Halyk Savings Bank: Dominant Deposit Share in Kazakhstan

Isaac Schwartz of Robotti & Company presented his in-depth investment thesis on Halyk Savings Bank (Kazakhstan Stock Exchange: HSBK) at Asian Investing Summit 2018.

Thesis summary:

Halyk Savings Bank of Kazakhstan is the largest bank in Kazakhstan, controlling 37% of Kazakhstan’s deposit base, bearing Central Asia’s century-old leading financial services brand name. Halyk had the #1 position as a result of its consumer banking franchise prior to its 2017 merger with the #2 bank, that dominated the corporate side – as a result, creating the region’s undisputed powerhouse.

With $28 billion in assets, $2.9 billion in equity, and 2017 net income of $540 million, at its $3.8 billion market cap, Halyk sells for a low 7 times earnings and 1.3 times book. In recent years, the banking industry was (too slowly) fixing its post-financial crisis liquidity troubles, but those problems have been solved through mergers and the setting up of bad loan AMCs. At the same time, no other banks are publicly traded with a meaningful float – thus, there isn’t a ready base of analysts following the Kazakh banks today (as there was during the boom years of 2006-2007).

In addition to a low valuation on present numbers, which are normalized, Halyk has significant growth opportunities from the internal growth of the Kazakh economy, and significant improvement potential from the integration of last year’s merger – which was a company with nearly the same size asset base, but much lower profitability, as it. Using conservative earnings growth assumptions and expectations of a reflation of Kazakh equity multiples in coming years, Isaac believes the shares have significant price appreciation potential.

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About the instructor:

Isaac Schwartz is the Portfolio Manager of Robotti Global Fund. In 2007, Isaac launched the Global Fund to apply fundamental investing principles in less efficient international markets. Isaac lived in Singapore and Hong Kong for a combined six years and had extended work stays in Istanbul and Beijing. He has complemented his bottom-up research with extensive travel throughout Asia and Southeast Europe to develop relationships in the markets in which he invests. Isaac has been invited to speak at Wharton, Columbia Business School, CEIBS in Shanghai, and other forums about investing in Asia and emerging markets. Prior to joining Robotti & Company, Isaac worked for Schiff’s Insurance Observer, an investigative journal focused on the property-casualty insurance industry. Isaac graduated from Wharton with a BS in Economics.