Sharjah Islamic Bank’s stock looks a good one to hold on to

Stock Dubai Financial Market TRADERS DFM
Banks have been on the march on UAE stock markets, with Emirates NBD leading by some distance. Image Credit: Virendra Saklani/Gulf News

For the week ended May 27, the DFM rallied 2.38 per cent and ADX closed higher by 0.47 per cent.

The top gainers are Abu Dhabi National Hotels (24.58 per cent), National Marine Dredging Co. (24.10 per cent), National Corporation of Tourism and Hotels (17.14 per cent), Ras Al Khaimah White Cement (14.94 per cent) and Abu Dhabi National Takaful (12.90 per cent).

Let us take a look at the listed shares in the UAE banking sector. This year, Emirates NBD is the best performer with a gain of 31 per cent. First Abu Dhabi Bank also had a stellar gain of 25.58 per cent.

Of course, reports that First Abu Dhabi Bank’s weighting in the MSCI Emerging Markets index could increase helped the shares to rally. Among listed banks, the others to have done well this year are Abu Dhabi Islamic Bank (20.64 per cent), Abu Dhabi Commercial Bank (9.35 per cent), and Sharjah Islamic Bank (6.82 per cent).

Low interest rates

Sixteen listed banks announced their earnings reports for the first quarter, and going through their numbers will help us determine which stocks will perform well going forward. Most UAE banks have seen a rise in revenues and net profit on a quarter-over-quarter basis, while experiencing a yearly decline.

Apart from the economic circumstances, an additional factor is the sharp fall in benchmark interest rates compared to last year. With the number of coronavirus cases peaking in many countries and vaccination rates rising globally, economic activity should rebound in the second-half of the year.

This recovery bodes well for banking stocks as the level of non-performing loans will fall, and demand for loans will increase.

Springs a surprise

On a year-on-year basis, the only listed UAE bank that reported a rise in revenue was Sharjah Islamic Bank, which grew its revenues by 4 per cent in Q1-2021. The bank raised its net profit by 7 per cent year-on-year and a whopping 213 per cent on a quarter-on-quarter basis.

The other banks to record the lowest decline in top-line numbers on a year-on-year basis were Abu Dhabi Islamic Bank (by 6 per cent), Emirates Islamic Bank (12 per cent), Emirates NBD (13 per cent), Mashreq Bank (13 per cent) and First Abu Dhabi Bank (14 per cent).

From a profit perspective, the banks with the sharpest rise yearly are Ajman Bank (580 per cent), Abu Dhabi Commercial Bank (441 per cent), Abu Dhabi Islamic Bank (125 per cent), Emirates Islamic Bank (37 per cent) and Emirates NBD (12 per cent).

On a quarter-on-quarter basis, the best performers are Dubai Islamic Bank (403 per cent), Sharjah Islamic Bank (213 per cent), National Bank of Umm Al Qaiwan (114 per cent), Emirates NBD (76 per cent), National Bank of Ras Al Khaimah (67 per cent), Abu Dhabi Islamic Bank (26 per cent) and Abu Dhabi Commercial Bank (11 per cent).

Investors looking for a good bounce can add Sharjah Islamic Bank shares to their portfolio. The Dh4.31 billion bank with a dividend yield of 5.71 per cent is the only one that had a rise in revenues and net profits yearly.

It has underperformed its peers, with shares rallying only 6.82 per cent, and should be an attractive choice for investors.

Vijay Valecha

The writer is Chief Investment Officer at Century Financial.