Reiterate ‘overweight’ on YES BANK and raise target price to R923 from R794. We also remove the volatile flag on the stock. We continue to remain positive given the higher loan growth, supported by the increasing retail mix, which will lead to higher RoA of 1.8% and RoE of 21% by FY17e. Accordingly, we are raising our earnings estimates by 7-8% each for FY15e, FY16e, and FY17e. The stock has done well recently and now trades at 2.5x 12-month forward adjusted book value (ABV). We now value it at 2.4x AB, from 2.2x on better RoE expectation.
Yes Bank’s Q3FY15 earnings came in at R540 crore (30% y-o-y), slightly ahead of our estimates. The bank delivered sustained loan growth driven by a continued emphasis on building the retail franchise, effective cost control, and stable asset quality. Loan growth accelerated for second quarter in a row, up 32% y-o-y driven by all round growth across all segments. However, management expects branch banking to drive most of the incremental growth over next couple of years as retail penetration improves.
Margins were flat q-o-q despite lower cost of funds as the bank shored up the G-sec book meaningfully. The CASA mix remained steady at 22.6%, though savings deposit traction remained healthy. Among other KPIs, other income grew well at 38% y-o-y, cost ratios remained stable and credit costs were in control, helped by stable GNPLs at 0.42%.
HSBC