Earnings Review / Vakifbank (VAKBN TI) - Backed by CPI-linkers; high ROE: Maintain Buy
3Q net income of TRY985m (-8% q-q, +41% y-y) was above both the RT consensus (TRY850m) and our estimate (TRY934m). Core revenues grew 29% q-q on higher CPI-linker revenues (3.5x q-q) and strong fee growth (17% q-q), despite contracted L/D spread (-70bp q-q). Fee income expanded by a peer-topping 69% y-y in 3Q, while opex grew 19% on branch-level expenses, below-inflation. Trading income was supportive in the absence of swaps. Net provisions almost tripled q-q on higher Stage 2 loans coupled with some new NPL inflows. From linker revenues Vakifbank set aside an additional TRY700m in provisions for Stage 1 and 2 loans, which were not necessitated by the IFRS 9 model. Net total CoR grew to 357bp from 130bp a quarter ago with stable NPL coverage (77%). All in all, ROE slid 1.9pp q-q to 14.9%, one of the highest among top-tier peers.
We revise our FY18-20E EPS by 0%/+1%/+22%. We raise our GGM-based TP slightly to TRY5.36/sh (from TRY5.26) on results, while keeping our rating unchanged at BUY.
Turkiye Vakiflar Bankasi (Vakifbank) is a banking and financial services company based in Turkey. Co. offers products and services that cover corporate, commercial, investment and small-scale enterprise banking as well as the retail and private banking sectors. Co. also provides financial leasing, portfolio management, real estate, insurance and factoring services through its financial participations. Co.'s deposit products include time and demand deposits, as well as loans comprise spot loans, foreign currency indexed loans, consumer loans, automobile and housing loans, working capital loans, gold loans, foreign currency loans, eximbank loans, and pre-export loans.
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