Erste - Q4 Already Out, Guidance Conservative As Always, Positive Trends Stay

Erste – Instant Earnings Comment

Recommendation:  Accumulate (unch)

Target price (12M): EUR 40.0 (unch)

 

• Erste reported net profit figure of EUR 1.8 bln, up significantly from last year’s EUR 1.3 bln. The development stems from write-backs and improving operating result (up by 8.9% y-o-y).
• In the fourth quarter, net profit improved significantly to EUR 565 mln thanks to improved operating results and deferred tax asset.
• NII increased 4.5% q-o-q driven by volumes and improved margins in the Czech Republic and Austria. NIM on total assets also went up slightly q-o-q and remained flattish. The stable NIM was attributed to CZ, Austria (though this includes a positive one-off), Hungary.
• Operating income increased 5.6% q-o-q on the back of stronger net F&C and NII and significantly higher net trading results. Cost-to-income came down somewhat q-o-q and significantly y-o-y (from 66.1% to 59.3%) as a result of lower cost in admin expenses despite continuous pressure on wages.
• Asset quality remained benign, with NPLs at 3.2% and coverage of 73%. CET1 remained stable y-o-y at 13.5%. Loans increased 7.0% y-o-y and was slightly up by 0.7 q-o-q. Loan-to-deposit ratio remained below 100% at 91.9%.
• Guidance: Erste expects solid macroenvironment to stay with risks from global and political factors. The Group expects mid-single digit growth in net loans and thus expects net interest income and fees to improve further. Costs will still be on the rise but not as much as revenues thus operating results should improve further. Risk cost is difficult to quantify but the Group expects it to increase to around 10-20 bps. The Bank expects a negative impact from the Romanian banking tax. ROTE as a result is guided to be above 11%.
• Opinion: Erste already disclosed its stellar results for 2018 previously. The guidance itself tells a net profit expectation of roughly EUR 1.450 mln and operating result of around 2.9 bln vs. consensus exp. of EUR 1.518 mln and operating result exp. of 3.0 bln, respectively. Nevertheless, note that the Bank included above EUR 100 mln bank tax in their guidance which is quite conservative (even Mr Treichl expects it to be better…). Dividends are expected to increase and the mgmt. also said it does not want to keep much of excess capital above required, so more cash return is on the way (this is in line with our expectation).
• We anticipate the Bank to be above its minimum guidance for this year as well as 
• Romanian banking tax remains an issue and we did not corporate it to our TP so far. Couple of versions are circulating on the market, it is possible that the tax base will be c.a. 45-50% lower dependent on Prima Casa loans, bond portfolios as well as SME loans. Should this happen, the banking tax would decline to somewhere 40-60 bps (based on the ROBOR rate) and assuming no pass-through to customers which we highly doubt. The scenario analysis is below:

Bank tax rate	Annual contribution (EUR mln, after tax)	% of profit 2018	TP (ex-dividend, DPS: 1.4)
0.20%	26	1.5%	39.3
0.40%	52	2.9%	38.6
0.60%	78	4.4%	38.0
0.90%	117	6.5%	36.9
1.20%	156	8.7%	35.9

 

Source: Concorde

 

 

 

 

Hai Thanh Le Phuong, CFA
Head of Research

CONCORDE SECURITIES LTD.

Hillside
55-61 Alkotás street, H-1123 Budapest.
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MEMBER OF THE CONCORDE GROUP

 

 

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