QNBFS - Doha Bank’s rating upgraded to ‘Outperform’

QNB Financial Services (QNBFS) has announced that it has raised Doha Bank’s rating from ‘Accumulate’ to ‘Outperform’ with a price target of QR3.151 per share.

Stating about the Doha Bank’s earnings in the first half of 2022, QNBFS said, “We still pencil in a bottom-line growth of 56.5 percent to QR766.2 million in 2022. We also raise our 2023 and 2024 estimates by 19.3 percent and 17.2 percent to QR1.07 billion and QR1.24 billion, respectively.”

It said, “Our changes in estimates are mainly driven by lower CoR. We pencil in a CoR of 140bps (2023e), 120bps (2024e) and 104bps (2025e). Our new earnings estimates (2022-26e) are expected to lead to an average RoE generation of 11.50 percent over our forecast horizon. We expect the bank to generate economic profits from 2027 onward. Hence, RoE is still expected to be below CoE over 2022to 2026.”

“The stock trades at a 33 percent discount to its 2022e BV due to asset quality issues from recent history. As such, Doha Bank has significantly underperformed its peers and therefore, we upgrade the stock from an Accumulate rating to an Outperform. We maintain our PT at QR3.151 and note that Doha Bank’s beginning book value per share (BVPS 2022) contributes 106 percent to our price target. There could be downside risks to our estimates and price target if CoR does not normalise sooner than expected,” it said.

Highlighting the recent interest rate hike by the QCB following the FED, it said, “We look forward to margins to expand next year. As Doha Bank’s lending picks up in 2023, we estimate NIM to increase from 2022’s estimate of 2.72 percent to 2.84 percent. On the other hand, we maintain our flat forecast for 2024.”

“Asset quality remains challenging but is showing signs of stability and the management may further downgrade stage 2 loans. Further, the coverage ratio for stage 3 loans improved from 57 percent in the first quarter of 2022 to 63 percent in the second quarter of 2022. The bank is allocating more provisions to stage 2 & 3 loans,” the report said.