QNB initiates Al Rajhi Bank at ‘Neutral’, TP at SAR 59

Qatar National Bank (QNB) has started coverage of Al Rajhi Bank with a “neutral” rating, setting the stock’s target price at SAR 59.

Al Rajhi Bank is expected to report a 14.8 percent year-on-year rise in net income to SAR 8.19 billion for FY16, driven by higher net interest income and strong fees.

Meanwhile, its net income is forecast to edge up just 1 percent YoY to SAR 8.26 billion in 2017, due to slower revenue growth before rising 8.2 percent YoY in 2018 backed by a recovery in non-interest income. 

“It should be noted that in a rising interest rate environment, Al-Rajhi’s net interest margin (NIM) expands more than its peers’ as non-interest bearing deposits represents ~92 percent of total deposits,” the Qatar-based bank said.

QNB added that a clearer vision for Saudi Arabia’s long-term development initiatives and further improvement in net interest margins and spreads following rate hikes are the major catalysts for the stock.

However, lower oil prices remain the biggest risk for Al-Rajhi and its local peers, along with higher-than-expected deterioration in its asset quality, given that Al-Rajhi is predominately a retail bank.