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ZENITH BANK PLC - Record year profit, supported by strong earlier run rate

​ Ahead of other banking peers, ZENITHBANK released its FY’16 result posting impressive performances across board. Whilst Gross Earnings came just in line with our estimate at ₦508 billion (up 17% y/y), bottom line rose 23% y/y to ₦130 billion – 8% ahead of our ₦120 billion estimate. In line with expectation however, Q4’16 performance was weaker q/q from the peak of Q3’16 as top and bottom line moderated 23% and 46% respectively. Also, having recorded a significant revaluation gain in Q3’16, it is not surprising to see a notable moderation in Non-Interest Income (due to a more stable currency environment) in Q4’16 – down 53% q/q to ₦29 billion albeit ahead of our ₦22 billion estimate.

 Furthermore, in line with our expectation, ZENITHBANK recorded a loan loss provision of ₦10.5 billion in the last quarter – accounting for a significant 32% of the provision recorded in FY’16 and translating to a 1.5% CoR. Overall, ZENITHBANK reported a record high PAT of ₦130 billion (up 23% y/y) – 8% ahead of Vetiva’s estimate. With the impressive performance, the Board declared a final DPS of ₦1.77 for FY’16 (cumulative: ₦2.02 vs. Vetiva’s estimate of ₦1.95). We have updated our model to reflect the positive earnings surprise. Although we are impressed by the growth in customer deposit recorded in Q4’16, we note the 40bps q/q rise in CoF and expect the expense line to pressure earnings mildly in FY’17. Our real loan growth forecast for FY’17 remains modest at 10%. Whilst we expect Interest Income to remain strong in FY’17, we anticipate a moderation in Non-Interest Income as the impact of revaluation gains gets less obvious going forward. With NPL ratio up to 3.0% (FY’15: 2.2%), we estimate a loan loss provision of ₦31.9 billion in FY’17. Overall, we estimate 7% y/y decline in PAT to ₦121 billion. We raise our target price to ₦27.25 (Previous: ₦26.02). ZENITHBANK trades at FY’17 P/B and P/E of 0.6x and 3.8x respectively.