Net profit up 2% Q-o-Q and 12% Y-o-Y, in-line with estimates. DIB reported a net profit of AED1.23bn for 3Q18, +2% Q-o-Q and +12% Y-o-Y. Earnings came in 3% below our estimate of AED1.27bn and 1% below consensus of AED1.20bn. 
 
Our view of the results: Earnings came in-line with our estimate as lower-than-expected provisioning and controlled operating costs compensated for weaker revenue. Provisioning was down 20% Q-o-Q and 32% Y-o-Y, with cost of risk at c47bps vs. EFGe of 73bps. The bank’s credit quality metrics were stable with the NPL ratio flat sequentially at 3.3% while NPL coverage was stable at 121%. However, loan growth weakened to 0.5% Q-o-Q after a strong 2Q18 (+4% Q-o-Q), mainly on weaker retail and real estate lending trends (loans to retail were flat, real estate were down and corporate were up 2% Q-o-Q). Loan growth on an annualised basis stands at 8% in 1H18 (compared to mgmt. guidance of 10-15% for 2018). Investment book growth in contrast was relatively strong at 7% Q-o-Q and 21% Y-o-Y.  Spreads weakened 5bps Q-o-Q to 2.77%, mainly due to higher cost of funds,  as the bank actively collected deposits this quarter. We were expecting DIB to improve its spreads sequentially by deploying the proceeds from the rights issue and by keeping its LDR above 90%. Deposits however rose 6% Q-o-Q which led to a decline in the LDR to 89% from 94% in 2Q18. However, we note that the strong deposit growth this quarter suggests that the bank has a healthy loan pipeline for the fourth quarter. Fee income was weaker-than-expected, which we believe is in part due to weak loan growth this quarter and in part due to public holidays in August. 
 
Main Positives: i) lower-than-expected provisioning (cost of risk 47bps); ii) Strong growth in deposits (+6% Q-o-Q and +12% Y-o-Y); iii) Good cost control (Opex down 2% Y-o-Y)
 
Main Negatives: i) Weaker-than-expected loan growth (+0.5% Q-o-Q and +12% Y-o-Y); ii) Contraction in spreads (-5bps Q-o-Q to 2.77%); iii) Weak fee income (-11% Q-o-Q and -3% Y-o-Y)
 
Dubai Islamic Bank: AED5.34 as of 9 Oct. 2018, Rating: Buy, TP: AED6.20/share, MCap: USD9,589mn, DIB UH/DISB.DU