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Punjab National Bank Overweight
PNBK.BO, PNB IN
Asset quality issues partially discounted
PNB reported PAT of Rs11.05B, up 3.4% y/y. Stronger-than-expected
PPOP was due a ~10bp margin surprise, although one-time provisioning
led to a 3% PAT miss. Asset quality remains a concern, but high credit
costs are broadly factored in by consensus, in our view. Current
valuations look reasonable at 1.4x FY12E as ROAs should continue to
be higher than peers’, justifying premium valuations, although our
preference for private banks continues.
Margin surprise: NIMs contracted by just ~7bp q/q vs our 15bp
estimate in spite of higher reliance on bulk deposits due to a higher-thanexpected
rise in lending and investment yields. Margin performance was
positive given re-pricing pressure and higher savings deposit rates,
reflected in peers’ >25bp contraction. Management maintained its 3.5%
guidance for FY12 (3.84% in 1Q12) with some pressure expected from
further deposit repricing and higher dependence on bulk deposits.
Delinquencies remain high: Incremental delinquencies were high at
~2.0% in 1Q FY12 but were largely expected with manual recognition
of <10MM accounts; asset quality risks will increase with system-based
recognition. The uptick in recoveries/upgrades was positive and if it
continues could ease provisioning pressure. Overall, asset quality
pressures have not eased, but consensus expectations have also been
low, with high credit costs being factored in by us and the street.
Other highlights: (1) Non-interest income growth was robust, with 25%
growth in core fees; (2) PNB will acquire a 30% stake in Met Life and
entered into a 10-year distribution tie-up – valuations were not disclosed
but assuming comparable multiples, the impact on Tier-1 is <20bp.
Maintain Overweight: We believe pre-1Q FY12 consensus estimates
were more realistic driven by conservative management guidance on
margins and already low expectations on asset quality. Valuations appear
reasonable at 1.4x FY12E relative to high ROAs but we prefer private
banks due to their higher asset quality comfort.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punjab National Bank Overweight
PNBK.BO, PNB IN
Asset quality issues partially discounted
PNB reported PAT of Rs11.05B, up 3.4% y/y. Stronger-than-expected
PPOP was due a ~10bp margin surprise, although one-time provisioning
led to a 3% PAT miss. Asset quality remains a concern, but high credit
costs are broadly factored in by consensus, in our view. Current
valuations look reasonable at 1.4x FY12E as ROAs should continue to
be higher than peers’, justifying premium valuations, although our
preference for private banks continues.
Margin surprise: NIMs contracted by just ~7bp q/q vs our 15bp
estimate in spite of higher reliance on bulk deposits due to a higher-thanexpected
rise in lending and investment yields. Margin performance was
positive given re-pricing pressure and higher savings deposit rates,
reflected in peers’ >25bp contraction. Management maintained its 3.5%
guidance for FY12 (3.84% in 1Q12) with some pressure expected from
further deposit repricing and higher dependence on bulk deposits.
Delinquencies remain high: Incremental delinquencies were high at
~2.0% in 1Q FY12 but were largely expected with manual recognition
of <10MM accounts; asset quality risks will increase with system-based
recognition. The uptick in recoveries/upgrades was positive and if it
continues could ease provisioning pressure. Overall, asset quality
pressures have not eased, but consensus expectations have also been
low, with high credit costs being factored in by us and the street.
Other highlights: (1) Non-interest income growth was robust, with 25%
growth in core fees; (2) PNB will acquire a 30% stake in Met Life and
entered into a 10-year distribution tie-up – valuations were not disclosed
but assuming comparable multiples, the impact on Tier-1 is <20bp.
Maintain Overweight: We believe pre-1Q FY12 consensus estimates
were more realistic driven by conservative management guidance on
margins and already low expectations on asset quality. Valuations appear
reasonable at 1.4x FY12E relative to high ROAs but we prefer private
banks due to their higher asset quality comfort.
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