OTP Bank: Dance until the music stops (stays HOLD)

We keep our HOLD on OTP Bank and adjust our 12M price target (PT) to HUF 13,330 (up from HUF 11,100), largely reflecting the additional acquisitions included in our 2019-21E forecasts. 2019E should still be a strong year, in our view, at least if the current macroeconomic backdrop holds across OTP’s geographies (the key ones are Hungary, Bulgaria, Croatia, Russia and Serbia). This may lead to a prolonged period of very low LLPs, which should support a ROE well above 15% (2019E ROE at 17%, on our estimates), in line with management’s target. However, under more normalised CORs (especially in Hungary and Ukraine), we see OTP’s 2020-21E ROE outlook at c.14.5%+, which, with the current COE (10.5%) and long-term growth of 3%, sets a long-term fair value P/BV of c.1.6x, in line with our current 2019-20E P/BVs of 1.5-1.6x. In our view, any further upside at OTP would be pricing in the option for the ROE to stay >15% in the medium term, which we see as rather ambitious in light of the current ROEs being supported hugely by the positive cycle in LLPs, and as the management board is unlikely to shift its focus to substantially higher dividends, in our view.