DOHA: Qatar National Bank (QNB) is at the epicentre of Qatar's economic development, according to a recent research report by Merrill Lynch.
With strong sovereign backing and a reservoir of funding (81 percent LTD), Merrill Lynch thinks QNB remains indispensable to Qatar's economic development and is poised to take advantage of large-ticket corporate issuance.
The report has recognised that QNB is well-held by regional institutions and the bank's structural strengths and near-flawless asset quality are well-discovered. Yet it believes earnings could surpass even the most bullish expectations as volumes take off on elevated margins. Volumes are expected to increase 14 percent HoH in second half of 2009, and 25 percent year-on-year in 2010.
QNB is the largest bank in Qatar, commanding a 41 percent market share of lending and almost 50 percent of deposits. The bank is 50 percent owned by the Qatar Investment Authority (QIA) and is strategically important to the economic development of Qatar. It plays an important role in providing corporate finance for large scale hydrocarbon projects.
Following its May upgrade and long-held thesis that QNB's structural strengths will drive sustained outperformance, Merrill Lynch continues to view the stock as a 'must-own' among Gulf banks and its preferred way of gaining Qatari bank exposure.
Merrill Lynch conducted a detailed review of 2010-13 earnings prospects and raised its Price Objective (PO) from QR 132 to QR 190 following 15 percent earnings upgrades for 2010-11E.
"We are conscious that QNB is anything but a hidden gem-the bank's quality and earnings resilience are widely appreciated by consensus," said the report. "Anecdotally, QNB is well-owned by regional investors and is listed as a top-five holding for several MENA-dedicated funds.
QNB's competitive position and earnings power remain entrenched, and even strengthened, despite the recent economic volatility-the bank plays an indispensable role in Qatar's economic development with strong sovereign backing, according to the research report.
"We see the bank as a prime beneficiary of continued hydrocarbon investment spending, improving sovereign liquidity and large-ticket corporate issuance within Qatar and the wider region," the report said.
Longer term (beyond 2011-12) the report views execution on regional expansion as a key value driver, estimating that QNB is likely to generate $ 5.3bn of 'free cash flow' or earnings over and above capital adequacy requirements.
By Nasser Al Harthy
© The Peninsula 2009
