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F2Q1: Steady Trends;
Valuations Still Attractive
Corporation Bank reported a profit of Rs3.5 bn (+5%
QoQ and +21% YoY). This compares with our estimate
of Rs3.3 bn.
The key trends in the results were:
1) NII grew by 3% QoQ and 42% YoY. Margins were
stable sequentially at 2.64%. Loans and deposits
grew 8% and 6% QoQ respectively – however, the
growth seems to have been back-ended in nature.
2) Loan loss provisions decreased to 0.5% of loans
(annualized) from 0.8% in the previous quarter as
new NPL formation was offset by
recoveries/upgrades.
3) Cost to core income moved up to 41% from 39% in
the previous quarter, driven by higher employee
expenses (headcount addition + gratuity provision)
4) Core non-interest income progression was weak,
falling 5% YoY. Part of the weakness was driven by
the volatile FX segment income segment, which
was down 55% YoY.
5) Net capital gains to PBT was negative at Rs-45 mn
(-1% of PBT) (vs. +Rs59 mn in F1Q11 and +Rs665
mn in F2Q10).
Maintain OW: Corporation Bank is trading at 6.1x our
revised F2012E earnings and 1.3x BV. We believe that
these valuations are still attractive, given robust
pre-provision profits progression and improved
profitability versus historical levels. We are raising our
PT to reflect better asset quality outlook.
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