• Strong Y-o-Y earnings growth; ROAE rises to 36.1% CAE reported 4Q2015 net income of EGP289 million, up 31% Y-o-Y (+7% Q-o-Q), and 10% above our forecast. 2015 earnings of EGP1,037 million rose strongly by 54% Y-o-Y (and ROAE rose to 36%.1 from 26% in 2014), thanks to: i) expansion in net interest income (+29% Y-o-Y) driven by higher net interest margins; and ii) the lower corporate tax rate of 22.5% for 2015 (versus 30% in 2014). The Board recommended a cash DPS of EGP1.96, up from EGP1.42 in 2014, and above our forecast of EGP1.4. This implies a high dividend yield of 9.8%. In addition, we believe its valuation multiples are attractive at a 2016e P/E of 7.6x and P/B of 1.9x.
• Loan growth slows in 2H2015 following a strong first half CAE’s loan growth was strong in 1H2015, but slowed in 2H2015, in line with system-wide trends, and the loan book was flat Q-o-Q. Loan growth of 11% Y-o-Y was broadly in line with management guidance. We believe credit growth is likely to slow in 2016 for CAE and for the industry, due to weak lending demand in the corporate segment as well as slowing retail loan growth, following the 35% debt burden ratio on personal and consumer loans introduced by the CBE earlier in January.
• NIMs widen to 5.24% in 2015, but fee income growth slows The net interest spread increased by 92bps Y-o-Y to 4.73% in 2015 (NIM was 524bps), thanks to higher asset yields and lower funding costs. Fee income rose 5% Y-o-Y (-4% Y-o-Y in 4Q2015), below loan growth of 11% Y-o-Y. A key component of Egypt banks’ fee income is trade finance, and this saw weak volume growth in 2015.
• Credit quality continues to be resilient NPLs were flat Y-o-Y, and the NPL ratio fell to 3.1% from 3.5% in 2014. The cost of risk was broadly unchanged Y-o-Y in 2015 at 85bps and NPL coverage improved as a result to 191%. The capital adequacy ratio stood at 14.4% in 2015, versus a 10% minimum regulatory requirement in Egypt.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel