mBank: CHF risk still looks only partly priced in
We maintain our SELL rating on mBank. We lower our FV by 17% from PLN 370.7 to PLN 308.5 (including an expected loss on the CHF portfolio at PLN 39.9 per share, i.e. 11%, up from 20.5 per share previously), which implies 12% downside. We think the market has finally started to realise the main risk, i.e. CHF loans imbedded in mBank’s B/S. The share price, previously supported by M&A press speculation prompted by the uncertain situation of its main shareholder Commerzbank, lost 21% last month on the news that the Polish parliament has withdrawn the bill on voluntary conversion of FX mortgage loans, whose sector costs we forecast at PLN 6bn over the next 5 years at least, leaving the case open for the Court of Justice of the EU (CJEU) ruling, which in the worst case scenario could cost the sector some PLN 60bn, according to the Polish Banking Association (ZBP) estimates. Following 2Q19 results, our NI forecasts increase by 2% to PLN 1.25bn (-5% YoY, +12% adjusted) in 2019E, but drop by 3%/4% to PLN 1.34bn (+7% YoY)/ PLN 1.48bn (+10% YoY) in 2020-21E, respectively, on the back of lowered fee income and higher costs of risks. Our NI forecasts are in line with consensus for 2019 and 4%/3% below in 2020-21E. mBank now trades at a 2020E P/E of 11.1x, a 2% premium to Polish banks on 10.9x, and a 0.9x 2019E P/B, a discount to peers on 1.1x, which we believe is warranted given its insufficient profitability (COE>ROE) and above-average CHF mortgage exposure which carries hard to determine risks.mBank is a provider of comprehensive corporate banking services in Poland. Co. and its subsidiaries make up the mBank Group which is engaged in offering financial services. Co.'s service offering includes a comprehensive financial offer tailored to the needs of corporate clients, Private Banking clients, and retail clients. The business activities of Co. is conducted in the following business segments: Retail Banking and Corporates and Markets.
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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