Raiffeisen - Low Risk Cost, Fees Compensated For OPEX In Q2

Raiffeisen – Instant Earnings Comment

Recommendation:  BUY (unch.)

Target price (12M): EUR 30.0 (unch.)

 

• Raiffeisen reported net income came to EUR 345 mln, beyond market estimates of EUR 306 mln and our forecast of EUR 328 mln.
• NII was up by 1.8% thanks to good volumes in Russia (+5.5% q-o-q), CEE (+1.9% q-o-q) and Head Office while margins slightly came down in the quarter due to lower margins in Russia and Head Office.
• Better results compared to our estimate comes from higher Net F&C, primarily due to seasonality and driven by Russia and Romania.
• Net trading income as the Company already said was impacted negatively by hedges just like in the previous quarter but maybe in the second part of the year this impact may level off as it is neutralized over the lifetime of the related portfolios.
• Operating income as a result improved, up by 7% excluding the Polish sale, nevertheless costs did not improve that much thus cost-to-income was at 60.6% compared to long term target of 55%.
• Other results (EUR 10 mln) improved thanks to higher income from associates and deconsolidation.
• Risk cost again was very low and H1 risks came well below mgmt. FY guidance of 45bps. Provisioning was solid on CEE segment where impairment releases amounted to EUR 33 mln, compensating other units though risk cost was still low in these segments as well.
• NPE ratio came down further to 2.3% and coverage was at 59% as of the second quarter.
• Capital ratio improved and now stands at 13.8% (CET1), above mgmt. target of 13%.
• ROE in the first half of the year amounted to 10.3% (Q1 was distorted by upfront payments while Q2 stood at 12.3%).
• Opinion: Results came slightly above our expectations, and most trends remain in place. The main question is whether the Bank will manage to show cost discipline in the coming quarters and whether asset quality remains this benign. We believe the latter is very likely and costs will be the largest challenge but consensus and our forecast of EUR 1,184 mln is still achievable and with good asset quality, results could be slightly above estimates. RBI remains the cheapest bank in our coverage universe.
• Confcall is set to 2pm CET time where we expect further details to come on the money laundering issue (Mr. Strobl already said the probe was concluded without finding any wrongdoing) and this should calm the market perception of the Bank in our view (recall that RBI shares plunged more than 10% in a day after rumours were out).

 

Hai Thanh Le Phuong, CFA
Head of Research

CONCORDE SECURITIES LTD.

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