Morgan Stanley Akbank equity report:  FY24 guidance lowered

FY24 revised guidance.

Akbank revised its FY24 guidance with 2Q24 earnings and is now expecting: (1) >20% FX loan growth up from “increase” in previous guidance, with TL loan growth guidance of ~40% unchanged, (2) ~3% swap adj. NIM down from ~4% previously, (3) >100% net F&C growth up from >80%, (4) opex growth at ~70% vs “average inflation” previously, (5) high 40ies CIR vs mid 30ies previously, (6) net total CoR of ~100bps from <150bps previously, and (7) mid to high 20s% ROE vs >30% previously.

Net interest income (lower than expected) of TRY18.4bn was down -9% QoQ and +62% YoY. NII came in 1% below MSe and -7% below consensus (Visible Alpha), though we note limited availability of consensus with only 2 estimates. NII including swap costs was TRY10.6bn, down 15% QoQ and 12% YoY, 1% below MSe. NIM including swap costs was ~2.1% in 2Q24, we calculate, vs. 2.7% in 1Q24.

Management noted on the call that 2Q is set to be the trough for margin, with 3Q spreads already depicting an improvement vs 2Q levels.

Non-interest income (lower than expected) of TRY18.2bn driven by a large sequential decrease in other non-interest income. Despite net F&C income coming largely in-line with MSe, non-interest income came in -11% below MSe and -8% below consensus on the back of lower than expected net trading gains and other income.

Operating income (lower than expected) of TRY37bn contracted -9% QoQ and -9% YoY. Operating income was -6% below MSe and -8% below consensus driven by a miss on other non-interest income.

Operating expenses (higher than expected) of TRY20.3bn grew +5% QoQ and +103% YoY. Operating expenses came in +3% above MSe and +4% above consensus

Provisions (lower than expected) of TRY3.8bn declined -10% QoQ and -14% YoY.  Provisions were -18% below MSe and consensus. Provisions including reversals stood at TRY1.7bn (+11% QoQ, -55% YoY). This level of provisions (incl. reversals) implies a COR of 0.61%, flat sequentially (1Q24 at 0.59%) and down -141bps YoY.

Net profit (lower than consensus, in-line with MSe) of TRY10.9bn declined -17% QoQ and -46% YoY. Net profit was in-line with MSe and -9% below consensus on the back of lower than expected NII and other non-interest income, offset by better than expected net provisions.

Loans and deposits: Loans increased by +12% sequentially to TRY1,167bn bringing  YoY loan growth to +51%. Deposit growth in 2Q24 stood at +7% QoQ which brings total deposits to TRY1,463bn. LDR in 2Q24 was 80% compared to 76% LDR in 1Q24.

Capital and ROE. Akbank’s CET1 (with forbearances) decreased to 14.4% from 15.0%  last quarter, largely on the back of higher TL and FX credit risk, as well as marking to market of securities, and partially offset by the quarterly profit. Looking at returns, 1H24 reported ROE stands at 22.4% (1Q24 24.9%) which compares to the revised guidance of mid to high 20s% for the year.

We set our price target as an average of our YE 2025 and 2026 valuation (discounted back  to 12 month forward)

YE 2025 and 2026 valuation are derived by applying a target multiple of 1.4x/1.5x to estimated 2025/26 TBV, and adding forecast dividends. We derive our target P/B multiples for 2025/26 from Gordon growth model (RoE – g)/(CoE – g).

Risks to Upside

Faster than expected disinflation path

Earlier than expected lifting of loan growth caps

Lower than expected asset quality deterioration

Higher than expected F&C growth

 

Risks to Downside

Inflation remains stickier than expected

Tight macro prudential measures remain in place for longer than expected

Weaker than expected margin improvement

Worse than expected asset quality trends

 

 

Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.