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YES Bank
OW: 1QFY12 – Bucking the sector trend
YES reported surprisingly firm margin trends and improving
asset quality for 1Q12, in contrast to peers
With increasing momentum in new branches and CASA mix,
appears poised for steady margin increase in medium term
Adjust target price up from INR427 to INR437, reiterate
Overweight rating as YES remains one of our preferred plays
1QFY12 earnings came in 5% higher than our estimates, mainly on account of a large
writeback in the provisioning line, barring which PAT would have been more-or-less in
line with expectations. The stock ended “flattish” and offers good entry prospects.
Operational review: Even as YES reduced loans and deposits by 4% and 5% q/q
respectively, margins remained steady sequentially at 2.8% as it displayed an ability to
pass on funding cost increases and also increased the CASA mix, even though seasonally
the absolute CASA base remained flat. Fees grew 15% with transaction banking as well as
advisory contributing to 68% of the y/y increase. Cost ratios remained steady and asset
quality was firmly in control with Gross NPL at 17bps and specific coverage at 95%. As a
result, earnings grew 38% y/y and would have grown 29% without the writeback. Tier 1
ratio was reported at 9.6% excluding 1Q profits and 10.1% including them.
Earnings outlook: We fine tune and broadly retain our earnings forecast with loan
growth at 33% CAGR up to FY14E (we introduce FY14E estimates), ROA retained at
1.5% and EPS CAGR at 27% after assuming a USD400m equity issuance in the current
year per previously announced plans.
Valuations and target price: YES trades at 10.9x 12mth forward PE and 1.9x PB – both
at 24% discounts to its 5-year average multiples. We continue to value the stock at 13.5x
PE and 2.3x PB (details inside), thereby increasing our 12-month target price to INR437
as we roll forward our earnings base, implying a total potential return (including
dividends) of 39%. Retain Overweight. Key risks: 1) Continued liquidity tightness
leading to slower than expected growth, 2) Asset quality risks; and 3) Slower than
expected branch expansion.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
YES Bank
OW: 1QFY12 – Bucking the sector trend
YES reported surprisingly firm margin trends and improving
asset quality for 1Q12, in contrast to peers
With increasing momentum in new branches and CASA mix,
appears poised for steady margin increase in medium term
Adjust target price up from INR427 to INR437, reiterate
Overweight rating as YES remains one of our preferred plays
1QFY12 earnings came in 5% higher than our estimates, mainly on account of a large
writeback in the provisioning line, barring which PAT would have been more-or-less in
line with expectations. The stock ended “flattish” and offers good entry prospects.
Operational review: Even as YES reduced loans and deposits by 4% and 5% q/q
respectively, margins remained steady sequentially at 2.8% as it displayed an ability to
pass on funding cost increases and also increased the CASA mix, even though seasonally
the absolute CASA base remained flat. Fees grew 15% with transaction banking as well as
advisory contributing to 68% of the y/y increase. Cost ratios remained steady and asset
quality was firmly in control with Gross NPL at 17bps and specific coverage at 95%. As a
result, earnings grew 38% y/y and would have grown 29% without the writeback. Tier 1
ratio was reported at 9.6% excluding 1Q profits and 10.1% including them.
Earnings outlook: We fine tune and broadly retain our earnings forecast with loan
growth at 33% CAGR up to FY14E (we introduce FY14E estimates), ROA retained at
1.5% and EPS CAGR at 27% after assuming a USD400m equity issuance in the current
year per previously announced plans.
Valuations and target price: YES trades at 10.9x 12mth forward PE and 1.9x PB – both
at 24% discounts to its 5-year average multiples. We continue to value the stock at 13.5x
PE and 2.3x PB (details inside), thereby increasing our 12-month target price to INR437
as we roll forward our earnings base, implying a total potential return (including
dividends) of 39%. Retain Overweight. Key risks: 1) Continued liquidity tightness
leading to slower than expected growth, 2) Asset quality risks; and 3) Slower than
expected branch expansion.
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