GFH Bank B.S.C. (GFH) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining us today. This is Janany Vamadeva. And on behalf of Arqaam Capital, I'm pleased to welcome you to Gulf Financial Group's Q3 2021 Earnings Conference Call. I have with me here today from GFH management, Hisham Al Rayes, the Group Chief Executive Officer; and Suryanarayanan Hariharan, the Chief Financial Officer. Without any further delay, I'll now turn the call over to the CFO, Suryanarayanan Hariharan, who will take us through the presentation. Suryanarayanan, over to you.

Thank you, Janany. Good afternoon to all. I'm Surya Hariharan, Chief Financial Officer. And on behalf of the GFH management team, welcome you to GFH Financial Group's financial results presentation for the first 9 months of 2021. Along with me today on the call is Mr. Hisham Al Rayes, the Chief Executive Officer, and other senior members of the management team. We are extremely pleased to announce another period of profitability and extremely proud of the improvement in the quality and contribution from each of our business lines and the resilience they have shown to achieve this progress. Key highlights of our performance for the third quarter of 2021 were as follows: net profit attributable to shareholders of $23.3 million, up by 187.3%. Total income for the third quarter of 2021 was $89.6 million, a rise of 32.58%. Consolidated net profit for the third quarter of 2021 was USD 24.13 million compared with USD 9.92 million in the third quarter of 2020, an increase of 143.25%. Total expenses were up 13.56% for the third quarter, reaching USD 65.47 million compared to USD 57.65 million in the prior year period. Net profit margin for Q3 2021 at 26% is the best in the post-pandemic era. Among the main contributors to third quarter results for investment banking and treasury income, notably, fees generated on deals of USD 22.65 million were realized from key investments in the logistics sector and multi-residential portfolios. We are extremely pleased to report that investment banking activities within the group are reaching towards pre-pandemic levels. Also supporting income growth and profits were contributions from the Treasury business and Commercial Banking business of the group. Key highlights of our performance for the 9 months of 2021 were as follows: net profit attributable to shareholders was USD 60.34 million, an increase of 160.42%. Earnings per share for the period was USD 0.0178 compared to USD 0.0069 for the first 9 months of 2020. Total income for the first 9 months of 2021 was USD 270.6 million, up by 26.39%. Consolidated net profit for the 9-month period increased 125.27% to USD 68.28 million compared with USD 30.31 million in the first 9 months of 2020. Total expenses for the period were USD 202.3 million, up 10% from USD 183.79 million for the first 9 months of 2020. Supporting growth for the 9-month period was increased deal placement, continued expansion of the group's treasury activities and stronger performance by its Commercial Banking subsidiary, Khaleeji Commercial Bank and Real Estate business. On the group's balance sheet, total equity attributable to shareholders was USD 0.97 billion at 30th September 2021, up 6.59% from USD 0.91 billion at year-end 2020. Total assets of the group continued to grow, reaching USD 7.43 billion at 30th September 2021 compared with USD 6.59 billion at 31st December 2020, an increase of 12.75%. The growth in total assets is attributable to the increasing investment in the treasury and liquid portfolio of the group. Total liabilities also grew by 17%, which reflects the confidence deposit holders have with the group helping in raising funds. The first 9 months of 2021 have been marked by substantial growth in income and profits delivered by the group across its diversified lines of businesses and geographies where we invest. Post pandemic, we had stepped out on a growth and rebuild strategy, and our performance for the period underscores the robust nature of our strategy and the important positions we have built in resilient and defensive sectors and businesses across the world. During the period, we continue to bring new and exciting deals to our investors, backed by strong demand from our investors for deals we have closed in the U.S. real estate market in well-performing segments such as logistics and residential. We also reported enhanced contribution from our restructured Commercial Banking business, alongside further growth in our Treasury business and improvement in Real Estate activities and income. GFH results for the 9 months of 2021 translate into an annualized return on equity of 8.5%. Our liquidity coverage ratio at 30th September 2021 was 214%, net stable funding ratio at 102% and capital adequacy ratio at 13.15%. In terms of contribution from each of the business lines, the performances were as follows: Investment Banking contributed 26% to the total income of the group, mainly from 3 deals placed during the quarter, taking the total number of deals placed during the year to 6. We have a strong pipeline of exciting deals across real estate and private equity to offer our investors in the coming quarter. The group's strategy for its Treasury business line has shown significant improvement, with Treasury contributing 41% of the total income. The depositor confidence has helped us raise funds, which in turn have been invested in the Treasury portfolio across the region and beyond, providing a diverse stream of revenues for the group. [indiscernible] Khaleeji Commercial Bank, along with the highest stake acquired during the second quarter of 2021, along with better performance from the bank, has helped in Commercial Banking, contributing 19% of the total income. We expect this contribution to continue going forward. Proprietary investments held by the bank continued to contribute around 6% of the total income, with the bank co-investing in the new projects launch, the contribution from this line of business is expected to contribute better in the coming quarters. Real estate contributed 8% of the total income, primarily from sale of development units in Bahrain. As we go forward, growth remains a central theme for GFH in all areas of our business, and we have entered the final months of the year with a sharp focus on investments and relationships that will allow us to accelerate growth in our portfolios in key sectors, including logistics, technology and education, among others. GFH has entered the fourth quarter with strong momentum and a pipeline of opportunities to enable us to achieve further growth and profitability for the remainder of the year and beyond. We look forward to announcing further strategic transactions and new partnerships with a view towards creating even greater value for our investors and shareholders. I would like to thank you for your time this afternoon and open the floor for any questions you may have.

Thank you, Suryanarayanan, for the presentation. [Operator Instructions] So we have our first question from Fadhel Alrashid. He is asking, can you give us an idea or view about major upcoming acquisitions for the group?

Thank you, Fadhel, for your question. We are looking at something in the region. GFH, as you know, has always been looking for opportunistic ideas within the region and also across the globe, like Roebuck was one of the asset managers that we had acquired last year. We're looking at similar asset manager acquisitions during this year across the region and across the globe as well.

Thank you, Suryanarayanan. And our next question is from [ Faisal Al-Javed ]. What is your NPL and coverage ratios by the end of Q3 2021?

Thank you, [ Faisal ], for your question. As you know, that typically GFH as a stand-alone entity does not have any NPL or coverage ratio, considering we are an investment bank. Our NPL and coverage ratio are more coming from the retail bank, which is Khaleeji Commercial Bank. As of Q3 2021, our NPL is somewhere in the range of about 9% to 10%, which is more or less in line with the industry standard in Bahrain, and coverage ratio would be in the range of 30%.

And the next question is from [ Ahmed Arif ]. Very good results. Well done, GFH team. I want to ask when KHCB acquisition will be completed, in Q4 2021 or Q1 2022? And how the share of profit of minority will be accounted for in 2021?

Thank you, [ Ahmed ]. I think we have a couple of questions on Khaleeji acquisition. As you are aware that we've got the approval to go ahead with the acquisition of Khaleeji Commercial Bank. And as a part of the process, we are also acquiring treasury shares, which will be used for the transaction. It's in process right now. We would probably target to do it by Q4 or by -- latest by Q1 of 2022, depending on market conditions. . In terms of how the accounting would be done for minority interest, currently, we are accounting for it. So whatever remains of Khaleeji Commercial Bank as at the end of December 2021, the same would be accounted as minority interest in our books.

Thank you, Suryanarayanan. And I think we have the same question from Fadhel about the Khaleeji Bank acquisition. I think you just answered that. So I think we'll take another pause as we wait for more questions. Please keep the questions coming through. So we have another question from Fadhel Alrashid. Any progress about Saudi Stock listing?

Thank you, Fadhel. I think we are in the process of doing it. And [Foreign Language], we should see some movement happening next year on the Saudi Stock listing.

Thank you, Suryanarayanan. And we're just waiting for more questions. We have another question from [ Ahmed Arif ]. He's asking about dividend expectations for this year. Does the company have a dividend policy as such? And any color on that?

Thank you, [ Ahmed ]. As you can see, for 9 months, the results are quite encouraging and good compared to what we had for last year. So [Foreign Language], we should be looking at some dividends, but that's -- I think it's too early to be commenting on that. But [Foreign Language], let's hope for the best.

Thank you, Suryanarayanan. We are waiting for more questions. [Operator Instructions] We have 1 more question from [ Joe Pascit ]. How do you see investor sentiment in the region evolving in 2022?

Thank you, Joe, for your question. Being a very generic question, probably I'll have a very generic answer for this. Given that we are moving out of the pandemic kind of a situation now with a lot of liquidity flush in the market, the regional market is taking more innovative steps towards seeing that investor sentiments are bullish on this. So I probably -- my personal view, again, would be that we would see investor sentiments to be bullish going forward given that we are -- we have come across -- or we have passed the pandemic era, and world is opening up.

Thank you, Suryanarayanan. And I think that's all we have for today. We don't have any more questions. So I think thank you, everyone, for participating, and I'll hand it back to you for any closing remarks.

Thank you very much, everyone, for your time this afternoon. As I mentioned in the call that it's been a fantastic year for GFH so far for the 9 months. The management, the Board, regulators, everyone, have really cooperated with achieving these results for the 9 months. [Foreign Language], we see the year going forward to be good. We have a exciting deal of pipelines which are stacked up for the investors. So [Foreign Language], we hope to end the year on a high. Thank you very much for your time.

Thank you. That concludes the call today.