Turkish Banks
SECTOR REVIEW
Better outlook for 2009 provides further upside
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There is still value left: Turkish bank stocks have risen 60% since their
lows in early March 2009, with strong 1Q09 results and improving global
markets. We believe there is good value left in the Turkish banks owing to:
1) A 10% correction off peaks from the end of May; 2) an improved NPL
outlook; 3) lower interest rates and lower cost of equity; and 5) our
expectations for another strong quarter in Q2.
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Forecasts increased on better margin and NPL outlook: We have
revised our 2009 EPS estimates by 25% on average, incorporating a better
net interest margin outlook and reduced impact from NPLs.
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Valuations are still attractive: Turkish banks are trading at 2009E P/BV of
1.16x and P/E of 6.5x. Our fair 2009E P/BV of 1.51x implies upside potential
of 30%, with an average ROE of 19% in the next three years.
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2Q09 likely to hold further positive surprises: The market expects decent
profitability in 2Q09, but not higher than in Q1, in our view, and thus we
believe our expectation of 8% growth in Q2 over Q1 is not yet reflected in
the stock prices.
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Risk to our forecasts is a sharp rise in NPLs or bond yields: We do not
anticipate a sharp rise in interest rates or a strong acceleration in NPLs in
the remainder of 2009. Our long-term positive investment case would be
hampered if interest rates moved towards 20% levels and/or if the NPL ratio
moved towards 10% by year-end 2009.
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Earnings upgrades imminent: With our revised forecasts, we are now 30%
above consensus (Bloomberg) for 2009E earnings. As the outlook for a
strong 2Q09 becomes clearer, we expect to see earnings upgrades in the
market, which should help the near-term momentum.
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We do not expect a major pullback: Some market participants are calling
for a sharp correction in the Turkish market and banks. While we do not rule
out minor corrections (5–10%), we see a major pullback as very unlikely. We
would be selective buyers of Turkish banks on short-term weaknesses. Our
relative call on the sector remains positive, and we expect Turkish banks to
outperform their regional peers.
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Rating revisions: Garanti and Vakifbank remain our top picks. We rate both
Outperform, but we see stronger momentum in Garanti in the short term,
due to a potentially strong 2Q09. We downgrade Isbank to Neutral from
Outperform, and upgrade Akbank to Neutral from Underperform. Our ratings
on Yapi Kredi and Halkbank remain Neutral. The changes to our target
prices are summarised in Figure 9.