Thursday, April 26,
2018 10.18AM / Vetiva Research
yield environment in FY’17 supports Interest Income
up 179% y/y despite mild top line growth
balance sheet performance may cap earnings going forward
quality improves – loan loss down 33% y/y
Earnings lag estimates – Gross Earnings up 2% y/y
FBNH released its long-awaited FY’17 results, posting mixed performance
across major earnings lines. Particularly, Gross Earnings rose 2% y/y to ₦595
billion - ahead of our ₦581 billion estimate.
The mild top line growth was supported by a 16% y/y rise in Interest
Income to ₦470
billion (Vetiva: ₦478 billion) amidst a notable 32% y/y moderation in
Non-Interest Income to ₦113 billion – following the continued normalization of
Foreign Exchange Gains.
Despite the relatively flat Customer Deposit for the year, Interest
Expense was up 37% y/y and 9% q/q to ₦138 billion – 2% higher than our ₦135
billion estimate. With this, Net-Interest Income rose 9% y/y to ₦332
billion, 3% weaker than our estimate, following a 14% q/q contraction.
However, weak asset quality continues to drag earnings. Although loan
loss provision moderated 33% y/y to ₦150 billion, the expense line came in much higher than
billion – following a significant 50% q/q rise in loan losses in Q4’17.
According to management, the last quarter rise was largely driven by
additional provisions taken on its 9mobile exposure.
Consequently, whilst Operating Income rose 21% to ₦294
billion, the income line came in 18% weaker q/q and 5% below Vetiva’s estimate.
Furthermore, Operating Expense rose 8% y/y to ₦238 billion
(up 7% q/q) – higher than our ₦234 billion estimate, thus bringing PBT to ₦57
billion (FY’16: ₦23 billion). With the lower effective tax rate of 16%
(FY’16: 25%), PAT rose 179% y/y to ₦48 billion (thanks to the lower base from prior year)
- missing our ₦61
In addition, FBNH reported ₦7.7 billion loss from discontinued operations,
bringing bottom line to ₦40.0 billion. Overall, the Board of Directors proposed
a dividend of ₦0.25
per share for FY’17 vs. our expected ₦0.30 and prior year’s ₦0.10.
TP revised to N15.88 (Previous: N14.22)
We have revised our estimates across most line items
to reflect the earnings miss.
Particularly, whilst we expect improving risk
environment to support credit growth in 2018, we cut our loan growth forecast
to flat (Previous: 10%) – pressured by the expected loan write-off following
the implementation of IFRS 9, a trend we have observed across all the banks
that have released Q1’18 results so far.
We estimate a mild 3% y/y growth in Gross Earnings to ₦610
billion – supported by our 15% y/y growth forecast for Non-Interest Income (₦130
billion) amidst a flat Interest Income expectation (₦481
Importantly, we cut our loan loss provision expectation
to ₦44.3 billion as we expect the bank to take a one-time
charge against equity in Q1’18 (in line with IFRS 9 treatment). With our 5% y/y
Operating Expense growth expectation, we anticipate a 100bps moderation in Cost
to Income ratio to 53% for FY’18.
Overall, we forecast a significant rise in PAT to ₦149
billion for FY’18 – translating to an EPS of ₦4.16. We
revise our Target Price (TP) to ₦15.88 (Previous: ₦14.22) –
FBNH trades at FY’18 P/B and P/E ratios of 0.7x and 2.7x vs. Tier I averages of
1.0x and 4.7x respectively.
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