OTP confirmed at BUY, TP HUF 10,700 - Will it really get as bad as the market currently believes?
We cut our 12m TP to HUF 10,700 (HUF 13,500) mainly owing to tightening valuation parameters (higher COE to reflect soaring rates, no excess CET1 considered due to worst-case in RU) and lifted magnitude of negative adjustments.Excl. RU/UA our mid-term estimates at an adj. ROE of ~16% were hardly changed as positive effect from sharper rate hikes was largely offset by higher risk and operating costs. Our new risk costs estimates together with existing overlays should be sufficient to cover the assumed doubling of Stage3 ratio to >9%.
The upside room of >20% to our new TP justifies the confirmation of the BUY call. We believe that at current valuation of 0.7x P/B 2023 prices-in much worse scenario for the rest of OTPs operations excl. RU/UA (long-term risk costs of >100 bps vs. RBIe of 55 bps)
While the emergency rate hike in HU offers some good short-term NII opportunities, we are a bit concerned about the NIM trend in HU given the accelerated pace of deposit repricing. The groups NIM driver should come from countries exposed to Euro area rate hikes.
The upcoming Q3 22 should reflect further growth in revenues, but also a first meaningful pickup in risk costs to reflect the worsening macroeconomic environment. Lower level of adjustment may drive a reported bottom-line by ~50% qoq.
OTP Bank is a financial institution based in Hungary. Co. is engaged in retail banking (account management, bankcards and Electronic sevices - OTPdirekt) corporate banking and private banking. In Hungary traditional banking operations are performed by Co. while specialized services, including car leasing, investment funds and insurance are developed and offered by Co.'s subsidiaries. Co. expands its operations throughout the region via its foreign subsidiaries. As of Dec 31 2011, Co. had total assets of HUF10,200,527,000,000 and deposits of HUF6,398,853,000,000.
The Institutional Equity Research team of Raiffeisen Bank International AG covers 85 stocks from Austria, Central & Eastern Europe with sell-side research and thus levers our local broker status with excellent company relationships. For corporates in Austria, CEE and Western Europe, we offer co-sponsored research, which includes research coverage and marketing activities to investors. Additionally, through our Spotlight Research product we also shed light on leading European small and micro-caps, seeking greater visibility with investors.
The Institutional Equity Research team consists of roughly 15 analysts, both in Vienna and the CEE countries. Our analysts provide long-standing sector expertise in tandem with profound local market know how and a sectoral approach across the entire region.
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