Komern banka: Results for 1Q24 below estimates due to adjusted items

Komern Bank’s 1Q24 net profit fell 21% y/y to K2,804m, 10% below consensus. The difference was largely caused by higher risk costs, which was not expected, while operating profit was roughly in line (1% below cons.). for a year, revenue stagnated quarter-on-quarter in 1Q24 and was thus slightly below consensus; NIM dreamed of 6 bps q/q. net fee and commission income rose 5% YoY in 1Q24, about 3% below consensus. The result from business operations and other income in 1Q24 weakened quarter-on-quarter, as expected, to K957 million. Total expenses were slightly better than expected, growing by 4% y/y. Risk expenses were higher than expected in 1Q24 (K -485 million vs. consensus -K -214 million); it was largely caused by the spittle in the boil. The ratio of unmarried households thus increased to 2.1% (vs. 1.8% in the 4th quarter of 2023). Capital ratios remained stable in Q1 24: CAR (18.8%) and Tier 1 ratio (17.7%) did not change. Real estate growth was low in 1Q24 at 0.6% q/q. The outlook for the year 2024 is unchanged: KB estimates that the economy will grow at an average single-digit rate; compared to 2023, revenues will improve at a low and mid-single-digit rate, with the positive contribution of NII, NFC and NPFO hidden by the growing volume of trade; OPEX will grow more slowly than revenues and risk costs will remain below 20-30bps.

Earnings in 1Q24 were weak, not as expected, which is largely caused by risk costs that came in above estimates. It was necessary to deal with the normalization of risk costs in 2024, but their growth rate was underestimated by the market in the 1st quarter. This was driven by a deterioration in asset quality with non-performing loans increasing from a very low 1.8% at the end of 2023 to 2.1% in 1Q24. Operating profit was largely in line with estimates, while revenues fell slightly below estimates. NII was stable q/q in line with estimates. The outlook for 2024 remained unchanged, but we expect him to give details on a conference call starting at 2:00 PM SE. The capital ratios were stable quarter-on-quarter, because KB created more than 100% of the dividend payment reserve. KB shares will decline today as the stock is trading ex-dividend (82.66 DPS) and 1Q24 results are unlikely to help KB shares that much.

Thomas Unger, analyst