Profit up 43% Q-o-Q on strong real estate gain; beats estimates. FGB reported a net profit of AED1,864mn (EPS: AED0.41) for 3Q16, +43% Q-o-Q and +31% Y-o-Y. The bank’s earnings comfortably topped our forecast of AED1.3bn and Bloomberg consensus of AED1.4bn.   Our view of the results:  A strong set of results. Earnings topped our forecast driven by gain on sale of investment properties. The bank generated a one-off gain of AED473mn by selling AED2.3bn of investment properties. FGB has been looking to offload its real estate portfolio (AED6bn as of 3Q16) to reduce exposure to real estate activities and focus on the core banking business. The sale was beneficial for the bank’s capitalization and its Tier 1 ratio improved to 18.4% from 17.5% in 2Q16. Stripping out the non-recurring gain, FGB’s profitability was still solid considering the market conditions with an estimated net profit of AED1,391mn (+7% Q-o-Q and -2% Y-o-Y).  Spreads were stable Q-o-Q at 2.84% as management was able to keep cost of funds under control. Fee income was solid underpinned by strong trends in trade finance activities and credit card fees. The results should be viewed very favorably by the market tomorrow especially as the stock is down c8% over the past month. The strong results should also be supportive of a good dividend for 2016, in our view.   Main Positives: i) Spreads show signs of stability (3Q16: 2.84%); ii) Strong fee income (+11% Q-o-Q and +13% Y-o-Y); and iii) decline in NPL ratio ( 2.6% versus 3.1% as of 2Q16). Main Negatives: i) Subdued loan growth (+2% Q-o-Q and +1% Y-o-Y). (Shabbir Malik, company)   First Gulf Bank: AED10.55 as of 25 October 2016, Rating: Neutral, FV: AED13.70/share, MCap: USD12,936mn, FGB UH / FGB.AD