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Corporation Bank
Risk-return positive; Buy
„4Q:Earnings miss on higher write-off’s, but quality ok
Corp. Bank reported earnings of Rs3.5bn, a +11% yoy growth (~11% below est.),
as the bank wrote-off aggressively in 4Q. However, operating earnings were 2%
ahead of estimates. While loan growth remained strong (+37% yoy) and margins
increased 18bps yoy to 2.5%, topline was 9% below est. and grew ~29% yoy
owing to change in accounting policy (recognizing income from liquid funds to
other income vs. topline earlier). CASA was down ~250bps yoy to 26%. Core fee
growth at +30% yoy. Total CAR at +14%; Tier 1 at ~8.7%.
Slippages under check; pension costs fully absorbed
Slippages (new NPLs) came in at Rs1.7bn (vs. Rs3bn In 3Q). Moreover,
recoveries continue to be very strong (Rs2.9bn in 4Q vs. Rs1.1bn avg. in 2Q and
3Q). Hence, headline gross NPLs declined 14% qoq and net declined 4% qoq.
Provision cover stands at ~75%. Restructured loans at 3.6% of total loans;
relapse at <10% of total. The bank has also fully provisioned for retired
employees (Rs740mn) in 4Q and also provided for Rs1.1bn for existing
employees in FY11 (Rs550mn in 3Q), this being 1/5th of the total pension liability.
Earning growth at +23% in FY12/13, Risk-return positive
We cut our earnings estimates by ~4/5% for FY12/13 to factor in margin pressure
owing to low CASA. But we still expect Corp. Bank’s earnings to grow +23% in
FY12/13. We maintain Buy and PO (Rs750), as risk-return remains attractive with
stock trading at 1.0x FY12E book and RoEs of +22%. Moreover, asset quality
comfort is high (net NPLs at <0.5%). Our PO is still at +15% discount to Gordon
multiples mainly due to low stock liquidity (Govt. & LIC own 84% of stock).
Price objective basis & risk
Corporation Bank (XCRRF)
We rate Corporation Bank a Buy with a PO of Rs750. Our PO is pegged on P/B
metric (Gordon model) where we estimate over +22pct RoEs (FY12E) and
assume 14pct CoE, implying a theoretical multiple of approx. 1.6x. But, our PO is
at a c.15% discount to Gordon multiples owing to low stock liquidity. Our PO is
pegged at 1.4x FY12E book, given 1) estimated earnings growth of +23% in
FY12/13 sustaining, 2) RoEs of +22% and, 3) overall better asset quality (net
NPLs at <0.5%, cover at +75%). Our PO equates to a target PE of 6.4x (FY12E
earnings). Risks are margin compression owing to mismatch between lending
and deposit cuts. Low CASA deposit franchise may lead to a spike in funding
costs and hurt margins in rising rate environment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Corporation Bank
Risk-return positive; Buy
„4Q:Earnings miss on higher write-off’s, but quality ok
Corp. Bank reported earnings of Rs3.5bn, a +11% yoy growth (~11% below est.),
as the bank wrote-off aggressively in 4Q. However, operating earnings were 2%
ahead of estimates. While loan growth remained strong (+37% yoy) and margins
increased 18bps yoy to 2.5%, topline was 9% below est. and grew ~29% yoy
owing to change in accounting policy (recognizing income from liquid funds to
other income vs. topline earlier). CASA was down ~250bps yoy to 26%. Core fee
growth at +30% yoy. Total CAR at +14%; Tier 1 at ~8.7%.
Slippages under check; pension costs fully absorbed
Slippages (new NPLs) came in at Rs1.7bn (vs. Rs3bn In 3Q). Moreover,
recoveries continue to be very strong (Rs2.9bn in 4Q vs. Rs1.1bn avg. in 2Q and
3Q). Hence, headline gross NPLs declined 14% qoq and net declined 4% qoq.
Provision cover stands at ~75%. Restructured loans at 3.6% of total loans;
relapse at <10% of total. The bank has also fully provisioned for retired
employees (Rs740mn) in 4Q and also provided for Rs1.1bn for existing
employees in FY11 (Rs550mn in 3Q), this being 1/5th of the total pension liability.
Earning growth at +23% in FY12/13, Risk-return positive
We cut our earnings estimates by ~4/5% for FY12/13 to factor in margin pressure
owing to low CASA. But we still expect Corp. Bank’s earnings to grow +23% in
FY12/13. We maintain Buy and PO (Rs750), as risk-return remains attractive with
stock trading at 1.0x FY12E book and RoEs of +22%. Moreover, asset quality
comfort is high (net NPLs at <0.5%). Our PO is still at +15% discount to Gordon
multiples mainly due to low stock liquidity (Govt. & LIC own 84% of stock).
Price objective basis & risk
Corporation Bank (XCRRF)
We rate Corporation Bank a Buy with a PO of Rs750. Our PO is pegged on P/B
metric (Gordon model) where we estimate over +22pct RoEs (FY12E) and
assume 14pct CoE, implying a theoretical multiple of approx. 1.6x. But, our PO is
at a c.15% discount to Gordon multiples owing to low stock liquidity. Our PO is
pegged at 1.4x FY12E book, given 1) estimated earnings growth of +23% in
FY12/13 sustaining, 2) RoEs of +22% and, 3) overall better asset quality (net
NPLs at <0.5%, cover at +75%). Our PO equates to a target PE of 6.4x (FY12E
earnings). Risks are margin compression owing to mismatch between lending
and deposit cuts. Low CASA deposit franchise may lead to a spike in funding
costs and hurt margins in rising rate environment.
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