Earnings Review / Al Baraka Turk (ALBRK TI) - Upbeat surprise on asset quality: Maintain Hold
Albaraka announced 2Q18 net income of TRY98m (+1% q-q, +3% y-y), above the RT consensus (TRY76m) and our estimate (TRY73m). The deviation came mainly from better-than-expected net provisions. Core revenues showed 1% q-q growth on slight core spread widening (7bp) despite almost nil JV contributions. Fee growth was strong at 25% y-y, while opex went up 17% y-y. The trading line, on the other hand, supported earnings thanks to securities sell-offs and FX gains on Tier-I sub-debt. NPL ratio rose to 5.9% (1Q: 5.6%) with 58% coverage. Net total CoR surged to 73bp from -11bp a quarter ago. ROE dropped to 12.2% from 14% in 1Q. Given the sub-par ROE and prevailing asset quality deterioration we view the results as operationally weak.
We revise our 18-20E EPS +2.6/-0.3/-0.8%, cut our GGM-based TP slightly to TRY1.43 and retain HOLD. Albaraka trades at a 2019E P/BV of 0.3x and P/E of 3.4x, while 2019E ROE is at 10%.
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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