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In its 4Q12 financials, TSKB reported TRY 68mn in net profits, both lower than our and the TRY 75mn consensus estimate of TRY 75mn mainly on the back of the lower fee income figure. The bank's 4Q12 net earnings remained flat in quarterly terms, while they were 6.5% lower than in 4Q11, corresponding to a 16% RoE. In cumulative terms, the TRY 307mn bottom-line implies 20% y/y growth and a 20% RoE. Overall, the results are favorable especially on the margin side. We maintain our Accumulate recommendation for the bank with a TRY 2.31 target price. TSKB currently trades at 1.1x P/BV and 6.5x P/E multiples for 2013E, which are lower than the banking sector average.
Key takeaways of the results were as follows:
1.Loans: TSKB_s total loan book expanded by 4.2% q/q in USD terms in 4Q12 (3% in local currency), and brought the annual loan growth to 15% y/y. Looking at the breakdown of the loan segments, energy production still constitutes the bulk with a 34% share in the total, while the bank intends to increase its exposure to infrastructure, non-residential real estate, tourism, PPP projects and energy efficient sectors, which is highly positive in our view.
2.Funding: In 4Q12, TSKB_s total funding grew by 3.2% q/q. Total long-term outstanding funds have remained at US4 3.586mn, with an average 12-year maturity. As of 2012, the IBRD & EIB have the highest share in the total funding base (79% share in total).
3.Margins: TSKB benefited from improving asset yields in the final quarter of the year and enjoyed a 41bps expansion in its NIM in quarterly terms to 4.76%, supported by increasing yields on CPI linkers - which constitute 24% of the bank_s total security book - coupled with the 30bps improvement in the loan spread in 4Q12. Accordingly, TSKB registered 12% q/q growth at the NII level and in its full year figures, NII growth stood at 18% y/y, implying a cumulative NIM of 4.6% in 2012.
4.Fees and operating expenses supported positively. The bank booked TRY 2mn in fee income in 4Q12 vs. the TRY 4.3mn reported in 3Q12, which was lower than our estimates. In 2013, management guided that they will focus more on privatization, IPO and M&A activities to strengthen fee income generation.
5.Asset quality: TSKB_s NPL ratio declined to 0.2% in 4Q12 from 0.3% in 3Q12, which is the lowest amongst our coverage universe. Meanwhile, the bank booked TRY 13mn in one-off provisioning expenses in the quarter due to the BRSA_s regulation on loans granted before 2006. In 4Q12, TSKB earned TRY 6mn in collections.
2013 guidance: During the conference call, management shared its 2013 guidance. Accordingly, TSKB_s management expects 15% loan growth in 2013, and does not foresee the share of loans in total assets to exceed 70% (which was 67% as of 2012). The management also foresees the loan spread to hover around 3.55 in 2013, but expects a contraction in the NIM to 4.3% due to the expected decline in CPI linker_s yields. With regards to operational expenses, management guided for 9-10% growth in 2013 and expects the cost to income ratio to be at the 15% levels. Overall, management expects the RoE to hover at around 17-18% in 2013, which is in parallel to our estimate.
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