ADIB Egypt reported 1Q16 net income of EGP124mn, up 156% Y-o-Y and 68% Q-o-Q. Actual earnings in 1Q16 came in largely ahead of our forecast of EGP66mn. The key driver of the strong earnings beat were higher-than-expected revenues with net interest income, fee income and non-interest income all coming ahead of our forecast. The bank booked a one-off FX revaluation gain of EGP158mn in 1Q16, which is the result of the bank having a share of its shareholders’ equity denominated in USD, leading to a gain post the EGP devaluation in mid-March. However, this gain did not feed into earnings, as ADIB Egypt also booked a large provision for a similar amount of EGP169mn in 1Q16.   Main positives: i) Strong net interest income and fee income; ii) Higher-than-expected non-interest income; iii) Strong loan growth (+7% Q-o-Q; +20% Y-o-Y); iv) Strong deposit growth (+6% Q-o-Q; +26% Y-o-Y); v) Widening in the net interest spread Q-o-Q and Y-o-Y   Main negatives: i) Higher-than-expected provisioning costs; ii) Higher-than-expected operating costs   Our view on the results: A strong set of figures, in our view. Loan growth was strong at 7% Q-o-Q (+20% Y-o-Y). It is worth noting that loan growth has been boosted by the devaluation of the EGP, which leads to a higher value of USD loans; however, there was also solid growth in EGP loans, up 4% Q-o-Q. Deposits increased 6% Q-o-Q (+26% Y-o-Y), with EGP-denominated deposits up 4% Q-o-Q. Revenue growth was strong, up 46% Y-o-Y, with net interest income up 42% Y-o-Y and fee income up 30% Y-o-Y. The net interest spread widened 21bps Y-o-Y and by 3bps Q-o-Q. Credit quality improved Q-o-Q slightly, but the NPL ratio remains high relative to other private sector banks, at 5.6%, following a strong increase in NPLs in 4Q15. NPL coverage has improved slightly, but at 50%, we believe it is likely that provisioning costs will be high this year, in order to increase NPL coverage. We estimate the cost of risk at c85bps in FY16 compared to 46bps in FY15 and compared to 55bps in 1Q16. With regards to the large “other provisions”, it relates to the accounting treatment of FX gains: the parent company ADIB UAE has reservations on ADIB Egypt booking FX gains when the EGP devalues; hence, ADIB Egypt builds provisions to face a potential change in the accounting treatment going forward. These provisions will normally offset FX gains. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)   Abu Dhabi Islamic Bank - Egypt: EGP3.86 as of 19 May 2016, Rating: Buy, FV: EGP5.20 per share, MCap: USD87 million, ADIB EY / ADIB.CA