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

Really good afternoon, and a warm welcome to GFH Financial Group's 9 Months and Third Quarter of 2024 Results Presentation. My name is Surya Hariharan, and I will present you with the highlights of our financial performance during this period. The geopolitical tensions continue to weigh on the global macroeconomic environment. Our results for the 9 months of 2024 demonstrate the group's ability to successfully execute our strategy, drive value from our assets and further build our market leadership in the region and globally for the benefit of our investors and shareholders. The group achieved net profit attributable to shareholders of USD 88 million, up by 11.5% compared to the first 9 months of 2023. Consolidated net profit for the first 9 months was USD 95.6 million, an increase of 17.9%. All the core business lines of the group continued their contributions to the revenue. We delivered double-digit growth in income for the 9-month period by 53.7% to USD 486.5 million. In line with the growth, rise in total expenses by 29.8% to USD 233.9 million. Higher return on equity as of September 2024 at 11.6% annualized compared to 10.4% as of December 2023. Earnings per share for the period grew by 8% to USD 0.0243 per share. In this slide, we highlight the third quarter financial performance. Strong growth in total income of 24% quarter-on-quarter, driven by solid performance across all the business lines. We reported consolidated profit of USD 28 million, an increase of 16%. For the quarter, the group reported shareholders' profit of USD 27 million, an increase of 12%. In line with the growth in the business lines, the total operating expenses have also increased during the quarter. Total expenses, including impairment allowances, have increased by circa 10% during this quarter. Moving on to the financial position of the group. The group's total assets dropped by 2% from the 2023 year-end due to profitable monetizing of proprietary assets. The group's assets and funds under management is north of $21 billion. Total equity attributable to shareholders of USD 990 million is in line with the year-end balance. We remain well capitalized. Our capital adequacy ratio was at 17.5%, liquidity coverage ratio at 261% and net stable funding ratio at 139%. All our regulatory ratios are above the prescribed thresholds. The positive momentum and progress in the first 9-months financial results reflect the ambition across the group to deliver its full potential. We will now move on the main highlights for each of the business lines, along with their contribution to quarter 3 revenues. Investment banking. Our core business line, investment banking, contributed circa 27% of the total income of the group for the quarter. Supporting the group's investment banking income generation is its tie-ups with platforms of the acquired leading asset managers in the U.K. and U.S., which offer access to highly promising investment opportunities. Accordingly, GFH Partners, the asset management arm of the group based out of UAE, was successful in placing opportunities in the industrial and logistics space and student housing space during this quarter. GFH private equity vertical was also successful in placing an exclusive investment opportunity alongside one of the biggest PE players, Blackstone and Global Maritime investment during the quarter. Investment banking income contributions were lower than the previous period of 2023. Our diverse investment portfolio, which spans the GCC, U.K., Europe and the U.S., continued to perform robustly with our strategy of targeting defensive, recession-proof sectors, once again proving its effectiveness in creating value for our investors. Commercial banking. Income from our commercial banking arm, Khaleeji Bank, improved significantly compared to the previous period and contributed circa 22% of the total income of the group. Income from Khaleeji was higher by around 70% during the third quarter of the year compared to third quarter of 2023. Khaleeji reported a net profit of BHD 1.9 million for the quarter. Moving on to the last business line, which is treasury and proprietary investments. Contribution from this business line, including strategic transactions and monetizing of proprietary assets, increased from USD 27 million in quarter 3 of 2023 to USD 73 million during the current period. This business line contributed roughly about 50% of the total income for the group for the quarter. Performance of the treasury portfolio was higher than the previous period. This included a mark-to-market gain of circa USD 8 million, showcasing strong portfolio management despite volatility in the markets. The group also achieved oversubscription of the USD 500 million Sukuk program launched in October by more than 4x and USD 2 billion from regional and international investors. In line with its Board-approved strategy, the proprietary investments business line has been successful in exiting real estate assets from the portfolio, contributing to gains from sale of assets. We would like to give you some insights into the GFH Group's share price performance. The share price of the group continues to outperform the DFM Index by 23%, showcasing a strong price appreciation. As one of the strategic initiatives of the group, the group successfully launched AI-powered mobile app, including real-time onboarding and investment subscription. In terms of the ESG space, the group continued to effectively execute on its ESG strategy, undertaking key initiatives in the third quarter, including launching the Executive Associate Programme, supporting the Supreme Council for Women and sponsoring BREEF Endurance Races for 2024 and 2025 seasons. Let me move on to the closing remarks. With a robust strategy in place, we look at the full year of 2024 to continue accelerating our growth. We remain focused on driving our growth in new investments through diverse and active pipeline of opportunities and acquisitions. In the GCC, we continue to focus on opportunities in high-growth markets with an emphasis on the Kingdom of Saudi Arabia, where we are building our presence through GFH Capital Saudi Arabia; and in the U.S. and U.K., working through GFH Partners and our specialist asset management subsidiaries on the ground. Building on the growth momentum during this year, our focus remains on even further diversifying our international portfolio of assets and creating tangible value for our investors and shareholders in the forthcoming periods. Finally, I would like to thank you for your time this afternoon and open the floor for any questions you may have. Thank you very much.

Thank you very much. I think we have some questions. Let me take it one by one. The first question is, what is the impact of interest rate cut or decrease on the group, including Khaleeji Bank? Too early to assess, but what we've been seeing currently is that the cost of funds or for the new money that is being raised at the group level, we are seeing a dip in the cost of funds. So hopefully, this should reflect on our balance sheet and income statement positively going forward. There is a second question, which says, investment in Saudi Logistics, when will we see the impact in the financial result? This was an investment that was made quite recently. Inshallah, we should be seeing the impact of this going forward in Q4 and further. I think there's a question on, is there any plan to enlarge the profit of commercial bank as we expect more operational profits from commercial bank? As you're aware, we did have an increase in the stake in Khaleeji Bank during Q3 of 2024, where we increased our stake in Khaleeji Bank by 25%. So hopefully, we should see this contributing much higher into GFH's income statement going forward. There's a question, what are the reasons for improvement of revenue and treasury operations? There are quite a number of factors, one of them being that the markets in certain geographies performed really well during quarter 3 of 2024. So we had a benefit of that. We've also been diligent in terms of the structures we use for our investments, the hedging that we use for our investments. So it's a mix of products and realigning our investments according to the market movement, which has helped us in improvement in treasury revenues. I think these are the main ones that I have. I think there's one which says, in balance sheet in statement of other comprehensive income, there is may be reclassified to P&L. This is more about the fair value movements, and this probably gets reclassified to profit and loss only on realization. So hence, it is part of the other comprehensive income. I don't think we have any more questions that we have received. So thank you very much for your time this afternoon, and hope to speak to you for the year-end results. Thank you very much.