Hold City Union Bank; target of Rs 160: Centrum

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Centrum's research report on City Union Bank

We retain Hold on CUBK with TP at Rs160 (valued at 2.2x FY20E ABV). Q2’19 revenue beat estimates on strong margin performance; PAT though was as per expectations. Loan growth remains healthy (consecutive fourth quarter of 17%+ YoY growth); asset quality intact with coverage (incl. tech w/off) healthy at 65%; capital position remains strong (CAR / Tier-I at 15.1% / 14.7% respectively). We like CUBK for its business model and superior return ratios. Valuations at 2.4x FY20E ABV, however limit near term upside.

Outlook

We suggest accumulating CUBK at lower levels. Retain HOLD with TP Rs160. Key risks: lower growth / higher than expected margin compression.

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