Net earnings came in at HUF 1,051m for 2Q07, down 39.5% q/q and 37.0% y/y, below our expectation of HUF 1,571m. A worse-than-expected net interest margin and substantial losses on derivative transactions as well as higher-than-expected costs (affected by an exceptionally large increase in the depreciation charge) were the main reasons for lower-than-expected bottom-line. This failed to be offset by a further sharp decline in the effective tax rate (to 0.8% from a statutory rate of 20%).
With an outlook for declining earnings, we maintain our Sell rating on (2 150 HUF, -2,23%), seeing the bank as fundamentally overvalued. However, with the government’s privatisation plans still in focus, the sale of a 50% stake + 1 share to a strategic investor, we do not expect the results announcement to have much of a trading impact. Speculation that a buyout of minorities will follow the bank’s privatisation is expected to continue to support the stock price.