Net profit up 7.2% Y-o-Y, misses estimates. DIB reported a net profit of AED875 million for 1Q16, +1.2% Q-o-Q and +7.2% Y-o-Y. Earnings came in below our estimate of AED938 million (consensus AED954 million).   Our view of the results: Results were a mixed bag. Earnings missed estimates owing to weaker-than-expected net interest income and lower-than-expected contribution from subsidiaries. Spreads were the key weak area as they contracted 32bps Q-o-Q to 2.93% driven by an increased in cost of funds. The bank’s liquidity had become tight in 4Q15 with LDR approaching 90%, a level not seen since 2010. The bank mobilised deposits actively in 1Q16 (deposit grew +10% Q-o-Q and 18.1% Y-o-Y), and these incremental deposits are likely to have been expensive. Loan growth continues to impressive – 5.9% Q-o-Q, +25.7% Y-o-Y – underpinned by Dubai’s relatively strong macro dynamics, and provisioning was lower-than-expected. DIB’s board approved the rights programme under which the bank will issue new shares at AED3.20/share, or at a discount of c48% to current market price. The bank has approval to issue up to 988 mn new shares (1 share for every 4 shares held). We believe this rights issue is necessary in light of the bank’s low CET1 ratio (2015: 9.6%), and  its strong loan growth ambitions (2016 guidance 10-15%). We have a Neutral rating on DIB.   Main positive: i) Strong loan growth (+5.9% Q-o-Q and +25.7% Y-o-Y); ii) Improved liquidity (LDR eased to 84% from 88% in 4Q15); and iii)Lower-than-expected provisioning   Main negative: Pressure on spreads (-32bps Q-o-Q to 2.93%) (Shabbir Malik, Company disclosure)