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