Isbank (ISCTR TI) - NIM improves; NPL coverage drops: Maintain Buy
Isbank’s 3Q19 net income beat our estimate and RT consensus on lower provisions. Net earnings would have been 43% lower and broadly in line with our estimate assuming flat NPL coverage q-q. Core revenue was flat q-q on lower repo costs and a higher fee income, despite contracted spreads. Fee income growth was almost on par with opex growth. The trading line was as we expected. Net provisions declined 54% q-q on reversals and reduced coverage, while net CoR slid to 128bp (-127bp q-q). NPL coverage fell 51% from 57% in 2Q as the bank sold TRY1.1b of NPLs in 3Q. Adjusted for the NPL sale, NPL coverage was 54%. Reported ROE fell to 10.1% (private peers: 10.3%) from 11.3% in 2Q. Coverage-adjusted ROE stood at 5.8% (private peers: 10.5%). Isbank cut its 2019 Return on Tangible Equity (ROTE) guidance to 11-12% from above 14%.
We cut 2019-21E earnings by -9.8%/-5.9%/-1.5% on changed NII and provisioning forecasts post 3Q19 results. We keep our GGM-based TP unchanged at TRY7.39 as we see strong long-term ROE at 16% and maintain BUY.
Turkiye Is Bankasi is a commercial banking group based in Turkey Co. is engaged in the provision of private, retail, commercial and corporate banking, money market and securities market operations as well as international banking services. Co. provides services to corporations, SMEs and other trading companies (excluding real trading persons) within the course of its corporate and commercial operations. Co. is organized into two main business segments: Banking segment, which includes corporate, retail and private banking, as well as treasury; and non-banking operations, which are followed according to insurance, ‘investment and finance' and ‘manufacturing and trading' segments.
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