Al Baraka Turk (ALBRK TI) - Weak top-line; low ROE: Upgrading to Hold
Al Baraka has announced a 2Q19 net income of TRY23m (-17% q-q, -77% y-y), below our estimate (TRY26m) and RT consensus’s (TRY25m). Weak top-line on contracted spreads are to blame for the quarterly drop in earnings. Core revenues (NII + fees) declined 17% q-q as core spread narrowed 50bp q-q on high deposit costs, despite strong fees. TRY loan-to-deposit spread contracted by 144bp q-q and FX spread by 12bp. Albaraka recorded strong fee growth at 71% y-y vs below-inflation opex growth of 12% y-y. The trading line supported 2Q results. Asset quality deteriorated as the net CoR went up to 42bp from 7bp a quarter ago, while the NPL rate levelled out at a peer-topping 7.1% with a low 52% coverage. ROE slid to 2.8% from 3.3% in 1Q, one of the lowest ROEs in our banks coverage.
We revise 2019-21E EPS by +2.5%/-3.6%/1.1%, respectively. With this report we push forward our forecast horizon to 2030 from 2023. We cut our GGM-based TP to TRY1.33, from TRY1.40, and upgrade our rating on the stock to HOLD from Reduce.
Albaraka Turk Katilim Bankasi is a commercial bank based in Turkey. Co. supplies retail, corporate, and investment banking products and services within the framework of the principles of participation banking. Co. also operates as an insurance agency, a private pension insurance agency and as a brokerage agency. Co. through its branches, engages in purchase and sale of precious metals, provides intermediary services in quick money transfers, credit card and member business (P.O.S.) services. Co. maintains an extensive service network consisting of 166 national branches and alternative delivery channels. Co. also has a branch in the city of Erbil in Northern Iraq.
TEB Investment equity research analysts and strategist team consists of 8 analysts with an average finance sector experience of 15 years and special focus on international investors.
With our 6 equity research analysts we cover 93 companies across 21 sectors, reflecting 80% of the total market capitalization of all BIST companies and 86% of the BIST100 companies. Our strategy team provides in depth top-down and bottom-up market views with insight on FX and bond markets by publishing sectoral and strategic reports both in English and Turkish.
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