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EQB Killed Another Quarter
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- Name
- Solo FIRE
EQB Inc (EQ Bank) reported 20% YoY revenue growth and 7% EPS growth, with a 10 bps interest margin increase to 2.1% and a 22% dividends increase YoY. The estimated value of the stock is $88.98 using the following conditions:
- TTM net income of 489.28 million
- EPS growth rate of 10% (5YR avg of 23%)
- Share dilution 2.8% per year (same as 5YR avg)
- Future PE of 7.37 (same as 5YR avg)
- Discount rate of 10%
Here are the things I liked about this report:
- The company grew their decumulation loan by another 57% YoY.
- Customer increased 36% YoY
- Interest margin expansion due to higher mortgage pre-payment income and strong customer retention.
The pre-payment income is generated from the fees when mortgages are refinanced, this fee is higher in the current high rate environment. The CEO is expecting the pre-payment income to stay high even after a rate cut due to people refinance their mortgage at lower rate, which will generate fee income for the company. The CEO also mentioned that mortgage renewal cost much less than originating new loans, thus it is very good to see strong customer retention.
Here are some concerns:
- The EPS growth rate seems lower this quarter, but considering how it has fluctuated in the past, I consider 7% is at the lower end (5YR average is 23%) and am expecting a higher growth rate long term.
- Credit loss provision (PCL) increased another 6 bps to $22 million, mainly from the equipment financing. The CEO is expecting this to be gradually resolved and the PCL should come down in the 2nd half of 2024.
Overall I think EQB had a great quarter and the stock is still trading at fair value after the price increase.
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DISCLAIMER: Solofire is not a registered financial advisor. This post contains author's personal opinion only and it should NOT be considered financial advice.