VAKIFBANK Company Update - STRONG BUY re-iterated

VAKIFBANK <VAKBN TI> Company Update

STRONG BUY re-iterated

Punished on groundless concerns

 

Vakifbank shares have underperformed the ISE-100 by 5% in the last one month, as the Directorate of Foundation’s share transfer news to the Treasury increased the SPO expectations for the bank. In addition, Vakifbank management suspended the sub-loan process to take the Treasury’s opinion which also increased the expectation that Treasury will support the bank’s capital through a rights issue. The groundless SPO and rights issue concerns took its toll on the bank’s share price performance, which we believe is unjustified.

 

With the Directorate of Foundation’s share transfer to the Treasury, Vakifbank’s shareholder structure and its ”state-bank “ status will become clear. We believe that all of the state banks will be privatized in the end and the share transfer in Vakifbank is also done with this purpose. The possible alternatives for the privatization of Vakifbank can be an SPO or a block sale. We believe that an SPO is not likely for Vakifbank in the near term, as the bank is currently trading below its book value as a result of its low RoAE and the government should not be willing to privatize the bank below its book value. We also believe that the government should not care to lose a controlling stake in Vakifbank as long as they own the majority stakes in Ziraat Bank and Halkbank. In that sense, a block sale of a majority stake in Vakifbank to a strategic shareholder with a control premium is more likely for Vakifbank’s privatization,which will also require a tender call supporting the share price performance further.

 

·   Vakifbank recently took the approval of the Treasury regarding its subloan plans and the bank aims to obtain US$500-750mn subloan in 4Q12, which will support its CAR by more than 100bps. Thus, the rights issue concerns will be lifted, providing room for an above sector loan growth for Vakifbank in 2013.

 

Profitability should pick up ahead of the potential privatization. As in the case for Halkbank, we expect Vakifbank management to beef up its efforts to turn the bank into a more profitable/valuable asset ahead of its potential privatization. We project 15% earnings growth for 2013 thanks to strong top-line performance and 27% YoY fee growth. We reiterate our STRONG BUY rating for the bank.

 

BGC