Jammu & Kashmir Bank’s (J&K Bank’s) NII (net interest income) grew 17.6% (y-o-y) to Rs2.66 billion in Q1FY10 from Rs2.26 billion in Q1FY09 on back of moderate growth in total assets (10.84%) and slight improvement in the margins to 3.1% during Q1FY10.
Net profit rose 23.8% to Rs.1.17 billion in Q1FY10 from 0.95 billion in Q1FY09 on strong trading profit (growth of 210% y-o-y), decent growth in NII (17.6%) and lower growth in operating expenses (growth of 14.2%).
Non-interest income rose 78.3% to Rs1.16 billion during Q1FY10 from Rs0.65 billion during Q1FY09. This robust growth has come on the back of a huge 210.4% growth in trading income.
Fee income was flat which grew 2.3% only during Q1FY10, while insurance distribution income was down by 12.1%.
Total deposits of the bank rose 10.0% to Rs313.6 billion in Q1FY10 from Rs284 billion in Q1FY09.
CASA accounts for 36.2% of the total deposits at the end of Q1FY10, a decline of 266 bps (y-o-y). This decline is mainly due to 15.5% y-o-y decline in the current account deposits in Q1FY10.
At Rs439, the stock is trading at 4.7x its FY10E earnings and 0.8x its FY10E ABV. We are maintaining our earnings estimates for FY10E as well as the target price of Rs556.
We expect net profit to be Rs4.49 billion and this will result into an EPS of Rs92.6 and adjusted book value of Rs520.9 for FY10E.
We are upgrading the stock to BUY from Accumulate earlier, on back of 27% upside from the current level. At the target price (Rs556), the stock would trade at 1.07x its FY10E adjusted book value.