Aljazira Cap says Al Rajhi Bank’s Q2 2020 profit beats estimates, maintains ‘neutral’ rating

Al Rajhi Bank’s Q2 2020 net profit came above Aljazira Capital’s estimates, while net financing and investment income came in line with the forecast.

The brokerage firm maintained a “neutral” rating on the stock, revising target price from SAR 51.90 to SAR 57.80 with a cautious view for the near term.

Although the impact of COVID-19 has not entirely played out, the easing of restrictions improved the overall economic scenario, which led to the retail banking sector growing at levels close to pre-COVID levels.

Aljazira Capital revised its earnings per share (EPS) forecast for the fiscal year 2020 to SAR 3.79 from SAR 3.67, as the impact of provisions on FY20 earnings could be lower than anticipated.

The brokerage believes the changes in mortgage law places Al Rajhi Bank in a favorable position, given its retail-heavy portfolio. However, the Saudi Arabian Monetary Authority’s (SAMA) discount rate cut would hit the bank’s top and bottom lines.

Aljazira Capital estimates provisioning to remain high in H2 2020, which could adversely affect the bank’s bottom line in the near term.

Additionally, it views the withholding of dividend as a precautionary measure, with a possibility of dividend payment during the latter half of the year based on how the situation evolves.