Stock & Analyst Updates | |
Stock & Analyst Updates | |
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Tuesday
22nd August 2017 3.59PM/ Cordros Capital
ZENITH
recorded a 44.57% growth in interest income in H1-17. On our 12.98%
estimated assets yield, we believe the run rate will be sustained for the rest
of the year, equating to 36.38% y/y growth in interest income to N524.46 billion.
The
bank’s portfolio of investment securities, treasury bills, and quality loan
books will be catalysts of the growth in assets yield. We also forecast NIR to
surge by 51.16% to N186.60 billion, buoyed by strong trading income,
revaluation gains, and marginal write-back of previous provisions.
Overall,
we forecast a 39.97% growth in gross earnings to N711.06 billion in 2017F. That
said, PBT and PAT growth will be muted, owing to the impact of the elevated
cost of refinancing maturing FCY obligations, higher impairment provisioning on
transportation (specifically the aviation sector), communication and general
commerce exposure, and a surge in total operating expenses (opex).
In
a bid to meet maturing FCY obligations during the year, ZENITH issued the
second tranche of its USD1 billion Global Medium-Term Note Programme
established in 2014. The programme was completed in May and the bank
successfully raised USD500 million (at a coupon rate of 7.375%, a 113bps
premium over the first tranche).
We
believe both the Eurobond and the newly secured borrowings during the year
(SMBCE USD49.75 million and AFC USD181.9 million) came at higher cost relative
to the maturing loans (mostly concessional borrowings) having estimated
weighted average rate of 5.15%.
Accordingly,
and given the continued tight domestic interest rate environment, we expect
cost of funds to expand 125 bps y/y to 5.40% in 2017F – translating to interest
expense of N235.88 billion. However, we expect the stronger expansion in asset
yields will offset the growth in funding cost, thus, we forecast an uptick in
net-interest margin by 25 bps to 7.65%.
In
H1-17, ZENITH made a 30% provision on its exposure to 9 Mobile (formerly
Etisalat Nigeria) which resulted in a surge in credit loss provision (COR rose
to 3.6%, from 1.3% in Q1-17 and H1-16) to N42.40 billion.
Though
we acknowledge the fact that a haircut is eminent on the syndicated exposure to
9Mobile, it is our understanding that most of the provisions booked in H1-17 by
ZENITH was on its bilateral loan to the telco and not entirely on its share as
a part of the syndicate.
Despite
the bank restructuring 11.8% of its gross loan in H1-17(with oil & gas
exposure representing 10.1% of the restructured exposure) as well as
declassified some power exposure (down to 1.0% from 43.0% in FY-16), NPL still
rose to 4.3% (N99.19 billion) from 3.0% (N71.37 billion) in FY-16, as the bank
classified 37.6% (vs. 1.5% in FY-16) and 27.4% (vs. 18.5% in FY-16) of its
transportation and general commerce exposure as NPL.
Overall,
for 2017F, we estimate ZENITH’s NPL to increase to 4.50%, from 3.00% in FY-16
and 4.30% in H1-17, and cost of risks to rise to 2.68%, translating to a credit
loss provision of N77.13 billion in 2017F.
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