Green Project Funding And Strong Asset Quality Will Drive Long-Term Earnings Power

Catalysts

About Türkiye Sinai Kalkinma Bankasi

Türkiye Sinai Kalkinma Bankasi is a development and investment bank that funds long term, impact focused projects in Turkey, with a particular emphasis on sustainability and inclusive growth.

What are the underlying business or industry changes driving this perspective?

• Expanding climate, green recovery and earthquake related funding lines from DFIs, much of it Treasury guaranteed and still undisbursed, should translate into higher FX loan volumes and fee generating mandates, supporting revenue growth and earnings visibility.
• The shift toward high yielding fixed rate and Turkish lira reference securities, alongside front loaded portfolio reallocation as CPI linker income fades, is expected to sustain one of the highest net interest margins in the sector. This in turn would underpin net interest income and net profit.
• Rising demand for renewable energy, energy efficiency and transition finance projects, where the bank already has deep expertise and high SDG loan penetration, should keep the loan pipeline robust. This may support above sector asset growth and stable loan spreads, lifting core revenues.
• Very low NPL ratios, strong Stage 2 and 3 coverage and a sizable free provision stock that management plans to reverse gradually provide room for lower net cost of risk. This can boost net margins and return on equity as credit losses normalize.
• Growing sustainable consultancy activities through the Escarus subsidiary and increased advisory and noncash business, aligned with tightening ESG requirements for corporates, can diversify income away from pure lending and improve the share of fee and commission income in total earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Türkiye Sinai Kalkinma Bankasi's revenue will grow by 33.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 66.4% today to 62.4% in 3 years time.
• Analysts expect earnings to reach TRY 27.6 billion (and earnings per share of TRY 12.76) by about December 2028, up from TRY 12.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting TRY35.3 billion in earnings, and the most bearish expecting TRY22.5 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 5.6x on those 2028 earnings, up from 2.9x today. This future PE is lower than the current PE for the TR Diversified Financial industry at 7.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 42.61%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current exceptionally low NPL ratio below 1% and negative net cost of risk depends heavily on continued large ticket NPL recoveries and an absence of new problematic loans. Any cyclical downturn, project delay or idiosyncratic corporate default in the concentrated investment loan book could push credit costs higher for several years and weaken earnings and return on equity.
• The bank's strong net interest margin of 5.7% and high sector leading core NIM rely on front loaded shifts into high yielding Turkish lira securities and FX loan accruals. A prolonged decline in CPI linker income, changes in Turkish interest rate dynamics or tighter banking regulations could compress spreads and reduce net interest income and net profit growth.
• Long term growth is tied to multilateral and development finance institution funding, Treasury guarantees and a pipeline of climate, earthquake recovery and SDG projects. Any slowdown in DFI disbursements, changes in guarantee frameworks or weaker demand for new green and inclusive investments could limit FX loan expansion and dampen revenue growth.
• While the bank benefits from low cost DFI and wholesale funding today, its structurally high share of FX loans and long dated liabilities exposes it to geopolitical shocks, funding market stress or Turkish lira volatility. These factors could increase funding costs or constrain access to external markets and pressure net interest margin and capital ratios.
• The business model has limited retail presence and already faces pressure on fee and commission income due to muted corporate finance activity and a high prior year base. If capital markets remain subdued or advisory mandates fail to scale as planned, non interest income may undershoot targets and cost to income could rise, weighing on earnings quality.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of TRY19.06 for Türkiye Sinai Kalkinma Bankasi based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be TRY44.3 billion, earnings will come to TRY27.6 billion, and it would be trading on a PE ratio of 5.6x, assuming you use a discount rate of 42.6%.
  
• Given the current share price of TRY13.12, the analyst price target of TRY19.06 is 31.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.