We reiterate our Buy rating on YESB (on Conviction List) following our
recent meeting with the management. Key takeaways: (1) YESB is on track
in garnering CASA (38% CAGR FY13-FY16E), and creating ground work for
retail asset as it builds a stronger liability franchise and doubles its network
by FY15. (2) Focus on productivity (accounts/sales person), value/account
(>2X peers), and cross-sell (from 2.5X to 4X target) should ensure profitable
growth. (3) New area of growth, business banking, targeted through branch
network. (4) On corporate side, focus is on refinancing activity; knowledge
based and collateralized lending and fee income likely to reduce risks.
Catalyst
We believe improving Current Account Saving Account (CASA), roll-out and
increase in retail assets, de-risking of balance sheet and growth in earnings
will be the key catalysts for YESB over the next couple of years: (1) We
expect YESB to open 470 branches in FY13-FY16, which would drive CASA
ratio to 28.5% by FY16E from 18.9% in FY13 (management target is 30% by
FY15); (2) we forecast net interest margin improvement of 55bps to 3.3% by
FY16 on the back of improving CASA, falling yields on wholesale
borrowing, while base/prime lending rates remain sticky; (3) ramp up in
retail assets, and potential booking of capital gains on investment book
(SLR book duration at 5 years) along with higher dynamic provisions could
be an added catalyst for the stock, in our view.
Valuation
We introduce FY16E EPS and fine-tune FY14E-15E EPS for Annual report
updates. We maintain our 12m CAMELOT-based TP of Rs620, offering a
potential upside of 30%. YESB trades at 2.4X/1.9X PBR and 10.3X/8.2X PER
in FY14E/FY15E, which we consider fairly attractive given above-peer PAT
growth of over 24%, RoA and RoE of 1.6% and 26% average (FY14-FY16E).
Key risks
Key personnel departure, lower GDP growth, and tight liquidity conditions.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
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recent meeting with the management. Key takeaways: (1) YESB is on track
in garnering CASA (38% CAGR FY13-FY16E), and creating ground work for
retail asset as it builds a stronger liability franchise and doubles its network
by FY15. (2) Focus on productivity (accounts/sales person), value/account
(>2X peers), and cross-sell (from 2.5X to 4X target) should ensure profitable
growth. (3) New area of growth, business banking, targeted through branch
network. (4) On corporate side, focus is on refinancing activity; knowledge
based and collateralized lending and fee income likely to reduce risks.
Catalyst
We believe improving Current Account Saving Account (CASA), roll-out and
increase in retail assets, de-risking of balance sheet and growth in earnings
will be the key catalysts for YESB over the next couple of years: (1) We
expect YESB to open 470 branches in FY13-FY16, which would drive CASA
ratio to 28.5% by FY16E from 18.9% in FY13 (management target is 30% by
FY15); (2) we forecast net interest margin improvement of 55bps to 3.3% by
FY16 on the back of improving CASA, falling yields on wholesale
borrowing, while base/prime lending rates remain sticky; (3) ramp up in
retail assets, and potential booking of capital gains on investment book
(SLR book duration at 5 years) along with higher dynamic provisions could
be an added catalyst for the stock, in our view.
Valuation
We introduce FY16E EPS and fine-tune FY14E-15E EPS for Annual report
updates. We maintain our 12m CAMELOT-based TP of Rs620, offering a
potential upside of 30%. YESB trades at 2.4X/1.9X PBR and 10.3X/8.2X PER
in FY14E/FY15E, which we consider fairly attractive given above-peer PAT
growth of over 24%, RoA and RoE of 1.6% and 26% average (FY14-FY16E).
Key risks
Key personnel departure, lower GDP growth, and tight liquidity conditions.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
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