Alior Bank: Starting from the bottom
We upgrade Alior Bank to BUY from NEUTRAL on the back of the 18% decline in the stock price since mid June. The negative scenario of a corporate portfolio revision by the new management has materialized and it is now priced in in our view. The bank reported a cost of risk at 360bps (above our expectations of 320bps) in 2Q19. As expected, the new guidance for risk costs in 2019 has been revised upwards (by 50bps or 35%). Following 2Q19 results, we have lowered our tax rate for 2019 which increased our NI estimate by 4% to PLN 575m (-20% YoY). Keeping a more bearish outlook on net provisioning and adjusting for slower fees means we cut our 2020-21E NI by 3%/5% to PLN 696m (+21% YoY) and PLN 760m (+9% YoY), respectively. Consensus has come down considerably since mid June but our earnings expectations are still below consensus by -5%/-15%/-12% in 2019-21E. We think the risk cost should have reached the ceiling in 2Q19, thus despite our conservative assumptions we expect a significant rebound in 2H19 NI (+200% HoH) as well as in 2020 (+21% YoY). At the same time ALR has reported substantial improvements in capital ratios with a 117bps/210bps buffer over Tier1/TCR ratio not including 1H19 net profit. Simultaneously, the bank’s clear advantage is a lack of FX mortgage risk. Alior Bank has been already punished, trading at a 2020E P/B of 0.7x, a substantial discount to Polish peers (1.1x). We trim our FV by 7% from PLN 53.2 to PLN 49.7, but this still offers 21% upside.Alior Bank is a universal lending and deposit-taking bank which renders services to individuals, legal persons and other entities which are Polish and foreign persons. Co.'s core activities include maintaining bank accounts, granting loans and advances, issuing banking securities and purchasing and selling foreign currency. Co. also conducts brokerage activities, consulting and financial agency services and renders other financial services.
Haitong is the first international Chinese investment bank and our goal is to be the primary channel for capital flows into and out of China. During 2015 the Senior Management Team in London was expanded significantly to focus on this objective and to provide a full-service cross-asset markets business coupled with sector-focused investment banking. We work closely with our world-wide network of offices to bring a true depth of understanding to all client situations.
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