Halyk Bank ("Halyk Bank", the "Company" or the "Stock")
Disclaimer:
Please conduct your own thorough research. As the author of this post, I have a stake in Halyk Bank (HSBK.IL) and own shares in the company. If you are considering investing in this company, please be aware that the stock has low liquidity, which means that even a modest investment on your part can significantly impact the stock price. Keep in mind that selling your shares may not be easy if you decide to exit your position. The following content is intended solely for entertainment purposes and should not be construed as financial advice.
Why Halyk Bank?
I believe the stock is currently mostly undiscovered because of the following reasons:
Operates within the Central Asian region, a geographic area largely overlooked by the global investment community
No Seeking Alpha articles, No Twitter threads
And now let me tell you why I believe that this stock will at least double in the near future:
Halyk Bank's 'Super-App' is the #2 banking app in the region, grew by 38% YoY, and is used by 7 million people. Just for comparison: Kazakhstan has 11.85 million people within the age group of 18 to 65
It's the go-to app for retail investors
Halyk Bank is experiencing rapid growth in its diversified revenue streams
9M: Net income increased by 30.8% year-on-year, accompanied by a 34.7% return on average equity and a cost-to-income ratio of 17.9%.
What does the company do?
Halyk Bank offers a comprehensive online banking platform, supported by mobile applications such as Halyk Homebank and Onlinebank. These applications provide users with a unified login for accessing various websites and applications, enable cash withdrawals from ATMs using QR codes, and offer additional functionalities.
Beyond its digital banking services, Halyk Bank has extended its presence to various digital platforms, including Halyk Travel, Halyk Invest, Halyk Marketplace, and Kino.kz.
In addition to its online offerings, the bank extends its services offline through an extensive network comprising 572 branches and outlets situated across Kazakhstan. Furthermore, the bank maintains a presence in various other countries, including Georgia, Kyrgyzstan, and Uzbekistan.
Bullish reasons
In the subsequent section, I will articulate the reasons for my conviction that the company is currently significantly undervalued:
Almost everybody uses the Super-App
Halyk Bank launched its digital platform ‘Super-App’ leveraging its market position a few years ago. The app ranks #2 behind $KSPI for individuals. In Q3, the company experienced substantial growth in customer engagement metrics. The Monthly Active Users (MAU) and Daily Active Users (DAU) for the Super-App saw a year-on-year increase of 38% and 27%, respectively, reaching 7 million MAU. To put it into perspective, Kazakhstan is home to approximately 11.85 million people within the age group of 18 to 65.
The Go-to app for retail investors
Within a mere three years of its launch, Halyk Invest emerged as the leading digital investment platform in terms of user numbers. Remarkably, it achieved a threefold (3x!) increase in its customer base within just one year. Nevertheless, it is crucial to highlight that the growth in active clients, defined as clients with assets on their balance, amounted to “only” a +55% year-over-year increase.
Diversified revenue streams
In addition to conventional banking and brokerage services, Halyk Bank manages supplementary platforms strategically crafted to create a comprehensive customer ecosystem. This strategic approach enables the bank to broaden its revenue sources and expand its business presence across various sectors. Notably, all these platforms exhibited robust growth over the past year.
The numbers look good
First 9 Months of 2023:
Halyk Group's transition to IFRS 17 led to recalculations, with the first 9 months showing a 30.8% YoY increase in net income, reaching 537.3 billion tenge (around USD 1.1bn). This translates to an earnings per share of 4.03 USD for the initial nine months.
Despite a 5.7% drop in customer deposits, the bank demonstrated strong financial performance, achieving a 34.7% return on average equity and a 5.1% return on assets. Notable increases were observed in net interest and fee and commission income, with operating expenses rising by 9.9%. The cost-to-income ratio improved to 17.9%, and the gross loan portfolio expanded by 9.4%.
Q3 2023:
In the third quarter, Halyk Group reported a 37.7% YoY increase in net profit, reaching 172.1 billion tenge (approximately USD 370m). Net interest income grew by 19.7%, contributing to a net interest margin of 6.8%. Net fee and commission income increased by 24.7%, and other non-interest income surged by 27.9%. Operating expenses rose by 10.5%, but the cost-to-income ratio improved to 18.0%. Loans to customers increased by 9.4%, and the capital adequacy ratios rose in 3Q due to net profit earned by the bank.
Valuation
The current stock price is: 14.16 USD (December 6, 2023)
Below are my assessments of the fair stock price in three distinct growth scenarios:
Margin of Safety
Stock Price Estimated: 13.27 USD
Normal case
Stock Price: 35.66 USD
Best case
Stock Price Estimated: 86.57 USD
Halyk Bank announced its financial results for the year 2023, revealing a 21.8% increase in net income attributable to common shareholders, reaching US$1.5 billion (equivalent to KZT 693 billion). Total assets: +8.7% QoQ. Equity: +13.6% QoQ.