Upward revisions in profit estimates and target price
We increase our net profit forecast for 2012 by 10%, driven by the larger-than-expected trading gains in 3Q12 and the increased October CPI forecast which are partly offset by higher provisions. We also fine-tune our 2013 net profit forecast up 2% while increasing our DDM-based target price by 13% to TRY9.86/share from TRY8.72/share previously.
3Q results beat estimates on higher-than-expected trading income
Garanti Bank reported TRY733m net profit in 3Q12, 22% above our TRY600m estimate and 12% higher than CNBC-e consensus. Stronger than expected trading gains resulted in the beat, while slightly lower-than-estimated NIM and higher-than-forecast provisions provided negative surprises. Other P&L items were broadly in-line with our estimates.
We increase our net profit forecast for 2012 by 10%, driven by the larger-than-expected trading gains in 3Q12 and the increased October CPI forecast which are partly offset by higher provisions. We also fine-tune our 2013 net profit forecast up 2% while increasing our DDM-based target price by 13% to TRY9.86/share from TRY8.72/share previously.
3Q results beat estimates on higher-than-expected trading income
Garanti Bank reported TRY733m net profit in 3Q12, 22% above our TRY600m estimate and 12% higher than CNBC-e consensus. Stronger than expected trading gains resulted in the beat, while slightly lower-than-estimated NIM and higher-than-forecast provisions provided negative surprises. Other P&L items were broadly in-line with our estimates.
BUY rating maintained on an expected sharp ROE recovery in 4Q12
We maintain our BUY rating while increasing our TP by 13% on higher medium-term profitability assumptions. The key downside risk to our call is a sudden slow-down in the economy with rising unemployment figures pushing SME and credit-card NPL ratios higher. The main upside risk to our estimates is better-than-expected NIM evolution.
Management sounds confident on opex and margin fronts
On top of the TRY450m trading gains via Eurobond sales, there were TRY468m MTM gains, growing equity by 7% q-q. As a result, after Basel-II CAR came up 121bp q-q to 17.8%. NIM came down 83bp q-q but was up 31bp adjusted for linkers. We expect NIM to shoot up 171bp in 4Q12 due to linkers and 27bp L-D spread expansion (vs. 18bp in 3Q12). Other than a shipping related problem loan (provisioned for TRY82m) gross CoR remained within estimates at 111bp. We find the CPI + 2ppt y-y opex guidance for FY12 achievable, which indicates 6% lower y-y opex for 4Q12. Preliminarily, management guides for 15bp y-y NIM expansion in FY13 (vs. our flat estimate).
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