Upgrading to BUY on
increased EPS forecasts and target price
We increase 2012 and 2013 net profit forecasts 7% and 6%, respectively, driven by higher loan-deposit spread and NIM. Following better-than-forecast equity accumulation and eased CAR concerns, we raise our DDM-based target price by 10%. The 15% potential upside to our new TP also leads us to upgrade our recommendation for the stock to BUY from Hold.
We expect a pick-up in profitability under Treasury ownership
We expect an improvement in Vakifbank’s ROE from 11.5% in 3Q12 to 14% in 2013, on the back of a continued shift in the loan mix towards higher-yield segments and strong fee growth as the negative impact of accrual accounting fades away. We also expect a stronger profitability focus once Turkish Treasury takes over as the majority shareholder, as announced.
DDM-based TP increased to TRY4.86 (from TRY4.42)
We upgrade Vakifbank to BUY as its 6.3x P/E and 0.81x P/BV for 2013E looks attractive, given our expectations of 21% EPS growth and 13.6% ROE for 2013. We also think Treasury ownership is an investment positive, which should lower the valuation discount vs peers. Key downside risks to our call: lower-than-forecast asset quality and higher margin pressure.
3Q12 results beat estimates on better-than-expected spreads
Vakifbank reported better-than-expected net income of TRY305m in 3Q12 for 11.5% ROE. This was helped by a combination of higher-than-expected loan growth at 4% q-q and NIM expansion of 43bp, but partly offset by higher-than-expected provisions. The loan-deposit spread improvement was impressive at 55bp, while net CoR rose to 53bp as we expected. Trading gains also surpassed expectations, but by a much smaller degree than at other banks that reported 3Q12 results. Slightly lower-than-expected fees and opex exactly offset each other. Equity grew strongly by 8% q-q on MTM gains of TRY521m from the shift of Eurobonds to AFS from HTM, which saw CAR increase 25bp to 13.7%.
We increase 2012 and 2013 net profit forecasts 7% and 6%, respectively, driven by higher loan-deposit spread and NIM. Following better-than-forecast equity accumulation and eased CAR concerns, we raise our DDM-based target price by 10%. The 15% potential upside to our new TP also leads us to upgrade our recommendation for the stock to BUY from Hold.
We expect a pick-up in profitability under Treasury ownership
We expect an improvement in Vakifbank’s ROE from 11.5% in 3Q12 to 14% in 2013, on the back of a continued shift in the loan mix towards higher-yield segments and strong fee growth as the negative impact of accrual accounting fades away. We also expect a stronger profitability focus once Turkish Treasury takes over as the majority shareholder, as announced.
DDM-based TP increased to TRY4.86 (from TRY4.42)
We upgrade Vakifbank to BUY as its 6.3x P/E and 0.81x P/BV for 2013E looks attractive, given our expectations of 21% EPS growth and 13.6% ROE for 2013. We also think Treasury ownership is an investment positive, which should lower the valuation discount vs peers. Key downside risks to our call: lower-than-forecast asset quality and higher margin pressure.
3Q12 results beat estimates on better-than-expected spreads
Vakifbank reported better-than-expected net income of TRY305m in 3Q12 for 11.5% ROE. This was helped by a combination of higher-than-expected loan growth at 4% q-q and NIM expansion of 43bp, but partly offset by higher-than-expected provisions. The loan-deposit spread improvement was impressive at 55bp, while net CoR rose to 53bp as we expected. Trading gains also surpassed expectations, but by a much smaller degree than at other banks that reported 3Q12 results. Slightly lower-than-expected fees and opex exactly offset each other. Equity grew strongly by 8% q-q on MTM gains of TRY521m from the shift of Eurobonds to AFS from HTM, which saw CAR increase 25bp to 13.7%.
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