OTP Bank - Slightly Better Net Profit On Provisions, But Mainly In Line

Summary

 

• OTP net income in Q1 HUF 72.6 bln vs. our est. HUF 70.5 bln, cons. est. HUF 69.9 bln
• Better results on non-int. income, risk costs
• NIM stable, above FY guidance, NII grows 4% q-o-q on Express Bank (SocGen Bulgaria)
• OPEX up 15% y-o-y, adjusted for acquisition up 11% (FY guidance 4%)
• Asset quality benign, risk cost q-o-q significantly lower, y-o-y higher but still at low levels in abs terms
• Hungarian volumes a bit weaker à should see whether temporary or not
• In line Q1, but FY forecast needs higher volumes, cost control and acquisitions

 

 

OTP - Instant Earnings Comment

Recommendation:  Accumulate (unch.)

Target price (12M): HUF 14,330 (unch.)

 

• OTP’s net income in the first quarter came to HUF 72.6 bln vs. our forecast of HUF 70.5 bln and consensus estimate of HUF 69.9 bln. Better results are attributed to higher total revenues driven by other non-interest income and lower risk cost. (NTRL)
• Net interest income grew 4.0% on the back of Express Bank (SocGen’s sold Bulgarian subsidiary), adjusting for that, NII would have declined 1% q-o-q.
• NIM remained more or less stable q-o-q (down 1bps) and adjusting for the dilution impact of acquisitions, NIM actually improved 4bps, driven by Hungary, Ukraine and Croatia.
• Net F&C increased slightly q-o-q (+1.1%), without acquisitions down by 3%, driven by Core, Russia and Bulgaria, though we believe seasonality also played a role in the trend.
• OPEX was up by 15.4% y-o-y and down by 6.6% q-o-q. Q-o-q decline was mainly due to seasonality and paid bonuses in Q4 last year, while y-o-y growth was 11% without Express Bank as a result of PEREX growth in Core.
• Risk cost increased y-o-y but remained low at 24bps or HUF 6.2 bln in the quarter, driven by write-backs in Hungary (+6.3 bln), Croatia and Ukraine. NPL ratio declined further to 5.9% with coverage at 119.2% (including Stage 1 and Stage 2 loan provisions). Stage 3 coverage is at 65%.*
• Volumes: Loans expanded by 12% q-o-q (Stage 1+ Stage 2 loans), vast majority attributed to the Bulgarian acquisition, without it, the growth was 1% q-o-q (seasonality impact again), but y-o-y still a low double digit growth. This was driven by Ukraine, Romania and Montenegro while in Croatia, OTP Core and Russia, the loan book stagnated. In case of OTP Core, the decline was also due to reporting adjustments of OTP Real Estate Lease segment but corporates were also lower 2% q-o-q. Housing loans of Hungary showed a slight disappointment on weak disbursement (only 3.8% y-o-y) while stock was down by 0.5% q-o-q on declining home equity loans. As we stated before, clients may have wait amidst new subsidy programs, thus we have to see whether the weak volume phenomenon is temporary or not.
• Capital adequacy: CET1 ratio came down to 14.9% in the quarter driven by RWA growth (mainly Express Bank). The Bank stated that including all acquisitions in the pipeline, CET1 should have declined by additional 2.7% in the quarter (hypothetically 12.3%, without further profit for this year, including it we estimate CET1 to be around 13.8%). Due to the acquisitions, we believe the Bank is likely to issue the Tier2 bonds indicated earlier this year.

 

 

 

• OTP accrued dividend of HUF 28 bln in the first quarter, nevertheless the Bank emphasized, this is not an indication for full year dividend payment (that would imply HUF 399 DPS for the fully year) as this is based on the European Committee regulations.
• Romanian banking tax could be at most HUF 2 bln, but we believe the Bank would rather try to dampen the impact by fulfilling conditions of NIM decline and/or loan growth to have basically 0 bank tax.
• The Serbian CHF conversion on the Bank’s calculation should also have a negative impact of HUF 2 bln.

 

 

Opinion: Q1 results came better than expected, though this was mainly due to lower risk cost, higher other non-interest income as other lines were in line with market exp. Overall, we believe our FY forecast of HUF 348 bln (cons. HUF 339 bln) is still achievable but the Bank needs stronger volumes in the coming quarters and acquisitions to kick-in. In addition, like the overall sector, costs will be crucial for the Bank as now, cost growth was 11% adjusted for acquisitions y-o-y vs. guidance of +4%.

 

 

 

Hai Thanh Le Phuong, CFA
Head of Research

CONCORDE SECURITIES LTD.

Hillside
55-61 Alkotás street, H-1123 Budapest.
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