27,609,000 30,717,000 35,404,000 44,157,000 42,598,000 47,864,000 53,811,597 61,392,140 68,834,567

Non Interest Income:

Investment income 154,000 3,536,000 3,444,000 4,674,000 4,301,000 5,333,000 3,366,064 3,386,466 3,407,377

Fees & commission income 3,019,000 3,859,000 5,379,000 6,607,000 8,096,000 8,337,000 9,218,929 10,242,614 11,399,816

Share of profits from associated companies 138,000 72,000 336,000 60,000

Net foreign exchange gain 531,000 1,001,000 535,000 897,000 985,000 908,000 953,400 1,001,070 1,051,124

Other Income 294,000 22,000 76,000 279,000 2,275,000 18,242,000 300,000 300,000 300,000

Total Other Income 3,998,000 8,556,000 9,506,000 12,793,000 15,657,000 32,880,000 13,838,393 14,930,150 16,158,316

Total Income 31,607,000 39,273,000 44,910,000 56,950,000 58,255,000 80,744,000 67,649,990 76,322,290 84,992,883

Expenses:

General & administrative expenses (3,398,000) (4,746,000) (6,273,000) (7,744,000) (8,271,000) (10,097,000) (10,147,499) (11,448,343) (12,748,932)

Depreciation (3,335,000) (4,026,000) (4,425,000) (3,800,000) (3,097,000) (2,072,000) (3,899,550) (3,704,573) (3,519,344)

Staff costs (10,611,000) (11,061,000) (12,403,000) (13,202,000) (14,030,000) (14,650,000) (13,529,998) (16,027,681) (18,698,434)

Operating expenses (17,344,000) (19,833,000) (23,101,000) (24,746,000) (25,398,000) (26,819,000) (27,577,047) (31,180,597) (34,966,711)

Operating profit before provision for impairment 14,263,000 19,440,000 21,809,000 32,204,000 32,857,000 53,925,000 40,072,944 45,141,693 50,026,172

Provision for impairment 3,437,000 (7,658,000) (7,665,000) (17,719,000) (18,168,000) (36,642,000) (19,423,942) (21,425,100) (22,056,766)

Operating profit 17,700,000 11,782,000 14,144,000 14,485,000 14,689,000 17,283,000 20,649,001 23,716,593 27,969,406

KFAS (76,000) (106,000) (127,000) (130,000) (137,000) (160,000) (200,365) (225,708) (250,131)

National labour support tax (443,000) (271,000) (420,000) (427,000) (375,000) (464,000) (601,094) (677,125) (750,393)

Board remuneration (177,000) (460,000) (275,000) (550,000) (300,000) (400,000) (550,000) (550,000) (550,000)

Zakat (250,000) (104,000) (157,000) (156,000) (142,000) (179,000) (240,438) (270,850) (300,157)

Non Controlling Interest (14,000) (58,000) (78,000) (80,000) (80,000) (80,000)

Net Profit for the year 16,754,000 10,841,000 13,165,000 13,208,000 13,677,000 16,002,000 18,977,105 21,912,909 26,038,726

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تنصل

من أي فإن ، هذا التقرير. وتبعا لذلك في دةالوار معلومات من أي عن لإلستثمار بيتك كابيتال شركة قبل من مستقلة بصفة التحقق يتم لم. وموثوقة دقيقة تكون ان يعتقد مصادر من هذا التقرير مستمدة في الواردة المعلومات إن

أوالشراء رويج أو التماس لإلكتتابدعوة أو ت أو ، عرض بأنها تفسر أن المعلومات لهذه ينبغى وال .المعلومات هذه دقة أو اكتمال أو موثوقية يضمنون أو يدعون أوممثليها أو موظفيها أو مسؤوليها ال لإلستثمار بيتك كابيتال شركة

.إلتزام أو عقد ألي سأسا تشكل أن شأنها من صفقة أو استثمارات أي في للدخول التوصية أو المشورة اطالقا تشكل ال أنها كما فى هذا التقرير، المذكورة المالية الكيانات من البيع أو االحتفاظ ألي أو

كن هذا االعتقاد ال يضمن صحة المعلومات التى تم االعتماد عليها ول يمكن أنه يعتقد عامة مصادر من عليها الحصول تم بناء على معلومات قد لعمالئها لإلستثمار بيتك كابيتال قبل شركة من أعدادها تم قد التقرير هذا في اآلراء

بيتك كابيتال شركة التقرير. حيث تقوم هذا في ورالمذك كيان مالي في أى ملكية أو أسهم بيع أو شراء تقرر دمالإلستثمارعن بيتك كابيتال شركة بها تأخذ أن يمكن التقرير في المنشورة االعتماد عليها العداد هذا التقرير. البحوث

فقد تقوم ذلك، إلى الطويل. وباإلضافة لمدىا على البيع أو بالشراء لإلستثمار بيتك كابيتال إستراتيجية شركة مع تتعارض أو تتوافق التي األجل القصيرة الفرص لتحدد الشركات من مختارة لنخبة تحليلي بحث بأجراء لإلستثمار

بناء العمالء من والشراء البيع و التقرير، هذا عم يتعارض نحو على األوراق المالية معامالت في الدخول أيضا ويمكن القصير المدى على المحللين اقتراحات نتيجة الخاص، لحسابها االتجار أو لالستثماربالتداول بيتك كابيتالشركة

.لالستثمار بيتك كابيتالعلى معايير اساسية تضعها شركة

سابق دون للتغيير وقابلة لإلستثمار بيتك كابيتال ركةش آراء عن بالضرورة تعبر ال وهي التقرير. هذا تاريخ من اعتبارا تقرير معد ال إليها توصل التي الحالية النتيجة التقرير هذا في الواردة التقديرات و والتوقعات اآلراء وتشكل

وت عدم صحة فى وقت الحق الى من اآلراء أو أو ثب تغيير أي أو التقرير، في تغيير أي عن القارئ إبالغ أو التقرير هذا تغيير أو تعديل أو لتحديث التزام أي لإلستثمار بيتك كابيتال شركة على ليس ، ذلك على وعالوة .إنذار

القرارات االستثمارية اتخاذ المستثمرين على ويجب ين،المستثمر لجميع مناسبة تكون ال قد التقرير هذا استخالصها في تم التي والنتائج نوقشت التي المالية المواضيع . إنالتقرير هذا في المبينة التوقعات أو التقييماتالتقديرات أو

المعلومات التاريخية في هذا التقرير لمستقبلية و ا النتائج على مؤشرا بالضرورة ليس الماضي في األداء وأهدافهم االستثمارية. الخاصة المالية أوضاعهم تناسب استثمارية قرارات التخاذ المستقلين مستشارينهم باستخدام و بأنفسهم

.المنشور هذا مضمون نم مستوحاة أو مماثلة صفقة أي في الدخول قبل والمالية القانونية براءالخ مشورة باتخاذ المستثمرين وينصح ، عن الشركات و األسواق و األدوات المالية ال تضمن أدائها المستقبلي

سؤولين عن أى يها أو مسئوليها ميها أو موظفلالستثمار أو ممثل بيتك كابيتالو لن تكون شركة إن استخدام أي معلومات وردت في هذا التقرير و اتخاذ أي قرارات إستثمارية عليها تعتبر من مسؤولية القاريء و من ضمن مخاطرته

رة. و غير مباشردة فى هذا التقرير سواء بصورة مباشرة أقرارات إستثمارية أو أضرار أو فرص فائتة أو خسائر ناتجة عن أو متعلقة بإستخدام المعلومات أو البيانات أو التحليالت أو االراء الوا

.التقرير من مقتطفة معلومة يأ نقل حالة في المصدر ذكر ويرجى لإلستثمار. بيتك كابيتال شركة من مسبقة خطية موافقة على الحصول قبل غرض وألي شخص أي قبل من نشره و توزيعه أو استنساخه يمكن ال التقرير هذا

ركتنا.شركتنا او نسخ شعار الشركة بأى شكل أو اسلوب أو وسيلة بدون موافقة خطية مسبقة من ش سنحتفظ بملكية حقوق الطبع و كل حقوق الملكية الفكرية االخرى. وال يجوز لكم استخدام اسم

اإلستشارية. والدراسات البحوث قائمة ضمن (www.kfhcapital.com.kwاإلنترنت ) بشبكة الشركة موقع على للجميع متاحة المعلومات وهذه

لحصري التابع لمحاكم دولة ارونى إلى القضاء موقع االلكتوُتقّدم كافة النزاعات الناشئة عن أو المتّصلة بهذا التنصل و المحتويات المتعلقة باآلراء و المعلومات المندرجة فى هذا الويخضع هذا التنصل القانوني لقوانين دولة الكويت.

نها الخاصة.أخرى تخضع لقواني بلدانأي مسؤولية في حالة إستخدام محتويات هذا الموقع في تثمارلالس بيتك كابيتالالكويت بما ال يتعارض وأحكام الشريعة اإلسالمية الغراء. وال تتحمل شركة

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