Raiffeisen (RBI) reported 1Q15 net profit of €83 mn, beating both JPMe
(€30 mn) and company-compiled consensus (€58 mn) and comparing favourably
to the €718 mn loss reported last quarter. The Russian unit alone
delivered €95 mn of profits. The outperformance vs. our expectations was
mainly driven by lower provisions and smaller trading & other losses,
whereas the core income came in line. The stock is trading at 16-17E P/NAV
of 0.6x for 10% RoNAV (2017E) - we believe these levels are pricing in a
lot of negative expectations and would expect gradual progress on capital
rebuild to further support the share price. * Outlook unchanged. RBI has
reiterated that 2015E result "may be negative" (JPMe €224 loss), driven by
the booking of most of the restructuring costs this year (~€550 mn in
total, split broadly in half between costs and provisions). As before,
provisions in 2015E are expected "to remain elevated", but to come "below"
last year's level of €1,716 mn (JPMe -€1,875 mn).
* B3 FL CET1 ratio of 9.9% came broadly in line with JPMe (~10%) and
declined slightly q/q (10 bps), with both RWA and equity increases largely
driven by the YTD FX movements (1Q15 profit excluded +10 bps, no deduction
of provisions from either capital or RWAs). The bank has reiterated its
medium-term targets of B3 FL 12% CET1 and 16% total CAR in 2017E.
* The NPL ratio increased by ~50 bps q/q to 11.9%, partially driven by FX
effects (+50 bps). Provisions of €260 mn came better vs. our (€319 mn) and
consensus (€299 mn) expectations, declining by 7% y/y (-59% q/q). However,
the bank has warned that the charges are expected to be "elevated" in
2H15E. Coverage declined somewhat q/q to 66% (-1.5 pps), primarily driven
by Asia. The bank has disclosed that the level of NPLs in Asia stood at
27% (49% coverage) and in Ukraine at 52% (89% coverage). * Restructuring
in progress. In Poland, the bank has noted that due diligence on the unit
sale has started and that the timing is in line with original plan (1Q15
profit of €12 mn declined vs. 38 mn last quarter). In Hungary, RBI is
refocusing on premium and affluent retail customers, and strengthening the
corporate banking set-up (the subsidiary's loss has narrowed to €21 mn vs.
33 mn in 1Q14, including the €39 mn annual bank tax). Discussions
regarding Slovenia, Zuno and Asia / US are ongoing, according to the bank.
RBI has reiterated its transformation targets: release of ~€16 bn gross
RWAs over 3 years starting from Dec 2014 and ~20% lower cost base vs. 2014
(at constant prices and FX rates). * Group P&L: NII of €820 mn came in
line with JPMe (-3% vs. consensus), declining by 8% q/q, under pressure
from the low interest rate environment and FX movements (NIM declined by
13 bps q/q to 2.94%). Fees of €360 mn also broadly matched our
expectations (-5% vs. cons.) and decreased by 4% y/y (-14% q/q). Costs at
€691 mn were slightly better than expected and dropped by 8% y/y (-5%
q/q). * Divisional P&L: Russia delivered higher than expected profits (€95
mn vs. JPMe 45 mn and 51 m last quarter) and showed a more moderate NPL
deterioration (+50 bps q/q to 6.4%; JPMe FY15 at 15%). RBI has modified
its segment split from 1Q15, presenting non-core operations (Poland,
Slovenia, Zuno, Asia and US) in a separate unit.
