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Corporation Bank
1Q: Operating profit weak; but
risk-return still attractive; Buy
„Cut PO / Earnings; but risk-return still very attractive
We cut our PO to Rs650 factoring in a +8/11% earnings cut for FY12/13 (growth
of ~14/20% yoy). FY12/13 earnings cut to factor in margin pressure / loan growth
cut. But we maintain Buy, as risk-return remains very attractive with stock trading
at 1.0x FY12 book / 0.8x FY13 book, with RoEs of still +21/22%. We believe Corp.
Bk can re-rate to at least 1.1x FY13 book, which is still a +30% discount to
Gordon theory multiples. We believe the discount may remain owing to weak
liability franchise and low stock liquidity (Govt. & LIC own ~84% of stock).
1Q: 14% beat owing to tax write-back; PPOP miss by +17%
Corp Bk’s 1Q earning came in at Rs3.5bn, a 5% yoy growth and a 14% higher
than est. driven by a) lower provisions owing to a write-back and b) lower tax rate
due to one-time write-back of tax provision of Rs630mn. Excluding tax write-back,
banks earnings declined by ~14% yoy. Moreover, PPOP earnings were +17%
below estimates owing to a) 10% miss on topline and b) 13% miss on other
income. Topline grew <2% yoy owing to a sharp rise in funding costs leading to
margin decline by +50bps yoy (38bps qoq) to 2.1% and also a sharp deceleration
in loan growth (to <22% yoy vs. +37% in FY11). Fees also disappointed; growth
only 3% yoy. CASA also slipped to 21% (+300bps yoy and 500bps qoq).
Asset quality holds-up well; remains manageable
Corp Bank’s slippages have held-up at Rs1.5bn (vs. Rs1.7bn in 4QFY11 and
Rs2.2bn in 1QFY11). But headline gross NPLs increased qoq by 7% (at 1.1%)
and net increased by 3% qoq (at 0.5%), but provision cover still at ~75%. We still
estimate FY12 slippages at Rs9.3bn (vs. Rs8.1bn in FY11).
Price objective basis & risk
Corporation Bank (XCRRF)
We believe risk-return at Corporation Bank remains very attractive with the stock
trading at 1.0x FY12 book and 0.8x FY13 book, with RoEs of still +21/22%. Our
PO of Rs650 is based on our belief that Corp. Bk can re-rate to at least 1.1x FY13
book, which is still a +30% discount to Gordon theory multiples. We believe the
discount may remain owing to weak liability franchise and low stock liquidity
(Govt. & LIC own 84% of stock). 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.30% discount to
Gordon multiples owing to low stock liquidity. 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
1Q: Operating profit weak; but
risk-return still attractive; Buy
„Cut PO / Earnings; but risk-return still very attractive
We cut our PO to Rs650 factoring in a +8/11% earnings cut for FY12/13 (growth
of ~14/20% yoy). FY12/13 earnings cut to factor in margin pressure / loan growth
cut. But we maintain Buy, as risk-return remains very attractive with stock trading
at 1.0x FY12 book / 0.8x FY13 book, with RoEs of still +21/22%. We believe Corp.
Bk can re-rate to at least 1.1x FY13 book, which is still a +30% discount to
Gordon theory multiples. We believe the discount may remain owing to weak
liability franchise and low stock liquidity (Govt. & LIC own ~84% of stock).
1Q: 14% beat owing to tax write-back; PPOP miss by +17%
Corp Bk’s 1Q earning came in at Rs3.5bn, a 5% yoy growth and a 14% higher
than est. driven by a) lower provisions owing to a write-back and b) lower tax rate
due to one-time write-back of tax provision of Rs630mn. Excluding tax write-back,
banks earnings declined by ~14% yoy. Moreover, PPOP earnings were +17%
below estimates owing to a) 10% miss on topline and b) 13% miss on other
income. Topline grew <2% yoy owing to a sharp rise in funding costs leading to
margin decline by +50bps yoy (38bps qoq) to 2.1% and also a sharp deceleration
in loan growth (to <22% yoy vs. +37% in FY11). Fees also disappointed; growth
only 3% yoy. CASA also slipped to 21% (+300bps yoy and 500bps qoq).
Asset quality holds-up well; remains manageable
Corp Bank’s slippages have held-up at Rs1.5bn (vs. Rs1.7bn in 4QFY11 and
Rs2.2bn in 1QFY11). But headline gross NPLs increased qoq by 7% (at 1.1%)
and net increased by 3% qoq (at 0.5%), but provision cover still at ~75%. We still
estimate FY12 slippages at Rs9.3bn (vs. Rs8.1bn in FY11).
Price objective basis & risk
Corporation Bank (XCRRF)
We believe risk-return at Corporation Bank remains very attractive with the stock
trading at 1.0x FY12 book and 0.8x FY13 book, with RoEs of still +21/22%. Our
PO of Rs650 is based on our belief that Corp. Bk can re-rate to at least 1.1x FY13
book, which is still a +30% discount to Gordon theory multiples. We believe the
discount may remain owing to weak liability franchise and low stock liquidity
(Govt. & LIC own 84% of stock). 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.30% discount to
Gordon multiples owing to low stock liquidity. 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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