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Ratings unchanged – Burgan Bank
Overweight (V), Gulf Bank Overweight,
CBoK Overweight, NBK Neutral
We still see value in Kuwaiti banks,
despite our earnings and price-target
downgrade
We cut target prices by 14% for CBoK to
KWD1.83, 20% for NBK to KWD2.02,
20% for Burgan Bank to KWD1.38 and
29% for Gulf Bank to KWD1.80
As regulators tighten further, banks in Kuwait will
increasingly rely on investment income as well as
international growth opportunities as a revenue source,
offsetting the negative pressure on the spread business.
We cut our price targets owing mainly to lower long-term
assumptions on yields from investment securities. We revise
down our equity investment yields to c3% from c8%
previously on the back of deteriorating earnings quality.
Our top picks in Kuwait are Burgan Bank and Gulf Bank.
We hold a favourable view of the attractive earnings
potential of Burgan, given the potential consolidation of
UGB’s foreign assets. This move will give it exposure to
new foreign high-growth markets: Syria, Iraq, Tunisia and
Algeria. We conservatively estimate that these acquisitions
will be earnings-accretive (c2%) in 2009e.
Gulf Bank, as a pure domestic play, has seen a strong selloff
recently, down c14% over the last month. While the
fundamentals may seem unfavourable, we view the stock as
oversold at current levels. The current valuation – 9.5x
2009e earnings – is an attractive entry point in our view.
NBK is trading at a relatively high PE of 15.2x 2009e. We
view this as justified given its scale, operational stability,
and low dependence on investment income versus its peers.
We maintain our Overweight rating on CBoK. Our new
(lower) price target of KWD1.83 still offers c29% potential
return to the current share price. The stock is trading at c11x
EPS 2009e for an expected earnings growth of 18%.
Banks
Kuwait
Kuwaiti Banks
We still see some value despite tougher
operating environment
15 July 2008
Vikram Viswanathan *
Analyst
HSBC Bank Plc
+91 80 3001 3756 vikramviswanathan@hsbc.co.in
Aybek Islamov*, CFA
Analyst
HSBC Bank Plc
+44 20 7992 3624 aybek.islamov@hsbcib.com
View HSBC Global Research at: http://www.research.hsbc.com
*Employed by a non-US affiliate of HSBC Securities (USA) Inc,
and is not registered/qualified pursuant to NYSE and/or NASD
regulations
Issuer of report: HSBC Bank plc
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