In Russia, we are initiating with an
Overweight rating on Bank VTB (target
USD10) and an Underweight on
Sberbank (USD3.1)
In Kazakhstan, we initiate with an
Overweight on HSBK (USD21), an
Underweight on KKB (USD14) and
Underweight (V) ALLB (USD4.5)
Banks in both regions are moving from
high growth to return optimisation; the
pressure on the Kazakh banks is greater
When the heat is over, pay for
optimisation
Russian banks: favourable macro environment continues to
provide good top-down valuation support to the sector.
We are paying for optimisation. VTB (OW) is our top pick,
as we believe the restructuring potential is not fully priced
in, and concerns around liquidity are overblown. We see
27% potential upside to the current share price, backed by a
superior 2007-12e EPS CAGR of 21%.
Sberbank (UW) is facing execution risk on costs and under
more pressure to build up loan loss provisions. Rising
inflation expectations are turning its rich time-deposit base
into a vulnerability. The valuation is not cheap at 12x 2009e
EPS versus a 2007-12e EPS CAGR of 16% on our estimates.
Kazakh banks: we foresee a slow healing process rather
than a quick fix by main shareholders or the regulator.
Consolidation and M&A may help solve liquidity issues, but
the asset restructuring will take some time to go through.
Alliance Bank (UW (V)) and Kazkommertsbank (UW): we see
no rush to buy despite past weak share price performance.
Valuations are dear: KKB and ALLB are trading at 9x and 7x
2009e EPS, respectively. This looks cheap at first glance, but is
expensive in light of our earnings growth expectations of 7%
and -13%, respectively, in the next five years.
Halyk Bank (OW): the fittest Kazakh bank in our view, it has
all the elements it needs to succeed while competitors take a
break. Fortress-like NPL coverage is good protection against
potential asset quality shocks. The valuation is attractive at 8x
2009e EPS versus an expected 2007-09e CAGR of 28%
Contents
Investment case 3
Russian banks 10
Kazakh Banks 23
Company financials 37
Valuation 43
Macroeconomics Appendix 50
Disclosure appendix 60
Disclaimer 63
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