Zawya – Kuwait Finance House reports surge in Q3 net profit, stock price edges up

Shares in Kuwait Finance House (KFH), the largest Islamic lender in Kuwait, edged up on Thursday after the bank announced a rise in third quarter (Q3) net profit.

KFH’s Q3 2018 net profit attributable to shareholders was 73.9 million dinars ($243.2 million), versus 56.2 million dinars a year ago, rising 31.5 percent year-on-year and largely beating analysts’ forecasts.

EFG Hermes had forecast a third quarter net profit for 2018 of 48.2 million dinars.

For the nine month period to the end of September, KFH’s net profit surged to 169.1 million dinars, up 22.7 percent year-on-year, from 137.9 million dinars in the same period last year.

Vijay Valecha, chief market analyst at Century Financial Brokers, told Zawya by email that the surge in earnings “is only one aspect of Kuwait Finance House’s brilliant earnings report”.

He argued that the most notable aspect was “the decline in cost-to-income ratio compared to last year”.

Valecha also said that the bank recently “launched an ambitious Robotic Process Automation (RPA) program to integrate Artificial Intelligence with business operations,” noting that this initiative will help to increase productivity and reduce costs.

On Thursday, the bank’s shares added 0.34 percent, and have now climbed 11.81 percent since the start of the year.

KFH has been in merger talks with Bahrain’s Ahli United Bank since mid-2018, and will take a decision on the share pricing of the merger within two weeks.

According to data from Eikon, two analysts have a ‘hold’ rating on the stock, and one analyst has a ‘sell’ rating.

The first tranche of Kuwait’s stock market upgrade by FTSE Russell to its emerging market index happened on September 24th and the second tranche will take place on December 24th. Each phase will add 50 percent of the stocks’ investability weight.

“One of the main reasons behind the growth in profits for a lender like Kuwait Finance House would be the recent market upgrades and the several deals taking place in Kuwait, especially with interest rates going up,” Issam Kassabieh, senior financial analyst at Menacorp, told Zawya by email.

On April 1st 2018, Kuwait divided its stock market into three segments as part of a reform programme aimed at improving the attractiveness of the exchange to investors.

The three market segments are the premier market, the main market and the auction market. Since the market segmentation, the premier market has added 5.72 percent. On Thursday, the index gained 0.38 percent.

Elsewhere in the region, Dubai’s index closed mainly flat, Abu Dhabi’s index dropped 0.89 percent, Oman’s index fell 0.22 percent, Bahrain’s index edged up 0.11 percent and Qatar’s index ended the day flat.

By 14:35 pm GST, Saudi Arabia’s index was trading 4.34 percent higher, while Egypt’s index was trading 1.79 percent lower.