2025-05-29-Jefferies-公平银行（EQB）_EQB_2025年第二季度收益回顾_收益复苏取决于信贷演变_12页_257kb

EQB 2Q25 Earnings Review Summary

Core Content

Equitable Bank (EQB) reported second-quarter earnings that fell short of expectations, primarily due to higher-than-anticipated provisions on both performing and impaired loans, as well as a decline in non-interest revenues. The bank's net interest margin improved by 13 bps to 2.20%, but this was not enough to offset the negative impact on profitability. The efficiency ratio rose to 49.3%, and the ROE declined by over 300 bps to 11.9%. Despite these challenges, EQB's capital remains strong, allowing for a 3.9% increase in its dividend to $0.53 per share, resulting in a pro forma dividend yield of 2.1%.

Main Points

• Earnings Performance:

  • Q2 adjusted earnings were $2.31, below the consensus estimate of $2.55 and the previous estimate of $2.72.
  • Reported EPS was $2.22, reflecting the impact of pre-occupancy lease costs and efficiency-related expenses.

• Credit Issues:

  • Provisions for credit losses were higher than expected, with total provisions reaching $30.2 million.
  • The PCL ratio increased to 0.25% from 0.16% in Q1, driven by a significant rise in Stage 3 provisions to $24.5 million (up 77% from the previous quarter).
  • Gross impaired loans rose to $775.4 million, up 8% from the previous quarter and 64% from a year ago, with the majority of the increase in commercial lending (excluding equipment financing) and personal lending (excluding consumer lending).

• Capital and Dividend:

  • EQB's CET1 ratio dropped to 13.2% from 14.1%, but remains solid.
  • The bank raised its quarterly dividend by 3.9%, indicating confidence in its capital position.

• Valuation and Outlook:

  • The bank's share price has faced downward pressure due to the disappointing results.
  • The analysts expect that credit quality may improve in the second half of 2025 and normalize in 2026, which could lead to a recovery in share price.
  • The base case price target remains at C$107, representing a 17% increase from the current price of C$91.46, based on an 8.0x forward P/E multiple against FY26E EPS of $13.32.
  • An upside scenario of C$117 (28% increase) is based on a 10% increase in FY26E EPS, while a downside scenario of C$84 (8% decrease) is based on a 10% decline in FY26E EPS.

Key Information

• Loan Growth: Loans under management increased by 3.2% sequentially and 9.1% year-over-year.
• Provisions: Total provisions for credit losses were $30.2 million, significantly exceeding expectations.
• Efficiency Ratio: Increased by 200 bps sequentially to 49.3%.
• Dividend Increase: The dividend was raised by 3.9% to $0.53, increasing the dividend yield to 2.1%.
• Share Buybacks: EQB repurchased 271,117 common shares during Q2, representing 8.4% of its public float.
• EPS Forecasts:
  • Q2 adjusted EPS: $2.31
  • FY25E EPS: $10.71
  • FY26E EPS: $13.32
  • FY27E EPS: $15.50

Investment Thesis

EQB is viewed as a growth-oriented bank with better profitability than its current valuation suggests. The bank trades at the lowest P/E multiple among its peers, offering potential upside for investors willing to overlook short-term credit challenges. The analysts believe that the bank's business model is not broken and that management is actively working to address credit issues and reduce provision pressures.

Risks

• Credit Risk: Persistent credit issues in the commercial lending portfolio continue to impact profitability and earnings quality.
• Macroeconomic Slowdown: A more severe economic slowdown could further weigh on credit, lending volumes, and non-interest revenues.
• Valuation Volatility: The bank's share price is expected to remain volatile until credit conditions improve.

Analysts

• John Aiken, CFA
• John Hecht
• Joe Ng, CFA
• Aria Samarzadeh, CFA

Valuation Methodology

Jefferies uses a range of methodologies to determine price targets and ratings, including forward P/E, discounted cash flow (DCF), EBITDA, EPS, and other financial metrics. The base case price target of C$107 is based on an 8.0x forward P/E multiple against FY26E EPS of $13.32.

Investment Recommendation

• Rating: Buy
• Price Target: C$107 (+17% from current price)
• Total Return Expectation: 15% or more over the next 12 months

Summary

EQB's Q2 results were negatively impacted by credit-related provisions and a decline in non-interest revenues, but the bank's strong capital position and dividend increase provide some comfort. The analysts expect a gradual improvement in credit quality over the next few quarters, with a potential recovery in share price starting in Q3. The base case price target remains at C$107, reflecting an 8.0x forward P/E multiple against FY26E EPS. While the immediate outlook is neutral, the long-term potential is positive, supported by a strong business model and ongoing efforts to improve credit performance.