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Tuesday, 20 July 2021 | special comments

Banks: Forecast of 2021 Q2 Results

Banks, CEE

Analysts: Michał Konarski +48 22 438 24 05, Mikołaj Lemańczyk +48 22 438 24 07

We are expecting a strong 2021 Q2 reporting season from 2021 Q2 earnings calendar of rated lenders the CEE banks in our coverage. company reporting on For Polish lenders, we anticipate that F&C income in 4 August particular will register robust growth at a rate of 19% q/q BNP Paribas Bank Polska 12 August and +1% y/y, combined with exceptionally low 20 August provisioning. Net interest income will show the first signs ING BSK 6 August of a recovery, although on aggregate the NII for the year to 30 June 2021 will probably fulfill only 48% of our full- 26 July year forecast. 4 August Quarterly costs are expected to post a 22% increase PKO BP 12 August relative to Q2 2020, driven by normalization of payroll and 28 July capital expenses. Erste Group 30 July The combined quarterly risk reserves associated with Raiffeisen Bank International 30 July Swiss franc exposures are projected at PLN 1.2bn, almost Komercni Banka 3 August three times the amount posted in the same period last Moneta Money Bank 29 July year and an increase of 40% from the first quarter. OTP Bank 12 August These charges notwithstanding, we anticipate that Polish Source: Banks, mBank banks will fulfill 56% of our FY2021 full-year net profit forecast in the first half of the year – a big success Polish lenders see little deterioration in loan books considering the annual regulatory charges that weigh on profits every first quarter, and a sign potentially of further Polish banks had a bumper quarter revenue-wise in Q2 2021, room for upward forecast revisions. and, equally importantly, they were spared big write-offs in the period. The number of corporate and personal Case by case, we believe the biggest positive surprise in insolvencies made official in the second quarter reached Q2 2021 will be provided by Alior Bank, fulfilling a record numbers, but this has not entailed a deterioration in projected 90% of our FY forecast in H1 thanks in part to loan repayments over the past year, suggesting that the relatively low risk reserves. At Pekao (56% of FY forecast failing companies are mostly small businesses with low in H1), we expect to see strong growth in core income, and leverage. at PKO BP (55% of FY forecast in H1) we see net profit as coming close to an all-time high. According to data by the National Bank of Poland, in May 2021 the average NPL ratio for the bank sector was 6.2%, less On the other hand, Bank Handlowy will most likely report than in May 2020, a low figure even if we take into account further contraction in net interest income after extensive that lenders had recently gone back to selling off their NPL profit-taking on the trading book in the first quarter. portfolios to debt collectors. Summing up, the Polish financial sector will deliver very Based on this, we estimate that the aggregate cost of risk good second-quarter results ahead of the current recognized by our coverage universe in Q2 2021 was 62bp, expectations of the market, with the possibility taking and we are anticipating the lowest CoR values from shape of interest rate increases in a not so distant future. Handlowy (23bp), ING BSK (30bp), and Millennium (30bp). However the reaction of investors might be muted as the sector waits for the Supreme Court to finally hand down At the other end of the scale is Alior Bank with expected Q2 a decision on how to proceed with franc loan court cases. CoR of 168bp – a high value that is nevertheless relatively low for this particular bank. Outside of Poland, low risk costs are set to be the highlight of the 2021 Q2 reporting season, and in case of Our current full-year forecasts look conservative if we Austrian banks a rebounding interest income will also extrapolate the first-half CoR levels to the second half of the come into the spotlight. year, however we believe default rates on Polish loan books might worsen in the coming months. Interestingly, neither lenders in Austria, nor their Czech counterparts, seem to be experiencing a run-up in costs Aggregate risk cost of our Polish bank coverage at the same rapid rate as banks in Poland. universe 1,6 Our top picks to watch this reporting season are Komercni Banka along with Erste Group, set to fulfill 53% 1,4 and 64%, respectively, of our FY2021 full-year forecasts in the year through June, while their outlook for the second 1,2 half of the year has just brightened with the interest rate hikes introduced in the Czech Republic and Hungary. 1,0 At RBI, reserves against Polish franc exposures will 0,8 probably continue to weigh on profits throughout the rest of 2021. 0,6 trailing CoR annualized CoR 0,4

Source: mBank

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2021 Q2 cost of risk estimates for rated banks (basis ▪ Additional charges brought about by franc loan disputes points) will most likely continue to weigh on BNP's profits 180 throughout the rest of the year unless the bank finally opts 160 to shed the deadweight by launching a voluntary 140 settlements program for its borrower.

120 Forecast of 2021 Q2 results of BNP Paribas Bank Polska 100 (PLN m) 2Q’21E 1Q'21 q/q y/y YTD* 168 80 net interest income 758 733 2% -2% 50% 60 F&C income 255 247 3% 27% 50% 40 88 60 total income 1,252 1,222 3% 1% 49% 20 23 30 30 39 operating expenses 481 567 -15% 0% 36% 0 provisioning -85 -60 41% -58% 32% CHF provisioning -187 -72 160% 1124% 47%

Source: mBank net profit 131 164 -19% -39% 48% Source: mBank* YTD result as a pct. of our full-year forecast Alior Bank Bank Handlowy ▪ Alior will report its 2021 second-quarter results on 4 August 2021. ▪ Handlowy will report its 2021 second-quarter results on 20 August 2021. ▪ We expect net profit to come in at PLN 114.7m after a 6% increase from the first quarter. ▪ We expect net profit to come in at PLN 73.5m after falling 8% from the first quarter and decreasing 18% year on year. ▪ Net interest income will most likely be a bit lower than in Q2 2020, but F&C income is expected to rise on a growing ▪ Handlowy took profits on a major part of its trading book portfolio of non-mortgage retail loans. in Q1 2021, and the pared-down portfolio of interest- earning assets has cut into margins and trading income. ▪ Cost of risk is likely to increase to 168bp in Q2 2021 from 157b the quarter before, but it will remain well below the ▪ Net interest income is one example of this, with 2021 Q2 NII Bank’s own guidance of <2.2%. expected to show a 22% fall. ▪ All in all, we expect a positive second-quarter showing ▪ F&C income as well will likely post a 13% decline from the from Alior that could prompt upward revisions to the previous quarter, when there were positive one-time FY2021 earnings expectations of analysts. boosts, in spite of increased customer activity. Prop trading is set to deliver strong profits from FX deals in Q2. Forecast of 2021 Q2 results of Alior Bank (PLN m) 2Q’21E 1Q'21 q/q y/y YTD* ▪ Without the annual contribution into deposit guarantee and resolution funds paid in Q1, thanks to reduced payroll net interest income 681 670 2% -6% 49% expenses, costs in Q2 2021 are likely to post a 22% decrease F&C income 181 178 2% 17% 52% from the previous quarter. total income 922 914 1% 1% 49% ▪ Cost of risk will remain at a low 23bp in Q2, with operating expenses 384 418 -8% -3% 47% provisioning not likely to exceed PLN 11m. provisioning -263 -244 8% -73% 36% ▪ Summing up, Handlowy is poised to report low interest net profit 115 108 6% n.m 90% income for the foreseeable future until it builds back its Source: mBank* YTD result as a pct. of our full-year forecast trading portfolio – a challenge amid today’s low yields. Forecast of 2021 Q2 results of Bank Handlowy 2Q’21 BNP Paribas Bank Polska (PLN m) 2Q’21E 1Q'21 q/q y/y YTD* ▪ BNP Paribas Bank Polska (“BNP”) will report its 2021 net interest income 154 197 -22% -42% 39% second-quarter results on 12 August 2021. F&C income 150 172 -13% 21% 54% ▪ We expect net profit to come in at PLN 131m after falling total income 433 940 -54% -25% 57% 20% from the previous quarter and a 40% drop from the operating expenses 283 362 -22% -5% -53% same period in 2020, a contraction led by increased provisions for legal risk associated with franc- provisioning 11 6 79% -90% -13% denominated mortgage loans, estimated at PLN 186.5m. net profit 74 395 -81% -18% 64% ▪ Provisioning aside, BNP most likely registered growth Source: mBank* YTD result as a pct. of our full-year forecast across all main core income lines in Q2 2021, with net interest income likely posting a 2% rebound from Q1 driven ING BSK by increasing volumes and a greater business-day count; ▪ ING BSK (“ING”) will report its 2021 second-quarter results on the downside, the quarterly interest margin is set to on 6 August 2021. decline on a less favorable lending mix. ▪ We expect net profit to come in at PLN 534m after a 69% ▪ F&C income will increase by approximately 3% on higher rebound from Q2 2020 and a 38% increase from the first customer activity. quarter. ▪ Costs in Q2 will post a 15% reduction from the quarter ▪ Net interest income is set to show 3% q/q growth on before, when BNP paid its annual contributions into the increasing volumes and more business days, partly offset deposit guarantee and resolution funds. However on a by lower returns on the trading book. comparable basis we expect to see a 2% q/q rise led by ▪ F&C income should be 2% higher than in the quarter increased expenses on marketing and court cases. before thanks to increased customer activity. ▪ Provisioning will post a 41% surge from the quarter before ▪ Costs will drop 16% from Q1 thanks to a lack of seasonal when, however, there were positive one-time regulatory levies, but on a comparable basis we expect to developments. Core risk costs in Q2 remained at a low see a small rise led by expenses on growth initiatives. 42bp. Informacje podmiotu z Grupy mBank - objęte ochroną | mBank Group's entity information - protected

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▪ The core risk cost in Q2 will approximate 30bp, reflecting Pekao the good quality of ING's loan book and potentially also ▪ Pekao will report its 2021 second-quarter results on revisions to the bank's macroeconomic outlook. This would 4 August 2021. suggest nominal second-quarter provisioning of PLN 99m, with no special reserves against franc loan losses expected ▪ We expect net profit to come in at PLN 558.8m after in the period. soaring 127.5% quarter on quarter and 55.6% year on year. ▪ In conclusion, ING is set to report strong second-quarter ▪ Net interest income will edge about 0.7% higher than it results, clean of major one-offs, that can be seen as a mark was in Q2 2020, owing to a growing loan book offset by flat of the progress than the bank has made in recent years. lending margins. Forecast of 2021 Q2 results of ING BSK ▪ Operating expenses most likely decreased 20% from the (PLN m) 2Q’21E 1Q'21 q/q y/y YTD* first quarter, when Pekao paid in the annual deposit guarantee charges and recognized severance costs net interest income 1,170 1,142 3% 6% 49% associated with employee turnover. However, compared F&C income 436 428 2% 27% 55% to the corresponding year-ago period, costs in Q2 2021 total income 1,636 1,596 3% 8% 50% might soar 14% led by a rapid rise in D&A expenses operating expenses 692 821 -16% 8% 54% (+10% q/q). provisioning -99 -129 -23% -67% 33% ▪ Provisioning in Q2 2021 will register reductions of 5% q/q CHF provisioning 0 0 n.m -100% 0% and 64% y/y, with cost of risk expected to come in at 40bp. net profit 534 386 38% 69% 54% ▪ All in all, we expect good results from Pekao in Q2 2021, Source: mBank* YTD result as a pct. of our full-year forecast with low risk costs possibly signaling charge reversals in subsequent quarters. With that said, the strong growth in Bank Millennium expenses despite job reductions is a cause for concern. ▪ Millennium will report its 2021 second-quarter results on Forecast of 2021 Q2 results of Pekao 26 July 2021. (PLN m) 2Q’21E 1Q'21 q/q y/y YTD* ▪ We expect to see a quarterly net loss of PLN 212m after a net interest income 1,376 1,334 3% 1% 50% reduction by PLN 101m compared to the loss posted in the F&C income 653 616 6% 15% 51% first quarter. total income 2,122 2,002 6% 4% 50% ▪ Quarterly losses at Millennium are caused by continuing operating expenses 998 1,247 -20% 14% 57% reserves against franc loan losses which in Q2 will likely provisioning -165 -175 -5% -64% 32% come in at PLN 460m. CHF provisioning 0 -2.4 n.m. n.m. 1% ▪ When it comes to costs, Millennium probably paid the net profit 559 246 127% 56% 56% balance of its annual deposit guarantee fee in the amount Source: mBank* YTD result as a pct. of our full-year forecast of PLN 12m in Q2, but this should be offset by profits from settlements with card companies that are likely to reduce PKO BP quarterly expenses by about PLN 25m. ▪ PKO BP will report its 2021 second-quarter results on ▪ After the variations described above, on a comparable 12 August 2021. basis we expect to see a 9% increase in costs in Q2 2021 relative to Q1. ▪ We expect net profit to come in at PLN 1,221m after rising 4% from the first quarter and a 52% rebound from ▪ Total income is not likely to show much growth from the the same period in 2020 previous quarter with a 6% rebound in interest income (an effect of a greater number of business days, on top of ▪ The quarterly bottom line was heavily impacted by one- stronger volumes), and 2% growth in F&C income, offset by time gains and losses, including, on the one hand, a weaker income from trading. boost from FX profits and upward value adjustments to the Visa investment, and, on the other hand, a dent ▪ Cost of risk will approximate 30bp in Q2, a low value made by higher tax on profits from FX operations reflecting the good quality of Millennium’s remaining loan executed in Sweden. book after the sale of non-performing exposures. This would suggest nominal second-quarter provisioning of ▪ Otherwise, we expect to see 3% growth in core net PLN 56m (-22% q/q). interest income relative to Q1, supported by a greater number of business days on top of less damaging ▪ In conclusion, Millennium is having a pretty good year so negative hedging effects. far in terms of core earnings, but high provisions for franc loan losses keep weighing on its bottom line; without ▪ At the same time, F&C income will most likely post a 2% these charges, we see the bank as achieving double-digit rebound from the previous quarter, along with a 40% ROE in the future. surge in trading income driven by FX gains, an upward revision to the Visa investment, and returns on bond Forecast of 2021 Q2 results of Millennium transactions. (PLN m) 2Q’21E 1Q'21 q/q y/y YTD* ▪ Costs in Q2 2021 will probably end up at a similar level as net interest income 657 620 6% 5% 51% in the same period a year ago after increases in labor F&C income 209 205 2% 17% 54% costs and capital expenses relative to Q1. total income 894 896 0% -6% 49% ▪ Risk reserves will normalize at a higher level than the operating expenses 390 427 -9% -4% 43% unusually low amount posted in Q1 2021, and at a provisioning -56 -73 -22% -65% 23% projected PLN 350m the implied cost of risk is 60bp. CHF provisioning -460 -533 -14% 308% 28% ▪ In conclusion, PKO BP is expected to demonstrate the net profit -212 -311 -32% n.m. 18% fundamental strength of its business with 2021 Q2 Source: mBank* YTD result as a pct. of our full-year forecast results, most notably NII and F&C. Earnings momentum in the second half of the year might not be as robust without as high FX gains, but PKO is well on track to fulfilling our full-year expectations. 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Forecast of 2021 Q2 results of PKO BP Forecast of 2021 Q2 results of Erste Group (PLN m) 2Q’21E 1Q'21 q/q y/y YTD* (EUR m) 2Q’21E 1Q'21 q/q y/y YTD* net interest income 2,383 2,312 3% -6% 47% net interest income 1,262 1,180 7% 8% 51% F&C income 1,076 1,044 3% 18% 51% F&C income 536 521 3% 18% 51% total income 3,824 3,629 5% 6% 50% total income 1,861 1,763 6% 5% 51% operating expenses 1,417 1,655 -14% 0% 50% operating expenses 1,012 1,117 -9% 1% 51% provisioning -350 -184 90% -35% 29% provisioning -49 -97 -50% -92% 19% CHF provisioning 0 0 n.m. -100% n.m. net profit 536 311 72% 816% 64% net profit 1221 1177 4% 52% 55% Source: mBank* YTD result as a pct. of our full-year forecast Source: mBank* YTD result as a pct. of our full-year forecast Raiffeisen Bank International Santander Bank Polska ▪ Raiffeisen Bank International (“RBI”) will report its 2021 Q2 ▪ Santander Bank Polska will report its 2021 Q2 results on results on 30 July 2021. 28 July 2021. ▪ We expect growth in the quarterly net profit of 29% vis-à- ▪ We expect net profit to come in at PLN 111.6m after falling vis-à-vis the previous quarter and 45% year on year. 26% from the first quarter and a 63% slump year on year, ▪ RBI probably incurred charges associated with its Polish driven by reserves for franc loan losses in an estimated franc loan portfolio in the amount of €28m in Q2. amount of PLN 518.4m. The high loan charges should be ▪ We are anticipating a strong rebound in net interest partly offset by PLN 130m dividends received from the income and F&C income led by recovering volumes and Aviva unit. margins. ▪ Santander had a solid period in Q2 2021 in terms of income ▪ Provisioning in Q2 probably amounted to €90m after the generation, with net interest income rising 2.4% from the 15% q/q rise driven by Polish CHF exposures, but core risk previous quarter, F&C income up by 20% on the same cost will most likely end up lower than expected. period a year earlier, and high trading income after upward value adjustments to Visa shares combined with the Aviva ▪ In conclusion, we expect a strong 2021 Q2 report from RBI, dividends. and we believe the bank will fulfill 78% of our full-year earnings forecast in the first half of the year. At the same ▪ Not counting the provisions for franc exposures, on a time, profits in the second half will probably be weighed comparable basis loan loss reserves in Q2 2021 most likely down to an even greater extent by the charges related to decreased by 10% q/q and 32% y/y, with cost of risk down to Swiss franc loans. 93bp from 98bp in the previous quarter. Forecast of 2021 Q2 results of RBI ▪ In conclusion, a low bottom-line figure notwithstanding, (EUR m) 2Q’21E 1Q'21 q/q y/y YTD* we expect Santander to report solid 2021 Q2 results with net interest relatively strong core income and high-quality assets that 790 767 3% -4% 49% income will continue to support performance throughout the F&C income 460 434 6% 17% 50% remainder of FY2021. total income 1,270 1,215 5% 2% 50% Forecast of 2021 Q2 results of Santander Bank Polska operating -782 -1,045 -25% -3% 60% (PLN m) 2Q’21E 1Q'21 q/q y/y YTD* expenses net interest income 1,410 1,377 2% -3% 48% provisioning -90 -79 15% -43% 20% F&C income 590 611 -3% 20% 53% net profit 278 216 29% 45% 78% total income 2,252 2,125 6% 8% 50% Source: mBank* YTD result as a pct. of our full-year forecast

operating expenses 882 1,020 -13% 8% 53% Komercni Banka provisioning -328 -363 -10% -32% 49% ▪ Komercni Banka will report 2021 second-quarter results on CHF provisioning -518 -221 135% 712% 27% 3 August 2021. net profit 112 152 -26% -63% n.m ▪ We expect net profit to come in at CZK 2,903m after a 45% Source: mBank* YTD result as a pct. of our full-year forecast rebound from the first quarter and a 63% increase from Q2

2020. Erste Group ▪ Net interest income is set to post small improvement on ▪ Erste Group will report its 2021 Q2 results on 30 July 2021. comparable periods (+1% q/q and y/y) after volume growth ▪ We expect a net profit of €536m after a 72% rebound from offset by margin contraction. Second-quarter interest rate the first quarter and an eight-fold growth from the year- hikes are not likely to have noticeable effect yet on the ago period. period’s results. ▪ Net interest income will likely surprise on the upside ▪ We expect to see growth in F&C income at a rate of 3% q/q thanks to strong volumes and an over-2% decline in the and 11% y/y thanks to increased activity of customers with price of the Czech koruna. Second-quarter rate hikes are the lifting of lockdown restrictions. not likely to leave a mark yet on the period’s results. ▪ We see lost risk cost of 20bp in Q2 2021, down from 34bp ▪ Risk reserves are the other likely positive surprise of Q2 posted in Q1. 2021 if they show the expected 50% reduction relative to Q1. ▪ In conclusion, we anticipate a good second-quarter ▪ Summing up, we are anticipating a very good 2021 second- showing from Komercni Banka, with cost of risk that might quarter showing from Erste Group that might trigger end up even lower than our current low estimate. Net upward revisions to the full-year expectations of analysts. interest income is poised to rebound in future quarters on Cost of risk in particular might leave a lot of space for the back of hiked interest rates downward adjustments – we expect that CoR as of 30 June 2021 will fulfill only 19% of our FY forecast.

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Forecast of 2021 Q2 results of Komercni Banka (CZK m) 2Q’21E 1Q'21 q/q y/y YTD* net interest income 5,059 5,004 1% 1% 47%

F&C income 1,415 1,374 3% 11% 50%

total income 7,348 7,422 -1% 1% 49% operating expenses 3,403 4,341 -22% -4% 51% provisioning -352 -586 -40% -78% 25%

net profit 2,903 1,997 45% 63% 53%

Source: mBank* YTD result as a pct. of our full-year forecast

Moneta Money Bank

▪ Moneta Money Bank (“Moneta”) will report its 2021 second-

quarter results on 29 July 2021.

▪ We expect net profit to come in at CZK 835m after a 40% rebound from the previous quarter and 78% growth year- over-year, supported by profits from an NPL sale in an estimated amount of CZK 70m. ▪ On flat volumes and margins, net interest income in Q2 2021 probably edged only about 0.5% above the year-ago figure.

▪ Compared to the first quarter, we anticipate 14% lower

operating expenses thanks to a lack of regulatory charges.

▪ After the NPL sale, provisioning in Q2 most likely decreased 15% q/q and 81% y/y. ▪ All in all, Moneta will probably fulfill our forecast with its second-quarter and first-half results, however the recent hikes in interest rates have boosted the bank's outlook for the second half of the year. In particular we see plenty of room for downward adjustment to risk cost expectations assuming CoR as of 30 June 2021 fulfills only the expected 34% of our FY forecast.

Forecast of 2021 Q2 results of Moneta Money Bank

(CZK m) 2Q’21E 1Q'21 q/q y/y YTD*

net interest income 2,094 2,074 1% 1% 49% F&C income 500 499 0% 9% 51% total income 2,708 2,682 1% -27% 48% operating expenses -1,306 -1,509 -14% 0% 52%

provisioning -355 -418 -15% -81% 34% net profit 835 598 40% 78% 49% Source: mBank* YTD result as a pct. of our full-year forecast

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5

List of abbreviations and ratios used by mBank: EV (Enterprise Value) – Equity Value + Net Debt; EBIT – Earnings Before Interest and Taxes; EBITDA – EBIT + Depreciation & Amortisation; Net Debt – Borrowings + Debt Securities + Interest-Bearing Loans - Cash and Cash Equivalents; P/E (Price/Earnings) – Price Per Share Divided by Earnings Per Share; P/CE (Price to Cash Earnings) – Price Per Share Divided by Earnings + Depreciation & Amortisation; P/B (Price to Book Value) – Price Per Share Divided by Book Value Per Share; P/CF (Price to Cash Flow) – Price Divided by Cash Flow from Operations; ROE (Return on Equity) – Earnings Divided by Shareholders' Equity; ROCE (Return on Capital Employed) – EBIT x (Average Assets - Current Liabilities); ROIC (Return on Invested Capital) – EBIT x (1-Tax Rate) / (Average Equity + Minority Interest + Net Debt); FCFF (Free Cash Flow to Firm) – Cash Flow from Operations - CAPEX - Lease Payments; FCFE (Free Cash Flow to Equity) – Free Cash Flow to Firm - Net Interest Expense (incl. Debt + Leases) - Lease Payments

OVERWEIGHT (OW) – a rating which indicates that we expect a stock to outperform the broad market NEUTRAL (N) – a rating which indicates that we expect the stock to perform in line with the broad market UNDERWEIGHT (UW) – a rating which indicates that we expect the stock to underperform the broad market

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Copying or publishing the present publication, in full or in part, or disseminating in any way information contained in the present publication requires the prior written agreement of mBank S.A. Recommendations are addressed to all Clients of Biuro maklerskie mBanku.

Recommendations are addressed to all Clients of Biuro maklerskie mBanku.

All investment recommendations and strategies issued by mBank S.A. over the last 12 months are available at: http://www.mdm.pl/ui-pub/site/market_and_analysis/analysis_and_recommendations/fundamental_analysis/recommendations?recent_filter_active=true&lang=en

The activity of mBank S.A. is subject to the supervision of the Polish Financial Supervision Commission.

Individuals who did not participate in the preparation of recommendations, but had or could have had access to recommendations prior to their publication, are employees of Biuro maklerskie mBanku authorised to access the premises in which recommendations are prepared and/or individuals having to access to recommendations based on their corporate roles, other than the analysts mentioned as the authors of the present recommendations.

This publication constitutes investment research within the meaning of Art. 36.1 of Commission Delegated Regulation (EU) 2017/565.

The compensation of the research analysts responsible for preparing investment research is determined independently of and without regard to the compensation of or revenue generated by any other employee of the Bank, including but not limited to any employee whose business interests may reasonably be considered to conflict with the interests of the persons to whom the investment research prepared by the Research Department of Biuro maklerskie mBanku is disseminated. With that being said, since one of the factors taken into consideration when determining the compensation of research analysts is the degree of fulfillment of annual financial targets by customer service functions, there is a risk that the adequacy of compensation offered to persons preparing investment research will be questioned by a competent oversight body.

For U.S. persons only: This research publication is a product of mBank SA which is the employer of the research analyst(s) who has prepared the research publication. The research analyst(s) preparing the research publication is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This publication is intended for distribution by mBank SA only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this publication is not a Major Institutional Investor as specified above, then it should not act upon this publication and return the same to the sender. Further, this publication may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, mBank SA has entered into an agreement with a U.S. registered broker-dealer, Cabrera Capital Markets. ("Cabrera"). Transactions in securities discussed in this research publication should be effected through Cabrera or another U.S. registered broker dealer.

Strong and weak points of valuation methods used in recommendations: DCF – acknowledged as the most methodologically correct method of valuation; it consists in discounting financial flows generated by a company; its weak point is the significant susceptibility to a change of forecast assumptions in the model. Relative – based on a comparison of valuation multipliers of companies from a given sector; simple in construction, reflects the current state of the market better than DCF; weak points include substantial variability (fluctuations together with market indices) as well as difficulty in the selection of the group of comparable companies. Economic profits – discounting of future economic profits; the weak point is high sensitivity to changes in the assumptions made in the valuation model. Discounted Dividends (DDM) – discounting of future dividends; the weak point is high sensitivity to changes in the assumptions as to future dividends made in the valuation model. NAV – valuation based on equity value, one of the most frequently used method in case of developing companies; the weak point of the method is that it does not factor in future changes in revenue/profits of a company.

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mBank S.A. Prosta 18 00-850 Warszawa http://www.mbank.pl/

Research Department

Kamil Kliszcz Michał Marczak Michał Konarski director +48 22 438 24 01 +48 22 438 24 05 +48 22 438 24 02 michal.marczak@.pl [email protected] [email protected] strategy banks, financials energy, power generation

Jakub Szkopek Paweł Szpigiel Aleksandra Szklarczyk +48 22 438 24 03 +48 22 438 24 06 +48 22 438 24 04 [email protected] [email protected] [email protected] industrials, chemicals, metals media, IT, telco construction, real-estate development

Piotr Poniatowski Mikołaj Lemańczyk Janusz Pięta +48 22 438 24 09 +48 22 438 24 07 +48 22 438 24 08 [email protected] [email protected] [email protected] industrials banks, financials

Sales and Trading

Traders

Piotr Gawron Krzysztof Bodek Tomasz Jakubiec Director +48 22 697 48 89 +48 22 697 47 31 +48 22 697 48 95 [email protected] [email protected] [email protected]

Adam Prokop Magdalena Bernacik Andrzej Sychowski +48 22 697 47 90 +48 22 697 47 35 +48 22 697 48 46 [email protected] [email protected] [email protected]

Sales, Foreign Markets

Marzena Łempicka-Wilim Jędrzej Łukomski Piotr Brożyna deputy director +48 22 697 49 85 +48 22 697 48 47 +48 22 697 48 82 [email protected] [email protected] [email protected]

Private Client Sales

Kamil Szymański Jarosław Banasiak director deputy director [email protected] [email protected]

Informacje podmiotu z Grupy mBank - objęte ochroną | mBank Group's entity information - protected

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