Gulf Bank reported FY18 net income of KWD57mn, up 18% Y-o-Y and just KWD2mn below our estimate of KWD59m. Earnings growth was driven by strong net interest income, up 15% Y-o-Y and contained costs growth of 4% Y-o-Y, while provisioning costs were roughly unchanged vs 2017. Net income in 4Q18 was EGP14mn, below our estimate of KWD16mn, but up 19% Y-o-Y. Provisioning costs were lower than our forecast, but revenues also came slightly below our estimate, and this drove the earnings miss in 4Q18. 
 
Cash dividends up slightly Y-o-Y, in line with our estimate (div. yield at 3.7%): The Board has recommended the distribution of a cash dividend per share of 10fils – dividend yield of 3.7%- up from 9fils in 2017, and in line with our estimate. The proposed dividend payout is 51% (54% in 2017). 
  
Revenue growth well ahead of operating costs growth; costs to income ratio improves in FY18. Total banking income increased 9% Y-o-Y, mainly driven by net interest income. Fee income was weak, down 3% Y-o-Y. The costs to income ratio improved to 34% in 2018 from 36% in 2017, as revenue growth outpaced costs growth of 4% Y-o-Y.
 
Al Ghanim Trading Co is looking at increasing its stake in Gulf Bank: Gulf Bank announced last week that one of its main shareholders, Al Ghanim Trading Co. had received approval from the CBK to increase its stake to 33% from 7.42%. The duration of the approval is three months from 29 January 2019. There was a further announcement from the bank yesterday stating that Al Ghanim Trading Co had agreed to buy 9.2% in special transactions (off market) and after this, its stake in the bank will increase to 16.6%.  There may be further shares bought by Al Ghanim Trading Co in the next three months, but our view is that it is unlikely to exceed a 30% stake, as this would trigger a mandatory tender offer. Our reading of this announcement is that Al Ghanim Trading Co may be looking at increasing its stake after around 18% of the shares it used to hold were transferred last August to Bassam Al Ghamim as a settlement of a legal dispute. Bassem Al Ghanim’s stake has already fallen from 18% in August to around 5.73% currently. 

Elena Sanchez-Cabezudo, CFA, Ahmed El Shazly
 
Gulf Bank: KWD0.27  as of 4 February 2019, Rating: Buy, TP: KWD0.31/share, MCap: USD2,784mn, GBK KK / GBK.KW