Opex growth dampens earnings improvements ACCESS recently-released Q1\u201920 results, reporting 31% y\/y growth in Gross Earnings. The significant increase was mainly due to a low base from Q1\u201919, as the bank was yet to complete its merger with the defunct Diamond bank at the time; however, the bank\u2019s performance in interest income growth (19% y\/y to \u20a6131.9 billion) and Non-Interest Income (58% higher y\/y at \u20a677.9 billion) was nonetheless noteworthy. Most notably, the bank reported a 320% y\/y spike in gains from investment securities to \u20a682.9 billion. This helped to offset a \u20a654.7 billion loss on foreign exchange trading and revaluations. On the other hand, the bank recorded a 153% y\/y increase in loan loss provisions to \u20a68.5 billion (Vetiva Estimate: \u20a65.5 billion), a result of the bank\u2019s expanded Loan book. Furthermore, the bank also recorded a spike (65% y\/y) in Opex to \u20a695.3 billion, driven by a weaker base in Q1\u201919, as well as a higher wage bill and a 55% jump in AMCON charges to \u20a617.5 billion. As a result of this, the bank reported a 3% y\/y growth in PBT to \u20a646.3 billion (Vetiva Estimate: \u20a643.5 billion) and flat PAT of \u20a641.0 billion, giving an ROAE of 26.3% (Q1\u201919: 30.9%). Management\u2019s cost saving strategy to rescue FY profits High operating costs of the new ACCESS bank continue to hamper profitability. Amidst the prospect of further moderations in earnings occasioned by the weak economic outlook for 2020 and the poor yield environment, the bank\u2019s cost to income ratio has risen from 53.2% in Q1\u201919 to 62.2% in Q1\u201920 (FY\u201919: 65.0%). While the bank is far from the worst performer among its peers, this issue threatens to further stifle profit growth if not properly addressed. Therefore, management\u2019s guidance on cost cutting measures to address the challenges are positive and could offset the decline in earnings expected in the coming quarters. Going forward, we expect a slight moderation in Opex y\/y to \u20a6268.8 billion (Previous: \u20a6272.6 billion), driven by cost synergies that the bank will continue to realize over the course of the year, with regard to branch rationalization and lower subscription fees and charges and other overhead costs. TP revised to \u20a611.14 (Previous: \u20a611.35) As a result of our revised expectations for the banking sector amidst COVID-19 outbreak, we have adjusted some line items in our FY\u201920 estimate. Firstly, we lowered our Interest Income forecast to \u20a6457.1 billion (Previous: \u20a6515.9 billion) as well as our Interest Expense line to \u20a6230.3 billion (Previous: \u20a6252.1 billion). We also increased our Non-Interest Income forecast to \u20a6175.4 billion (Previous: \u20a6150.7 billion). Finally, we raised our loan loss provisions projection to \u20a637.6 billion. Thus, our FY\u201920 PAT forecast has been lowered to \u20a690.4 billion (Previous: \u20a6103.1 billion), with an EPS projection of \u20a62.50 and a 12-month target price of \u20a611.14 (Previous: \u20a611.35). Thus, we maintain our BUY rating on the stock. The bank\u2019s shares have lost 36% YTD and are currently trading at a P\/B of 0.4x vs a Tier-I average of 0.5x.