OTP Bank - Stronger And Stronger…

• Net profit HUF 105.4 bln, adj. net profit HUF 112.2 bln compares with HUF 95.8/98.1 bln cons. and HUF 102/103 bln Concorde fcast (POS)
• Better results on risk cost, net fees (Hungarian retail bond fee, volumes)
• NIM erosion continues (remarkably in Russia, Ukraine), compensated by volumesà NII +5% q/q
• Risk cost remained low on Hungarian write-backs, Russia, Bulgaria higher
• Capital adequacy at 15.9%, 2.8% lower if acquisitions included
• Overall stellar results, yearly consensus and our estimate of HUF 348 bln for the FY seems achievable, could be better if trends remain in place

 

 

OTP – Instant Earnings Comment

Recommendation:  Accumulate

Target price (12M): HUF 14,330

 

• OTP posted stellar net profit in the quarter with the figure coming to HUF 105.4 bln, and adjusted net profit at HUF 112.2 bln. Both numbers exceeded market exp. and our forecast of HUF 102.0 bln net profit and adj. np of HUF 103.0 bln.
• Higher actual numbers relative to market come from basically all lines, but most prominently from lower risk cost and much better fees from the Core segment while weaker HUF also contributed to the good results.
• Net interest income grew 4.9% q-o-q and 17.0% y-o-y (+10% y-o-y adjusted for acquisitions) thanks to solid volumes in basically all operations.
• NIM came down further by 5 bps q-o-q driven by sliding Russian NIM (down 77 bps q-o-q), Ukrainian margins (-59 bps) and to a smaller extent due to Bulgaria, Hungary and Serbia. Romania somewhat compensated thus overall Group NIM eroded to 4.2% from 4.25% in the previous quarter.
• Net F&C reported the highest growth both q-o-q and y-o-y (astonishing +17% and 18%, respectively). This was due to seasonality, better business activity and also to a great extent to fees related to the new govt. retail bond (MÁP+) in Hungary.
• OPEX was up again by 3.2% q-o-q and 11.3% y-o-y thanks to PEREX growth and also as a result of higher marketing costs, rental fees. Nevertheless thanks to good operating income stream, CIR went down to 52.1%.
• Risk cost declined further from an already low level to 11 bps on Hungarian write-back of HUF 11.5 bln (H1 release amounts to HUF 17.8 bln). This compensated higher provisions in Russia (partly due to non-performing sales) and Bulgarian corporate one-offs.
• Volumes: Demand remained strong, performing loans were up 3.7% q-o-q and ytd +15% (adj. for acquisitions +5%). Strong volumes were present in Ukraine and Hungary with stagnating stocks in Russia and Serbia. On a segment breakdown, consumer loans and corporate loans were the main drivers (+3.8% and +4.8% q-o-q, respectively). Performing mortgages were somewhat lower, 1.8% q-o-q.
• Capital adequacy: CET1 ratio increased to 15.9% mainly thanks to the interim profit. Accrued dividend amounts to HUF 39.8 bln for the first half of the year, reflecting an average payout ratio set by the regulator. With an immediate acquisition impact, CET would have been lower by 2.8%.
• The Romanian banking tax should come at the end of the year, while Moldovan and Montenegrin acquisitions will come in Q3 on the Bank’s expectation.

 

Opinion: OTP posted very solid results in Q2. In the previous quarter we said it may be challenging to achieve the high expectations for this year but after the stellar results of Q2, this seem less of an obstacle in our view and if trends continue, OTP may be beyond what market currently expects.

 

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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