1Q21 came in below estimates. One-time effects limited the recovery in the quarter, which, coupled with a high provisions level, led to a 70.7% y/y drop in net income
We will be revising our estimates and valuation, as recovery looms with more challenges than expected. In the meantime, the focus remains on asset quality and higher profitability
Significant deterioration in nonperforming loans, cost of risk and hedging. Figures continued to be impacted by the pandemic, but more importantly by extraordinary effects from the negative carry from the issuance of Senior Notes due in 2028 (unused proceeds). In addition, it should be noted that as of this quarter, factoring revenues will be reflected in the Interest Income line, recalling that Leasing revenues (consolidated since 2Q20) in Other Income. Despite lower economic activity, Creal's loan portfolio maintained a positive trend, reaching MXN 51.9 billion (4.4% y/y), mainly driven by the Payroll performance in the wake of the acquisition of Banco Ahorro Famsa's portfolio, while including the Arrendamiento and Factoring portfolio, it increased 9.8% y/y to MXN 54.7 billion. However, Financial Margin contracted 19.0% y/y as higher revenues were offset by the aforementioned negative carry, as well as higher interest expenses (+38.8% y/y). During the quarter, Crédito Real presented provisions of MXN 490.0 million (+6.5% y/y), mainly for the SME segment and to face the contingency. Consequently, net income fell 70.7% y/y to MXN 89 million, with a 3.4% ROE vs. 5.0% in 4Q20. Excluding extraordinary items, net income would have declined 59.4% y/y. Meanwhile, the NPL ratio rose to 3.9% vs. 1.8% previously due to the integration of a single very relevant loan in SMEs waiting to be able to exercise guarantees in delinquency. Slower recovery than anticipated. Although the business lines show signs of recovery, we believe that significant challenges remain. Valuation remains very attractive (P/BV 0.2x), however, latent risks need to be assessed, thus we will be updating our perspectives.