Friday, July 29, 2016 5:01pm/ Vetiva Research
· PAT down 26% albeit ahead of Consensus estimate
· Provisions accelerate amidst asset quality concerns
· Currency devaluation pushes loan portfolio up 29% Ytd
· TP revised to N4.73 (Previous: N4.51)
PAT down 26% albeit ahead of Consensus estimate
DIAMONDBNK released H1’16 results indicating persistent pressure across a few line items. In line with the trend observed in Q1’16, top line remained under pressure - down 7% y/y as Interest and Non-Interest Income could not provide the necessary earnings lift in Q2 – down 10% and 13% q/q respectively.
With Interest Expense down 30% q/q (in line with previous quarters and industry trend), Net Interest Income (N24.7 billion) was restricted to a 2% q/q decline – 7% ahead of our N23.2 billion estimate. Amidst consistent pressure on loan portfolio, loan loss expense surged further, up 46% y/y to N19.0 billion (translating to a CoR of 4.4%) – 7% ahead of our N17.7 billion estimate.
Consequently, Operating Income declined 12% y/y to N57.4 billion albeit better than our N56.5 billion estimate. Whilst we had anticipated further moderation in Operating Expense in line with previous quarters, the expense line came in 3% better than our N48.5 billion estimate, down 8% y/y to N47.0 billion.
Consequently, PBT declined 26% y/y to N10.5 billion, better than our N8.1 billion estimate. With an effective tax rate of 14% vs. Vetiva estimate of 20%, PAT declined 26% y/y to N9.1 billion – significantly ahead of our N6.4 billion estimate and Consensus N6.7 billion forecast.
TP revised to N4.73 (Previous: N4.51)
We have updated our model to reflect the deviation across a few line items. Whilst we note that H1’16 performance came in ahead of our estimates, we highlight that Q2 standalone was significantly weaker q/q and expect this trend to persist in the coming quarters.
Although we expect the bloated loan portfolio (up 29% ytd – largely due to the impact of currency devaluation on FCY loans) to support topline in H2’16 (Gross Earnings forecast is revised to N197 billion - Previous: N195 billion), we foresee mild pressure on Interest Expense and OPEX amidst the high interest rate environment and inflationary concerns.
Particularly, we remain concerned about the bank’s asset quality and forecast higher provisioning in the second half of the year. Consequently, we raise our CoR forecast to 5.3% (Previous: 4.7%). Overall, we estimate N14.1 billion PAT for FY’16 – translating to an EPS of N0.61. The already better than expected earnings has resulted in an upward review of our Target Price (TP) to N4.73 (Previous: N4.51).
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