ISBANK - 4Q12 Earnings review: BUY

Good operating performance with a huge trading gain
Isbank reported TRY965m bank-only 4Q12 net profit (+41% q-q, +12% y-y), above our estimates mainly on higher than expected trading income. FY12 net profit came in at TRY3,310m, up 24% y-y yielding a 16.5% ROE. Strong loan growth of 8.7% q-q and L/D spread improvement (~90bp q-q on the TL side) are the highlights of the operating performance.

NIM and NPL to be the key earnings drivers
NIM progress will be one of the key issues in FY13. We project around 15bp y-y NIM contraction in FY13 (in line with management guidance of flat to slight contraction) as we expect the L/D spread to narrow, especially in 2H13. 37% q-q surge in restructured loans is another issue. We expect 66bp cost-of-risk ratio in FY13 up from 60bp in FY12.

Favourable valuation metrics, GGM & EERM based TP of TRY8.78
We transfer coverage but maintain our BUY with a revised TP of TRY8.78. We believe valuation multiples justify our call (2013E P/E and P/BV of 8.5x and 1.2x) with an ROE of 15%. Although recurring EPS is likely to drop 9.5% y-y (due to one-off TRY440m employee pension fund deficit expense in FY12), reported EPS growth comes to 2.5% y-y in FY13.

Corporate loans dominated growth in 4Q12
9.6% q-q TL loan growth with minimal loan yield damage is eye-catching. Besides the 8.3% q-q growth in housing loans, across the board growth rates for other retail segments remained around 5% q-q. Corporate loans lifted both the TL and FX side of the loan book. FY12 reported opex growth rate was 29%, but once we adjust for the TRY440m employee pension fund deficit, growth normalizes at 13% y-y. Management also guides for at least 10% y-y opex growth in FY13 on a normalized basis, which corresponds to a flattish growth rate for reported opex. Isbank guides for over 15% y-y NFI growth in combination with a 16%-18% y-y loan growth rate target. NPL ratio is guided to remain around 2%.

 

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