Md.

Monirul Islam, ACA (Bank Analyst)

monirul@bracepl.com Md. Ashfaque Alam (Research Associate) ashfaque@bracepl.com

ISLAMI BANK BANGLADESH LIMITED

25 April 2010
Company Summary 52-week Price Range (BDT) Current Price (as on 25 April 2010) 12-month Target Price Cash Dividend Total Return Number of Shares MM Market Cap BDT MM Float (% of shares)
Operating income BDT MM Net Interest Income Investment Income Commission, fees, brokerage Other operating income Total 2009 8,293.5 115.2 3,437.2 481.0 12,326.9 2010 E 10,589.4 245.0 4,124.6 529.1 15,488.1

Rating: Outperform Target Price: BDT 700

430 - 880 494.25 700 11.57 44% 74.1 36,639.3 61%

Islami Bank Bangladesh Limited (IBBL) recently published its full version of financial statements as at and for the year ended 31 December 2009. 2009 result: similar to our previous estimate

The Bank has reported Earnings per Share (EPS) of BDT 55.10 (before dilution for 20% bonus issue), BDT 45.9 (after dilution), Net Asset Value (NAV) per share of BDT 325.42 and Net Operating Cash 2011 E Flow per share of BDT 186.71 for the year ended on December 31, 13,905.8 2009.

Profitablility 2009 2010 E 2011 E Interest Income/Total Income (%) 84.1% 84.8% 85.4% Non Interest Income/Total Income (%) 15.9% 15.2% 14.6% Reported Net Profit/Total Income (%) 13.4% 13.3% 13.3% Net Interest Income/Total Income (%) 32.6% 33.0% 35.0% Net Interest Margin (%) 4.7% 4.9% 4.9% Growth 2009 2010 E 2011 E Growth in Interest Income 9.3% 27.4% 24.7% Growth in Interest Expenses 7.5% 27.3% 20.4% Growth in Loans and advances 19.2% 22.0% 25.0% Growth in Deposits 21.9% 22.0% 20.0% Earnings growth 27.2% 26.0% 23.4% Per Share 2009 2010 E 2011 E EPS 45.9 57.9 71.4 BVPS 271.2 320.7 380.6 Cash flow per share 505.7 633.5 614.1 Cash dividend per share 10.0 11.6 14.3
Source: Company annual reports, Brac EPL Research & DSE web

294.0 4,949.6 2009 performance: strong underlying profitability with loan 582.0 and deposit growth 19,731.3

Loans & advances and deposit growth were similar to our previous estimate. During the year 2009 IBBL achieved 19.2% loan growth and 21.90% deposit growth. Growth in investment was 47.8% EPS was almost similar to our previous estimate. During the year the bank achieved 12.35% investment (interest) income but non funded income reduced by 13.9%. Earnings growth was 27.2% in 2009.

2010 Outlook We expect Islami Bank's excellent performance to continue due to diversified corporate and retail investment (loan) product, quality assets, strong capital base and quality management with countrys one of the largest distribution network.

Graph 1: Close volume and market cap over a year

45,000.0 40,000.0 250000 35,000.0 30,000.0
M Cap, MM BDT

300000

Rating: Target price and estimated return Our previous rating considered 2010E EPS and BVPS, 2010 outlook for banking sector and other related factors. Considering the disclosed EPS of BDT 55.10 (before dilution), (BDT 45.9 after dilution for 20% bonus issue) and estimated EPS of BDT 57.9 (after dilution for bonus Issue) for the year 2010, we set a target price of BDT 700.00 (BDT 850.00 before adjusting for 20% bonus issue) with an OUTPERFORM rating. This target price implies a 12.5x P/E and 2.5x P/B of the companys EPS of BDT 57.9 and BVPS of 320.7. This also implies 42.00% price return over current share price of BDT 494.25

200000
Volume, MM

25,000.0
150000 20,000.0

15,000.0 10,000.0

100000

50000 5,000.0 .0 0

Volume

M cap

Source: Company annual reports and Brac EPL Research

ISLAMI BANK BANGLADESH LIMITED (DSE, CSE: ISLAMIBANK)

Comfortable capital adequacy ratio The minimum capital adequacy ratios prescribed by Bangladesh Bank are 5% for Tier-I and 10% for total capital. The Bank exceeded these minimum ratio thresholds with a Tier-I capital ratio of 7.2% and total capital ratio of 11.7%

Table 1: Capital position

Capital Adequacy Ratio (CAR) Tier 1 Tier 2 Total Capital Required ratio Surplus CAR
Source: Company annual reports

2007 6.1% 4.5% 10.6% 10.0% 0.6% 10.6%

2008 6.5% 4.2% 10.7% 10.0% 0.7% 10.7%

2009 7.2% 4.4% 11.7% 10.0% 1.7% 11.7%

Improved asset quality During the year 2009 the quality of loans and advances improved slightly compared to previous year. Islami Bank had a NPL ratio of 2.39% in 2008. This ratio has decreased to 2.35% in 2009. During the year total loans and advances increased by 19.2% but classified loans and advances slightly decreased.

Table 2: Asset quality

Asset Quality NPLs to total loans & adv. Provision for classified loans Source: Company annual reports 2007 2.93% 1,703.1 2008 2.39% 1,883.4 2009 2.35% 2,490.0

ROE and ROA: slightly decreased During the year 2009, ROE decreased from 21.2% to 19.9% but ROA remained the same level. We expect no significant change in ROE and ROA.

Table 3: ROE and ROA

Return ROE ROA 2008 21.2% 1.3% 2009 19.9% 1.3% 2010 E 19.5% 1.4% 2011 E 20.4% 1.4%

Source: Company annual reports and BRAC EPL research

Table 4: Income statement

Income Statement, MM BDT Interest/Investment Income Interest/profit paid on deposit and borrowing etc Net Interest Income Income from investments in securities/Shares Commission, Exchange & Brokerage Other Income Total Operating Income Operating Expense Profit Before Provision Provision Pre-Tax Profit Tax Profit After Tax 2007 14,572.2 9,410.6 5,161.6 284.0 2,579.0 264.3 8,288.9 3,126.6 5,162.4 1,381.5 3,780.8 2,353.5 1,427.4 2008 19,543.8 12,162.1 7,381.7 408.8 3,337.5 940.2 12,068.2 4,115.8 7,952.4 1,604.6 6,347.8 3,673.0 2,674.8 2009 21,370.5 13,077.0 8,293.5 115.2 3,437.2 481.0 12,326.9 4,546.0 7,780.9 1,263.2 6,517.7 3,114.1 3,403.6 2010 E 27,234.3 16,644.9 10,589.4 245.0 4,124.6 529.1 15,488.1 5,783.9 9,704.2 1,905.8 7,798.4 3,509.3 4,289.1 2011 E 33,951.2 20,045.4 13,905.8 294.0 4,949.6 582.0 19,731.3 7,159.8 12,571.5 2,945.6 9,625.9 4,331.7 5,294.3 2012 E 42,419.8 23,979.5 18,440.3 352.8 5,939.5 640.2 25,372.8 8,883.4 16,489.4 4,418.4 12,071.0 5,431.9 6,639.0

Source: Company annual reports and Brac EPL Research

ISLAMI BANK BANGLADESH LIMITED (DSE, CSE: ISLAMIBANK)

Table 5: Balance sheet
Balance Sheet, MM BDT Property & Assets: Cash Balance with Other Banks & F.I Money at call Investment Loan & Advance Fixed Assets Other Assets Total Assets Liabilities & Equities: Liabilities: Mudaraba Perpetual Bond Deposits Other Liability Total Liabilities Shareholder's Equity: Paid-up Statutory reserve Other Reserve Retained Earning Total Equity Total Liabilities & Equities 2007 2008 2009 2010 E 46,958.8 7,678.4 .0 13,363.9 261,831.3 6,830.5 961.4 337,624.3 2011 E 45,524.4 7,678.4 .0 16,036.7 327,289.1 7,027.4 1,057.6 404,613.6 2012 E 41,672.1 7,678.4 .0 19,244.1 409,111.4 7,271.7 1,163.3 486,140.9

17,076.5 31,330.3 37,485.7 4,012.3 5,623.2 7,678.4 .0 .0 .0 20,365.7 7,532.6 11,136.6 144,920.6 180,053.9 214,615.8 3,987.2 4,407.2 6,512.4 1,000.0 1,931.9 874.0 191,362.3 230,879.1 278,302.8

3,000.0 3,000.0 3,000.0 166,325.3 200,343.4 244,292.1 10,817.4 13,475.2 10,905.2 180,142.7 216,818.6 258,197.3

3,000.0 298,036.4 12,810.9 313,847.4

3,000.0 357,643.7 15,756.5 376,400.2

3,000.0 429,172.4 20,174.9 452,347.4

3,801.6 4,752.0 6,177.6 3,670.9 4,940.5 6,244.0 2,796.7 2,942.4 5,830.6 950.4 1,425.6 1,853.3 11,219.6 14,060.5 20,105.5 191,362.3 230,879.1 278,302.8

7,413.1 6,244.0 5,830.6 4,289.1 23,776.9 337,624.3

7,413.1 6,244.0 5,830.6 8,725.6 28,213.3 404,613.6

7,413.1 6,244.0 5,830.6 14,305.7 33,793.5 486,140.9

Source: Company annual reports and Brac EPL Research

Table 6: Cash flow statement

Cashflow statement 2007 Operating cash Net income Non-cash items Operating cashflow 3,323.5 Increase/decrease in operating assets and liabilities Investments Loans and advances Deposits and other accounts Operating cashflow 7,371.4 Investing cashflow Investment in fixed and intangible assets Investing cashflow (435.8) Financing cashflow Increase/(reduction) in debt Dividend payment Financing cashflow 2,481.6 Beginning cash balance 23,770.1 Other Adjustments (19,434.4) Change in cash 12,740.7 Ending cash balance 17,076.5 2008 2009 2010 E 4,289.1 2,223.9 6,513.0 (2,227.3) (47,215.5) 53,744.3 4,214.1 (636.2) (636.2) .0 (617.8) (617.8) 37,485.7 .0 9,473.1 46,958.8 2011 E 5,294.3 3,339.4 8,633.7 2012 E 6,639.0 4,907.0 11,546.0

6,596.2

4,952.6

(3,101.1)

6,581.4

(2,672.8) (3,207.3) (65,457.8) (81,822.3) 59,607.3 71,528.7 (8,619.5) (13,606.6) (590.7) (590.7) .0 (857.8) (857.8) 46,958.8 .0 (1,434.3) 45,524.4 (732.9) (732.9) .0 (1,058.9) (1,058.9) 45,524.4 .0 (3,852.3) 41,672.1

12,369.6

(3,323.5)

.0 17,076.5 (1,610.9) 15,864.7 31,330.3

.0 31,330.3 (2,055.2) 8,210.5 37,485.7

Source: Company annual reports and Brac EPL Research

ISLAMI BANK BANGLADESH LIMITED (DSE, CSE: ISLAMIBANK) IMPORTANT DISCLOSURES

Analyst Certification: Each research analyst and research associate who authored this document and whose name appears herein certifies that the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers discussed therein that are within the coverage universe. Disclaimer: Estimates and projections herein are our own and are based on assumptions that we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any security. As it acts for public companies from time to time, BRAC-EPL may have a relationship with the above mentioned company(s). This report is intended for distribution in only those jurisdictions in which BRAC-EPL is registered and any distribution outside those jurisdictions is strictly prohibited. Compensation of Analysts: The compensation of research analysts is intended to reflect the value of the services they provide to the clients of BRAC-EPL. As with most other employees, the compensation of research analysts is impacted by the overall profitability of the firm, which may include revenues from corporate finance activities of the firm's Corporate Finance department. However, Research analysts' compensation is not directly related to specific corporate finance transaction. General Risk Factors: BRAC-EPL will conduct a comprehensive risk assessment for each company under coverage at the time of initiating research coverage and also revisit this assessment when subsequent update reports are published or material company events occur. Following are some general risks that can impact future operational and financial performance: (1) Industry fundamentals with respect to customer demand or product / service pricing could change expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes; (3) Unforeseen developments with respect to the management, financial condition or accounting policies alter the prospective valuation; or (4) Interest rates, currency or major segments of the economy could alter investor confidence and investment prospects. BRAC EPL Investments Capital Markets Group
Aminul Haque Md. Monirul Islam Parvez Morshed Chowdhury Ali Imam Asif Khan Md. Ashfaque Alam Khandakar Safwan Saad BRAC EPL Research www.bracepl.com WW Tower (8th Floor) 68 Motijheel C/A, Dhaka-1000 Tel: +88 02 9514731-40 Fax: +88 02 7116418 E-Mail: research@bracepl.com Head of Capital Markets Research Analyst Research Analyst Investment Analyst Investment Analyst Research Associate Research Associate amin@bracepl.com monirul@bracepl.com parvez@bracepl.com imam@bracepl.com asif@bracepl.com ashfaque@bracepl.com safwan@bracepl.com 01730317802 01730357150 01730357154 01730357153 01730357158 01671020956 01911420549