HALKBANK - Less sensitive to rising rates: BUY

11% upward earnings revision yielded in 7% higher TP
We have raised our earnings forecasts by around 11% for 2013-2015. The main contributions are: 1) higher NIM forecasts, by around 14bp on average in 2013-2015; and 2) lower operational expense growth rate forecasts in 2014 and 2015. Our revised earnings forecasts results in a TRY22.10 TP (from TRY20.60, a 7.2% increase).

Halkbank’s low interest rate sensitivity is its main difference
Due to a tighter duration gap, we estimate a 100bp rise in interest rates shaves 8.6bp off Halkbank’s annualized NIM (vs 13.3bp on average for the rest of our Turkish banks coverage) and 2.7% off its annualized profit (vs 4.2%). Also, Turkey’s 180-day exception from US financial sanctions on oil imports from Iran is positive for sole intermediary Halkbank, in our view.

Favourable valuation and better fundamentals deserves a BUY
Halkbank’s 7.8x 2014E P/E is more appealing than the peer average of 8.3x and leads us to upgrade from Hold to BUY. With an 18% ROE, we think the bank deserves to trade at least at 1.6x book, not at a mere 1.3x for 2014E. The main downside risk is interest rates falling further, which could result in more-than-expected NIM pressure.

Better positioned in current setting
We believe Halkbank is better positioned than most peers in a rising interest rate environment due to: 1) its low TL loans/deposits, which is positive as TL deposit rates have started an upward correction, 2) it being less sensitive to rising rates given its tight duration gap, 3) its high exposure to HtM securities limiting possible erosion in unrealized gains and supporting CAR, and 4) expected rationalization in company loan pricing, to which it has higher exposure. Besides, Halkbank a) is less impacted by possible regulatory pressure on credit card business given its low exposure, and b) looks set to establish a participation bank which we think is likely to be sold to a strategic buyer once it reaches a certain size.

 

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