Al Rajhi Bank has announced that it will pay a cash dividend of SAR 1 /share for the second half of year, half the payout for the same period last year. The dividend cut follows the announcement of the bank's results on Thursday, where it reported Q4 net profits down 19.05 per cent on year-ago levels and down 9.9 per cent QoQ at SAR 1.547 billion . Full year net profits were down 5.67 per cent at SAR 7,438 billion . Loans and advances for the year were up 8.65 per cent to SAR 186.813 billion while customer deposits rose 4.6 per cent to SAR 231.589 billion . Separately Al Rajhi Bank's Board has recommended to an extraordinary general assembly meeting to increase the company's capital through bonus shares as follows: Capital before increase SAR 15,000 million ; capital after increase SAR 16,250 million , an increase by eight per cent. Offering 1 bonus shares for every 12 owned. The bonus shares are limited to the shareholders who are registered in the shareholder's register in the Securities Depository Centre (Tadawul) at the close of trading on the extraordinary general assembly day, which will be determined later by the company. NCBC Capital comments… AlRajhi reported a weak set of 4Q13 results with net income declining 19.1 per cent YoY to SAR 1,547 million . The result was about 20 per cent below our and consensus estimate. We attribute the decline in net income to higher than expected provisioning. However, on the operating line, the results were better than expected and hence we do not expect a significant downward revision in our estimates for 2014E. Weak net income growth due to higher provisions: AlRajhi reported a weak set of results for 4Q13 with net income decreasing 19.1 per cent YoY to SAR 1,547 million , around 20 per cent below our estimate and consensus. We attribute this decline to higher than expected provisioning that increased 62.5 per cent YoY. Specific exposure and relatively low coverage ratio contributed to the provision in our view: AlRajhi's gross NPLs stood at 1.4 per cent, in-line with industry's ratio in 3Q13 while its NPL coverage ratio remained relatively low compared to peers (140.3 per cent vs. industry's 153.0 per cent). We believe the growth in provisions highlighted the need to keep its asset quality at industry levels. We believe a proportion of the provision was related to a specific corporate exposure. Top-line came in better than expected although growth muted: Despite an estimated 12bps YoY decline in NIMs, Al Rajhi's NSCI grew 4.0 per centYoY. The bank's fee and other income also showed marginal improvement with 1.6 per cent YoY growth. The growth in operating line was weak at 3.2 per cent YoY compared to the loan growth of 8.6 per cent and this could be attributed to the restricted retail fees charged. Consequently Al Rajhi's total operating income grew 3.2 per cent YoY and was 4.7 per cent above our expectation. Unlikely to revise estimates down significantly on this result: Despite the increase in provisions, we do not expect to revise our estimates downwards. This is particularly the case as operating income was slightly higher than expected and the impact from limits on retail fees was less than expected. We note that we removed Al Rajhi from our top picks in our last sector update in December 2013 . However, we are currently Overweight on the stock largely due to valuation on a relative basis.
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