We downgrade Akbank to HOLD (from Buy) on valuation grounds. The stock has rallied 23% since 28 September, outperforming the benchmark index by 12%. We continue to think the bank can maintain 16% ROE in the next few quarters and raise our 2013 net profit estimate by 11%. However, we believe the positive expectations are reflected in the 10.5x 2013E P/E.
Asset quality and costs are the two areas to watch out for
Akbank’s operating expenses continued to grow rapidly: the y-y increase reached a peer-high 25% in 3Q12 on fast net hirings and other costs which got somewhat out of control. While we expect net CoR to remain at a respectable 50bp in 2012, the significant 43% YTD growth in TRY SME loans could create problems in the future.
Raise DDM-based TP to TRY9.40 (from TRY8,80)
We downgrade to HOLD, but we are more bullish than the Street as our TP of TRY9.40 for Akbank is 15% above the Bloomberg consensus average TP. Further monetary easing is the key upside risk to our call while a sudden slowdown in the economy and regulatory changes targeting payment system fees in particular pose downside risks.
3Q12 ROE of 16% was in line with expectations
Akbank reported TRY779m net profit in 3Q12, in-between our TRY797m and CNBC-e consensus TRY766m estimates, for a 16% ROE. As the bank went for the CPI-linked bond adjustment in 3Q12, NIM expansion was limited to 19bp q-q, but the widening in loan-deposit spread exceeded our forecast at 48bp. Loan growth exceeded our expectation, at 7% q-q, while the bank replaced TRY securities with Eurobonds. On top of strong trading gains, there were additional TRY493m MTM gains under equity, helping book value grow TRY1.3b or 7% q-q. As a result, CAR improved by a full percentage point to 17.1% after Basel-II. In tandem with fast loan growth, fees rose 13% y-y, vs our 8% expectation.
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