ISCTR - ISBANK - Downgrade to Sell on valuation;
Recent run: fast and furious; Isbank shares are up by 24% year-to-date, driven mostly by re-rating of EM assets.; The stock does not appear attractive on a relative basis: +7% EPS CAGR 13E/11E,; 11.5% ROAE and 1.0x PB on 12E versus EM banks’ averages of +13%, 19.4%; and 1.4x, respectively. We downgrade to Sell on valuation.;
Q4 results were better than our estimates due to high trading gains; Isbank’s Q4 results were better; however, we view some of the key strengths −; such as high trading gains, robust loan growth and relatively strong NPL; collections − as unsustainable trends. Our biggest concerns are higher cost of TRY; deposit funding (+100bps q/q to 11%) and the recent 20bps decline in rates of; mortgage and corporate loan segments. We think this confirms our view that; competition for deposits and loans would pressure Turkish banks’ NIMs.;
We are raising our 2012E EPS by 3% and remain 8% below consensus; With this note, we are fine-tuning our 2012-13 consolidated estimates for Isbank.; Accordingly, we raise our 2012 and 2013 EPS estimates by 3.4% and 5.5%,; respectively. After these revisions, we remain 8% below consensus on 2012E EPS,; and in-line on 2013E EPS. Note that our base case scenario assumptions are similar; to management’s guidance: 15% loan growth, 13% deposit growth, flat cost of; risk, 2-3% NPL ratio, slightly higher NIM, 9% fee income growth and 8% higher; opex.;
Valuation: GGM derived PT raised to TRY3.90 from TRY3.60; We raise our sustainable ROE assumption from 14.9% to 14.4%, in-line with our; forecast changes. Our cost of equity remains unchanged at 15.5%.