Download FC Research SRI LANKA BANKING SECTOR HOLD

FC Research
SRI LANKA
Sector Report
Analyst: Atchuthan Srirangan
Wediwardana
SRI LANKA BANKING SECTOR
HOLD
“Multiple Shocks Dampen Beat”
Recomme
ndation
Stock
Commercial Bank - Voting
Commercial Bank - Non-Voting
Hatton National Bank - Voting
Hatton National Bank - Non Voting
Sampath Bank
National Development Bank
Nations Trust Bank
Seylan Bank - Voting
Seylan Bank - Non-Voting
Banking Sector Universe
COMB.N
COMB.X
HNB.N
HNB.X
SAMP.N
NDB.N
NTB.N
SEYB.N
SEYB.X
Mkt. Cap
(LKR mn)
HOLD
BUY
SELL
HOLD
S.BUY
SELL
S.BUY
HOLD
HOLD
HOLD
107,922
107,922
71,273
71,273
41,591
28,359
17,918
15,856
15,856
Figure 1: 2016 Price Change upto 14th Jun 2016
HNB.N
(Source: CSE)
HNB.N 2%
PABC
-2%PABC
-3% HNB.X
SEYB.N
-5%
COMB.N
-7%
COMB.X
-9%
NDB
-10%
NTB
-12%
SEYB.X
-13%
UBC
-17%
DFCC
-19%
-20%
-15%
-10%
-5%
0%
Figure 2: Banking Sector vs. ASPI
115
ASPI
BFI
105
95
85
(Source: CSE)
75
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Price
129.6
111.7
216.0
175.0
235.0
171.7
77.7
90.1
63.1
Target Upside
Price
(%)
139.0
120.0
225.0
182.0
291.0
163.0
95.0
101.0
70.0
7%
7%
4%
4%
24%
-5%
22%
12%
11%
10%
PER (x)
PBV (x)
2016E
2017E
2016E
2017E
DPS
2016E
8.4x
7.3x
7.3x
5.9x
5.3x
7.7x
6.1x
6.3x
4.4x
7.6x
6.6x
6.3x
5.1x
4.5x
5.8x
5.3x
5.4x
3.8x
1.5x
1.3x
1.0x
0.8x
0.9x
0.9x
1.0x
1.0x
0.7x
1.3x
1.2x
0.9x
0.7x
0.9x
0.8x
0.9x
0.9x
0.6x
8.3
8.3
10.4
10.4
15.5
14.8
2.4
3.5
3.5
Dividend
Total
Yield
Return
2016E
6%
14%
7%
15%
5%
9%
6%
10%
7%
30%
9%
4%
3%
25%
4%
16%
6%
16%
5%
15%
FC Research expects the banking sector to have a slow phase
during 2016E-18E with slow GDP growth, tax attacks, sluggish
credit growth and rising non-performing loans. Hence we expect
our banking sector universe to provide 15% average return over
1-Year period slightly slower than the expected market return.
Slow GDP growth and Tax Attack: The current tight monetary
policy and tax increase are unlikely to help the GDP growth
numbers to improve. We expect 2Q & 3Q2016 GDP also to remain
weak while growth is likely to pick up towards 4Q2016 amidst the
rise in the construction led by Government starting off most of
the stalled projects. VAT has been increased to 15% resulting in
an incremental impact for the banking sector.
SAMP
-6%
15 June 2016
Apr-16
Disclaimer on Shareholding:
Relating to the Banking Sector, First Capital Limited holds 475,000 shares
in NTB, 466,401 in SEYB.N and affiliated Unit Trusts hold 15,000 shares in
SAMP, 40,000 shares in NTB, 65,000 shares in SEYB.X. Neither First
Capital Equities (Pvt) Ltd nor related entities have traded in the shares of
the Banking Sector in the three trading days prior to this document, and
will not trade in the shares of the Banking Sector for seven trading days
following the issue of this document.
Credit growth to slow down to 16%: We expect private sector
credit growth to slow down to 16% during 2016E gradually
5%
slowing down while 1H2016 continuing to remain on the high
side. CBSL is comfortable with credit growth of 12%-15% in the
sector. However, private sector credit growth shot up to 25% for
2015 amidst lose monetary stance.
NPLs to be on the rise in 2H2016 onwards: We expect Banking
sector non-performing loans to increase with increase in the
interest rate and weak economic condition: Non-performing loans
and GDP always have a negative relationship. Downturn in the
economy growth, real exchange rate appreciation and the rise in
real interest rate contributes to increase in the Non-Performing
loans.
Banking Sector on a HOLD with 15% avg. return over 1-Year
Period: With Average sector return at 15%, current interest rates
make valuations unattractive on expected return (Refer 5.1)
despite comparatively cheap frontier market valuations. Banking
Sector HOLD. We recommend a STRONG BUY on SAMP and NTB,
BUY on COMB.X, HOLD on COMB.N, HNB.X, SEYB.N and SEYB.X.
HNB.N and NDB are recommended as a SELL.
FC Research
“Multiple Shocks Dampen Beat”
Banking Sector Report – 2016
Table of Contents
1.0 Commercial banking sector struggle in 2013-14 before taking off in 2015 ........................ 3
1.1 State Banks continued with their a dominant presence with higher market share .................. 3
1.2 Tough conditions in 2013, somewhat improving in 2014 .......................................................... 3
1.3 Credit Boom in 2015 drives profitability ................................................................................... 4
2.0 Weak economic indicators to slowdown credit demand .................................................. 6
2.1 Weak GDP growth ..................................................................................................................... 7
2.2 Sri Lanka’s widened trade gap has forced CBSL to keep monetary policy tight in the medium
term ........................................................................................................................................... 7
2.3 Alarming fiscal position has led to higher Government Borrowing Requirement: ................... 8
2.4 Tight monetary policy may continue during 2016: ................................................................... 9
2.5 VAT hike to impact bottom line: .... ………………………………………………………………………………………9
3.0 NPLs to jump from current low levels ………………………………………………………………………….10
4.0 Selected Banks to have lowest adverse impact through cost management, higher core
income and better asset quality. …………………………………………………………………....………….12
4.1 Effective cost-income management to thrive profitability …………………………………………..……..12
5.0 FC Research Commercial Banking Sector on a HOLD with a 15% Return over 1Year ….14
5.1 Sri Lanka Banks are still cheaper compared to other banks in frontier markets but increased
interest rates dampen returns ………………………………………………………………………………..………….14
5.2 FC Research Top Banking Sector Buys: SAMP, NTB – Strong Buy, COMB.X - Buy………………….15
5.3 FC Research Banking Sector HOLD List: COMB.N, HNB.X, SEYB, SEYB.X……………………………….17
5.4 FC Research Banking Sector SELL List: HNB.N, NDB.N………………………………….………………………19
5.5 SAMP Corporate Update…………………………………………………………………………….………………………21
5.6 NTB Corporate Update……………………………………………………………………………….……………….……..24
5.7 COMB Corporate Update…………………………………………………………………………….………………………27
5.8 HNB, NDB, SEYB Income Statements and Statement of Financial Position………………..…………30
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FC Research
Figure 3: Commercial Bank Assets (LKR Bn)
6,974
5,022
Banking Sector Report – 2016
1.0 Commercial banking sector struggle in 2013-14
before taking off in 2015
1.1 State Banks continued with their dominant presence
and higher market share
Sri Lanka’s Commercial Banking sector consists of 13 local banks and
12 foreign banks which account for LKR 6,900Bn (USD 48Bn) asset
base. From the overall banking sector, private sector domestic
commercial banks hold 46% of the market share and two of the
giant state banks hold 44%.
Figure 4: Banking Asset Segmentation
2013
2015
Foreign
Commercial
Banks 10%
(Source: CBSL)
SAMP
8%
NDB 4%
HNB, 10%
State Owned
Banks , 42%
Private Sector
Commercial
Banks 46%
SEYB 4%
COMB 13%
NTB 3%
PABC 2%
UBC 1%
DFCC 4%
(Source: CBSL, Company annual & quarterly reports)
1.2 Tough conditions in 2013, somewhat improving in 2014
1.2.1 The Struggle in 2013
Sector profitability declines: Banking sector profits dipped 10%YoY
to LKR 75Bn compared to LKR 83Bn in 2012. The profitability was
recorded amidst the banking sector recording substantial gains from
investments in government securities held for trading illustrating
the significant slowdown of the core banking operations of the
banking sector in 2013.
Slow credit growth and depleting margins led the struggle for
banks in 2013: The lagged effects of tightened monetary policy
stance in 2012, saw a sharp deterioration in credit growth flowing
into 2013 with credit to the private sector slowing to 7.5%. With the
downward trend in interest rates accelerating towards the end of
the year, net interest margins also started to deplete biting into the
profitability of the sector. The Net Interest Margins (NIMs) declined
from 4.1% in 2012 to 3.5% in 2013, due to deposit base being repriced with relatively earlier than the lending portfolio, the
moderation in credit growth and the increase in low yielding assets.
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FC Research
Banking Sector Report – 2016
Pawning led NPLs adds further woes in 2013: The quality of assets
in the banking sector deteriorated as indicated by the increase in
the Non-Performing Loans (NPL) ratio from 3.7% as at end 2012 to
5.6% by end 2013. This was largely the result of weaker loan quality
in the pawning portfolio. NPLs increased by LKR 74Bn during 2013,
of which LKR 56Bn relates to pawning advances. In comparison, the
increase in NPLs amounted to LKR 17bn in 2012.
1.2.2 Some improvement in 2014
Core banking slowdown off-set by NPL dip and further trading
gains: Despite thin NIMs, the banking sector reported earnings of
LKR 88Bn for 2014, a growth of 17%YoY compared to LKR 75Bn
reported in the previous year. Profitability, which decreased
marginally during the first nine months improved towards the latter
part of the year.
Credit growth remains slow while NIMs remain thin: Continued
downward adjustment of interest rates during 2014 resulted in
NIMs remaining thin at 3.5%. However, LCB’s (excluding LSBs) NIMs
further declined to 3.6% in 2014 from the previous 3.7% in 2013.
Towards the latter part of the year, the growth in credit to the
private sector by commercial banks strongly rebounded, but still
closed the year 2014 only with 8.8%YoY growth. The slowdown in
private sector credit growth was mainly due to the decline in
pawning advances of commercial banks since 2013 in response to
low international gold prices.
NPLs ease while trading gains remained strong: Asset quality
improved during the year with the gross NPLs declining from 5.6% in
2013 to 4.2% in 2014. The banking sector experienced a declining
level of NPLs mainly with the recovery of pawning NPLs particularly
during the latter part of the year. Banking sector registered strong
capital gains via sale of treasury bills and bonds. Accelerating
decline in interest rate during 2014 resulted in a spike in bills and
bonds prices signifying healthy capital gains. Relaxation of monetary
policy and excess liquidity were the main drivers for this reduction
in interest rates.
1.3 Credit Boom in 2015 drives profitability
Banking sector records highest ever profits: Banking sector
registered 10%YoY growth to reach LKR 97.0Bn in 2015, from LKR
88.0Bn on the back of heavy credit despite continued thin NIMs in
the sector.
Private Sector Credit leaps to 25%: The YoY growth of private sector
credit accelerated to reach 25.1% by end 2015 from 8.8% at end
2014. Increased domestic demand, a part of which was transformed
into high demand for imports, amidst continued low interest rates
drove the demand for credit by the private sector. Broad money
increased by 17.8%YoY, by end 2015 compared to a growth of
13.4% recorded at end 2014. The average broad money growth in
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“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
2015 was at 15.2% compared to 13.3% recorded in the previous
year.
NIMs further deteriorate but offset by further trading gains: Sector
NIMs remained flat at 3.5% amidst the low interest rate regime,
however, NIMs for LCBs further dropped to 3.5% in 2015 from 3.6%
in 2014. Some major fluctuations in the treasury bills and bonds
market were observed during the year assisting the banking sector
make trading gains in 2015 as well.
Figure 5: Loan Book Diversification – 2015
100%
90%
1%
7%
80%
70%
60%
10%
12%
12%
13%
2%
11%
11%
16%
11%
0%
8%
8%
10%
11%
8%
4%
20%
7%
8%
14%
23%
16%
1%
16%
4%
0%
5%
2%
8%
2%
14%
12%
0%
50%
22%
17%
26%
17%
20%
40%
30%
52%
49%
20%
49%
(Source: Quarterly reports)
39%
34%
54%
48%
43%
10%
0%
COMB
HNB
SAMP
NTB
NDB
SEYB
PABC
Term loans
Overdrafts
Trade Finance
Pawning
Lease rentals receivable
Staff loans
Credit Cards
Others
UBC
(Source: Bank’s Annual reports)
Figure 6: Deposit growth as of 2015
Figure 7: Loan growth as of 2015
60%
40%
35%
50%
30%
25%
20%
15%
10%
55.6%
26.0%
19.9%
21.6% 20.8%
17.9%
39.5%
40%
19.7%
16.3%
19.2%
30% 24.8% 26.4%
16.3%
12.5%
Average 18.1%
20%
24.6%
19.6%
15.2%
20.5%
18.5%
11.5%
5%
10%
0%
0%
(Source: Banks’s Quarterly Statements)
23.2%
Average 19.5%
(Source: Banks’s Quarterly Statements)
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“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
2.0 Weak economic indicators to slowdown credit
demand
Figure 8: Loan growth as of 2015
Total Credit to Private Sector
3,800
3,600
3,400
3,200
3,000
2,800
2,600
2,400
2,200
2,000
MoM Growth
6.0%
3,4933,547
3,4063,450
3,315
5.0%
3,156 5.0%
4.0%
3,0043,069
2,9082,963
2,860
2,845
2,804
3.0%
2.9%
2.8%
2.2%
2.0%
1.7% 1.9%
1.5%
1.5%
1.4%
1.3% 1.3%
1.0%
0.9%
0.5%
0.0%
Source: CBSL
Credit growth to slow down to 15%: We expect private sector
credit growth to slow down to 15% during 2016E gradually
slowing down while 1H2016 continuing to remain on the high
side. CBSL is comfortable with credit growth of 12%-15% in the
sector. However, private sector credit growth shot up to 25% for
2015 amidst loose monetary stance.
Figure 9: Private Sector Credit as a % of GDP
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Vietnam
Ukraine
Morocco
Vanuatu
Mongolia
Cabo Verde
Honduras
India
Bolivia
Samoa
Armenia
Paraguay
Bhutan
Guyana
El Salvador
Moldova
Georgia
Indonesia
Philippines
Kosovo
Papua New Guinea
Solomon Islands
Guatemala
Senegal
Sao Tome and Principe
Djibouti
Sri Lanka
Nicaragua
Egypt, Arab Rep.
Swaziland
Lesotho
Micronesia, Fed. Sts.
Cote d'Ivoire
Ghana
Pakistan
Cameroon
Zambia
Congo, Rep.
Timor-Leste
Sudan
Yemen, Rep.
0%
(Source: World Bank)
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FC Research
Banking Sector Report – 2016
2.1 Weak GDP growth and Tax Attack
Figure 11: Struggling Quarterly GDP growth (Real)
40%
10%
35%
8%
30%
25%
6%
20%
4%
15%
10%
2%
5%
0%
9.90%
10.00%
8.00%
6.01%
6.00%
4.70%
4.86%
4.00%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0%
-5%
GDP Growth - YoY
PSC Growth - YoY
Figure 10: Private sector credit as a % of GDP
-10%
-2%
-4%
Private Sector Credit Growth
2.50%
1.90%
2.00%
4.82%
0.70%
0.00%
1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015
GDP Growth
(Source: Department of Statistics and Consensus)
(Source: CBSL)
GDP growth may remain slow in 2Q and 3Q 2016: The current
tight monetary policy is unlikely to help the GDP growth numbers
to improve. We expect 2Q & 3Q2016 GDP growth to remain
weak while the same is likely to pick up towards 4Q2016 amidst
the rise in the construction, led by Government starting off most
of the stalled projects. GDP growth for 2014 was recorded a
modest 4.8% while weak GDP growth of 2.5% was recorded in
4Q2015.
2.2 Sri Lanka’s widened trade gap has forced CBSL to keep
monetary policy tight in the medium term
Figure 12: Struggling Quarterly GDP growth (Real)
USD mn
-7,000
-7,200
-7,400
-7,600
-7,800
-7,609
-8,000
-8,200
-8,400
-8,600
-8,299
+9% YoY
-8,430
+2% YoY
Source: CBSL
High imports and low exports affecting official reserves: With
the trade gap bloating towards 3Q2015 CBSL took measures to
contain excessive imports which negatively affected the gross
official reserves. Relatively lower dip in import bill compared to
export bill, contributed to the expansion in the trade deficit in
2015. Accordingly, the trade deficit expanded marginally by 1.7%
to USD 8.4Bn in 2015, from the USD 8.3Bn recorded in 2014.
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“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
However, as a per cent of GDP, the deficit in the trade balance
decreased to 10.2% in 2015, from 10.4% in 2014 but continued
to remain on the high side.
Figure 13: Gross Official Reserves
5,621
6,069
6,573
6,294
7,281
6,784
6,809
6,481
6,225
5,500
6,458
6,000
6,846
6,500
7,455
7,000
7,525
7,500
7,304
USD 'Mn
8,000
5,000
(Source: CBSL)
2.3 Alarming fiscal position has led to higher Government
borrowing requirement:
High Budget deficits: Sri Lanka registered a high budget deficit of
7.4% of GDP for 2015 raising eyebrows of the international
investor. Budget deficit for 2016E was estimated to be c.5.9% of
GDP which is again high compared to international standards.
For 2016 the Government’s budget proposals targeted a very
optimistic revenue growth of 38% while significantly increasing
public investments.
Low tax to GDP: Sri Lanka’s lagging performance in tax collection
is another recent problem faced by the Government. In 2014,
Tax to GDP ratio hit a new low of 10.4% down almost 3% since
2006. At the same time, Sri Lanka’s per capita GDP has increased
by over 2.75 times (2006 – USD 1,423 and 2015 USD 3,924).
These trends suggest an inverse relationship between the two
variables. Sri Lanka’s tax revenue to GDP ratio is an anomaly,
both in comparison to other middle-income countries and its
trend over time. In 2015 the Government revenue performance
improved thanks to several one off taxes and the significant
expansion in revenue from excise duties on substantially
increased motor vehicle imports.
IMF deal may bring about some amount of fiscal consolidation:
With the Government reaching a staff level agreement with the
IMF have been taken to bring about fiscal consolidation. On the
2nd May Government raised the VAT to 15%, targeted to cut cost
and restructure state owned enterprises thereby reducing the
budget deficit to 5.4%. Finally on the 3rd June 2016 IMF Board
level approval was received the IMF program in Sri Lanka.
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“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
Government Borrowings remain high: With the Government’s
current borrowing requirement, Moody’s expect Sri Lanka’s debt
to GDP to jump back up to c.78% by 2016E compared 71% in
2014. Government’s debt to GDP climbed to 76% during 2015. In
2015 net credit to the Government climbed by 22.5%YoY and
credit to public corporations increased by 17.2%YoY, while in
2016 up to March net credit to the Government increased by
21.1%YoY and credit to public corporations climbed by 6.2%YoY.
With liquidity drying up in the system CBSL holdings shot up to
cover the maturities in Treasury Bills and Bonds and also to cater
to the capital and interest payment of foreign borrowings.
2.4 Tight monetary policy may continue during 2016
Figure 14: SL GDP Growth Forecasts
SL GDP Growth Forecasts
CBSL
World Bank
IMF
ADB
Average
2015
4.8%
2016E
5.5%
5.6%
5.0%
5.3%
5.4%
2017E
6.3%
6.0%
5.0%
5.8%
5.8%
Gradual slowdown in spending: Consumer credit segment is
likely to remain throughout 2016. With the heavy depreciation of
the rupee, increased VAT, SRR hike, policy rate hike and Bank
Loan to Value ratio being reduced to 70% it is likely to put the
brakes on the consumer spending on a gradual note leading to a
gradual reduction in the trade gap. However, the results of
measures taken may affect only towards the 2H2016.
Low Liquidity: Current Market liquidity levels are significantly
low which will result in considerable slowdown in private sector
credit growth. Government’s borrowing requirement is currently
mopping out whatever liquidity that is left in the system. Once
IMF facility and other international borrowing come in place
borrowing pressure from the Government side may ease off.
2.5 VAT hike to impact bottom line
VAT increased to 15%: Value Added Tax (VAT) on financial
services from 12% to 12.5% and raise Nation Building Tax by
additional 2%. “Our estimations suggest an incremental
impact of approximately LKR 7bn from the proposed
change in taxes for the banking sector”.
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“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
3.0 NPLs to jump from current low levels
NPLs to be on the rise in 2H2016 onwards: We expect Banking sector
non-performing loans to increase with increase in the interest rate
and weak economic conditions. Non-performing loans and GDP
always have negative relationship. Downturn in the economy growth,
rupee depreciation and the rise in interest rate contributes to
increase in the Non-Performing loans.
Figure 15: Gross NPLs vs. GDP Growth
10.0%
8.0%
Figure 3: CBSL Holdings of Government Securiti
6.0%
4.0%
2.0%
0.0%
-2.0%
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-4.0%
Gross Non-performing Advances Ratio
GDP Growth
(Source: CBSL, Company annual & quarterly report
Economic growth related asset quality may depreciate: With the
current slowdown in economic conditions and tight monetary policy,
we expect NPLs to increase marginally in 2016E and 2017E due to
deprived growth momentum negatively affecting sector profitability.
Non-performing advances of Commercial banking sector has been
lying low over the past few years due to favorable macro-economic
environment.
Figure 16: Gross NPLs as at 2015 has fallen significantly compared to
2015
S
8%
6%
4.7%
4.8%
4.3%
3.6%
4%
2.4%
2%
2.7%
2.8%
3.7%
2.4%
2.4%
1.6%
0%
SAMP HNB COMB NTB
NDB SEYB PABC UBC DFCC BOC PB
2014
2015
(Source: Quarterly reports)
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FC Research
Banking Sector Report – 2016
Rise in interest rates to further affect NPLs: Interest rates and NPL
always has inverse relationship. NPL always increase during rising in
interest period. However, in 2015 there was notable absorption risk
in the credit portfolio with credit being primarily distributed among
the construction (17%), trading (15%), manufacturing (11%), and
agriculture & fishing (9%) sectors, which accounted for more than
52% of the total credit portfolio.
Figure 17: Gross NPLs as at 2015
6%
250
5%
191
4%
200
165
153
3%
150
117
2%
99
100
1%
0%
50
2011
2012
2013
Gross NPL Volume (LKR. Bn)
2014
2015
Gross NPL Ratio (%)
(Source: CBSL)
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“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
4.0 Selected Banks to have lowest adverse impact
through cost management, higher core income and
better asset quality.
4.1 Effective
profitability
cost-income
management
to
thrive
We expect selected banking counters to perform exceptionally well
through improved cost management strategies and continuous
progress towards achieving greater core income through developed
marketing abilities and diversity in income generation.
Figure 18: Cost to Income ratio
100%
90%
80%
70%
60%
50%
40%
30%
SAMP HNB COMB NTB NDB SEYB PABC UBC DFCC BOC
2014
PB
2015
(Source: Annual reports)
Effective cost management: Selected banking counters have
managed to enhance their profitability by enhancing the efficiency
of operations by reducing the cost. Further, implementation of lean
management philosophy has also enabled them to lower cost
through enhancing automation of activities and efficiency of the
routine work.
Figure 19: Revenue Per Employee
10.00
8.00
6.00
4.00
2.00
0.00
SAMP HNB COMB NTB
NDB SEYB PABC UBC DFCC BOC
2014
PB
2015
(Source: Annual reports)
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FC Research
Banking Sector Report – 2016
Diversity in Income generation: Banks with diversified income
sources where income generation is done through different sources
have greater ability of maintaining stable profitability. Despite the
lowering margins these counters have been able to improve
profitability through income sources.
Figure 20: NII+Fee Based Income as a % of Total Income
100%
95%
90%
85%
80%
75%
70%
65%
60%
55%
SAMP HNB COMB NTB
NDB SEYB PABC UBC DFCC BOC
2014
2015
Figure 21: Fee Based Income as a % of Total Income
Figure 22: Net Interest Income as a % of Total Income
25%
80%
20%
75%
15%
70%
10%
65%
5%
60%
0%
55%
2014
2015
2014
2015
13
PB
“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
5.0 FC Research Commercial Banking Sector on a
HOLD with a 15% Return over 1Year
5.1 Sri Lanka Banks are still cheaper compared to other
banks in frontier markets but increased interest rates
dampen returns
MSCI Frontier Market Index: Sri Lanka’s banks are still behind most
of the peers in MSCI Frontier Market Index reflecting a potential for
further price upside. This may attract foreign investors providing
greater returns compared to other banks in frontier markets.
Figure 23: PER Comparison with Banks in MSCI Frontier
Markets Index
Figure 24: PBV Comparison with Banks in MSCI Frontier
Markets Index
17.02
2.23
Figure
3: Gross NPLs as of 9M20
Figure15.79
3: Gross
15 NPLs as of 9M20
1.81
12.56
1.8
1.67
10.44
1.14
0.83
0.76
0.64
United Bank for
Africa PLC
Al-Salam Bank
Zenith Bank PLC
Burgan Bank SAK
0.45
(Source: Bloomberg and MSCI)
(Source: Bloomberg and MSCI)
Figure 25: Forward PER of FC Research Coverage
Halyk Savings Bank
of Kazakhstan JSC
Sri Lankan Banks
National Bank of
Kuwait SAKP
MCB Bank Ltd
Attiarwafa Bank
2.41
Bank Muscat SAOG
4.05
Equity Bank Ltd
Zenith Bank PLC
Sri Lankan Banks
1.1
0.85
4.52
Bank Muscat SAOG
5.78
Halyk Savings Bank
of Kazakhstan JSC
United Bank for
Africa PLC
6.9
Equity Bank Ltd
MCB Bank Ltd
National Bank of
Kuwait SAKP
Al-Salam Bank
Attiarwafa Bank
Burgan Bank SAK
8.3
Figure 26: Forward PBV of FC Research Coverage
1.5x
8.4x
7.3x
1.3x
7.7x
7.3x
5.9x
6.1x
5.3x
1.0x
6.3x
0.8x
4.4x
0.9x
9%
6%
1.0x
(Source:
(Source:FCFCResearch
ResearchEstimates)
Estimates)
Figure 28: CASA Improvement
Figure 27: Dividend Yield 2016E
7%
1.0x
0.7x
(Source: FC Research Estimates)
6%
0.9x
60%
7%
5%
5%
3%
4%
50%
40%
30%
20%
2014
50%
47%
2015
46% 46%
41%
36%
32%
25%
28%
18% 19%
10%
0%
(Source: FC Research Estimates
(Source: Quarterly reports)
14
“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
Recomme
ndation
Stock
Commercial Bank - Voting
Commercial Bank - Non-Voting
Hatton National Bank - Voting
Hatton National Bank - Non Voting
Sampath Bank
National Development Bank
Nations Trust Bank
Seylan Bank - Voting
Seylan Bank - Non-Voting
Banking Sector Universe
COMB.N
COMB.X
HNB.N
HNB.X
SAMP.N
NDB.N
NTB.N
SEYB.N
SEYB.X
HOLD
BUY
SELL
HOLD
S.BUY
SELL
S.BUY
HOLD
HOLD
HOLD
Mkt. Cap
(LKR mn)
107,922
107,922
71,273
71,273
41,591
28,359
17,918
15,856
15,856
Price
129.6
111.7
216.0
175.0
235.0
171.7
77.7
90.1
63.1
Target Upside
Price
(%)
139.0
120.0
225.0
182.0
291.0
163.0
95.0
101.0
70.0
PER (x)
PBV (x)
2016E
2017E
2016E
2017E
DPS
2016E
8.4x
7.3x
7.3x
5.9x
5.3x
7.7x
6.1x
6.3x
4.4x
7.6x
6.6x
6.3x
5.1x
4.5x
5.8x
5.3x
5.4x
3.8x
1.5x
1.3x
1.0x
0.8x
0.9x
0.9x
1.0x
1.0x
0.7x
1.3x
1.2x
0.9x
0.7x
0.9x
0.8x
0.9x
0.9x
0.6x
8.3
8.3
10.4
10.4
15.5
14.8
2.4
3.5
3.5
7%
7%
4%
4%
24%
-5%
22%
12%
11%
10%
Dividend
Total
Yield
Return
2016E
6%
14%
7%
15%
5%
9%
6%
10%
7%
30%
9%
4%
3%
25%
4%
16%
6%
16%
5%
15%
Banking Sector Average Return to be 15% over 1 Year period falls
below expected market return: Sri Lanka’s Banking Sector capital
gain may provide a return of 9.5% while the dividend yield is c.5.5%.
In comparison to the 1 Year T-Bill which provides a return of 10.5%
we believe the expected return in the equity market to be
estimated 18.5% (with an 8% risk premium). Therefore the Banking
Sector is recommended a HOLD.
*[However, individual stock expected return differs on categorization]
Categorization Company Category
Strong Buy
Buy
Hold
Sell
Grade A
S&P SL20 Companies
T.Bill + 10% & Above T.Bill + 5% & Above
T.Bill + 1% & Above Below T.Bill + 1%
Grade B
Rest of the Companies
T.Bill + 13% & Above T.Bill + 8% & Above
T.Bill + 3% & Above Below T.Bill + 3%
Grade C
Companies less than LKR
1Bn Market Cap
T.Bill + 16% & Above T.Bill + 11% & Above T.Bill + 6% & Above Below T.Bill + 6%
5.2 FC Research Top Banking Sector Buys:
SAMP, NTB – Strong Buy, COMB.X - Buy
Sampath Bank (Target Price: 291, Total Return: +30 %): NTB’s high
yielding market leadership in credit card business and leasing
portfolio is expected to maintain its NIM above its peers despite
operating in a lower interest rate regime. Further, higher fee based
income may also expect to assist bank to thrive its topline. [Refer
Figure 18 & 19 for detailed analysis]
Expected SAMP price for 2016E
PER based target price - Voting
Justified PBV based target price - Voting
Average Target Price
306.2
275.6
290.9
P/E 31 Dec
2014
2015
2016E
2017E
2018E
Net Interest Income (LKR mn)
16,781
18,550
23,667
26,692
30,860
5,264
6,623
7,926
9,681
11,551
EPS (LKR)
31.3
38.4
44.4
52.0
59.1
YoY % Growth
45%
26%
20%
22%
19%
PER (x)
7.5x
6.1x
5.3x
4.5x
4.0x
PBV (x)
1.1x
1.0x
0.9x
0.9x
0.8x
Dividend Yield (%)
4.7%
5.5%
6.6%
7.7%
8.8%
Net Profit (LKR mn)
Valuations
NAVPS
205.5
227.0
248.7
273.3
295.7
Adjusted DPS (LKR)
11.0
13.0
15.5
18.2
20.7
Dividend Payout
35%
34%
35%
35%
35%
15
“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
Expected NTB price for 2016E
PER based target price - Voting
Justified PBV based target price - Voting
Average Target Price
110.1
80.0
95.1
Nations Trust Bank (Target Price: 95, Total Return: +25%): NTB’s
market leadership in credit card business has led bank to maintain
its NIM at appropriate levels despite its large leasing portfolio. With
the rise in interest rates we spreads to increase by at least 40bps
with deposits re-pricing faster than its loan book. We expect NTB to
continuously work on improving its cost-to- income and while fee
based income growth is also expecting remain in line with the
Bank’s historic growth rates. [Refer Figure 18 & 19 for detailed
analysis]
P/E 31 Dec
2014
2015
2016E
2017E
2018E
Net Interest Income (LKR mn)
8,940
9,105
10,048
11,286
12,567
Net Profit (LKR mn)
2,536
2,614
2,936
3,402
3,982
EPS (LKR)
11.0
11.3
12.7
14.7
17.1
YoY % Growth
19%
3%
12%
16%
17%
PER (x)
7.1x
6.9x
6.1x
5.3x
4.5x
PBV (x)
1.5x
1.3x
1.2x
1.0x
0.9x
Valuations
Dividend Yield (%)
2.7%
2.7%
3.1%
3.8%
NAVPS
60.3
65.8
76.1
87.5
100.7
2.1
2.1
2.4
2.9
3.6
19%
19%
19%
20%
21%
Adjusted DPS (LKR)
Dividend Payout
4.6%
Commercial Bank Non-Voting (Target Price: 120, Total Return:
+15%):
Expected COMB price for 2016E
PER based fair value- Voting
Justified PBV based fair value - Voting
Average fair value
Voting non-voting Spread
Average fair value - Non-voting
P/E 31 Dec
169
107
138
13%
120
2014
2015
2016E
2017E
2018E
Net Interest Income (LKR mn)
27,320
30,567
37,203
41,914
47,016
Recurring net Profit (LKR mn)
11,239
11,855
13,853
15,699
17,766
7,566
11,855
13,853
15,699
17,766
Net Profit (LKR mn)
Recurring EPS (LKR)
12.9
13.4
15.3
17.0
18.8
EPS (LKR)
8.7
13.4
15.3
17.0
18.8
Recurring Profit YoY % Growth
6%
5%
17%
13%
13%
Voting - PER (x)
14.8x
9.6x
8.4x
7.5x
6.8x
Voting - PBV (x)
1.7x
1.6x
1.5x
1.3x
1.2x
Voting - Dividend Yield (%)
5.0%
5.0%
6.5%
7.2%
7.9%
Non-Voting - PER (x)
13.0x
8.4x
7.4x
6.6x
6.0x
Non-Voting - PBV (x)
1.5x
1.4x
1.3x
1.2x
1.1x
Non-Voting - Dividend Yield (%)
5.7%
5.7%
7.3%
8.1%
9.0%
NAVPS
77.4
80.3
88.1
96.7
106.1
6.4
6.4
8.3
9.2
10.2
50%
48%
54%
54%
54%
Valuations
Adjusted DPS (LKR)
Dividend Payout
16
“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
5.3 FC Research Banking Sector HOLD List:
COMB.N, HNB.X, SEYB.N, SEYB.X
Commercial Bank Voting (Target Price: 138, Total Return: +14%)
Expected COMB price for 2016E
P/E 31 Dec
PER based fair value- Voting
Justified PBV based fair value - Voting
Average fair value
Voting non-voting Spread
Average fair value - Non-voting
169
107
138
13%
120
2014
2015
2016E
2017E
2018E
Net Interest Income (LKR mn)
27,320
30,567
37,203
41,914
47,016
Recurring net Profit (LKR mn)
11,239
11,855
13,853
15,699
17,766
7,566
11,855
13,853
15,699
17,766
12.9
13.4
15.3
17.0
18.8
EPS (LKR)
8.7
13.4
15.3
17.0
18.8
Recurring Profit YoY % Growth
6%
5%
17%
13%
13%
Voting - PER (x)
14.8x
9.6x
8.4x
7.5x
6.8x
Voting - PBV (x)
1.7x
1.6x
1.5x
1.3x
1.2x
Voting - Dividend Yield (%)
5.0%
5.0%
6.5%
7.2%
7.9%
Non-Voting - PER (x)
13.0x
8.4x
7.4x
6.6x
6.0x
Non-Voting - PBV (x)
1.5x
1.4x
1.3x
1.2x
1.1x
Non-Voting - Dividend Yield (%)
5.7%
5.7%
7.3%
8.1%
9.0%
NAVPS
77.4
80.3
88.1
96.7
106.1
6.4
6.4
8.3
9.2
10.2
50%
48%
54%
54%
54%
Net Profit (LKR mn)
Recurring EPS (LKR)
Valuations
Adjusted DPS (LKR)
Dividend Payout
Hatton National Bank Non-Voting (Target Price: 182, Total Return:
+10%):
Expected HNB price for 2016E
0
PER based target price
Justified PBV based target price
Average Target Price - Voting
0
192
259
225
Spread
20%
Average Target Price - Non-Voting
182
P/E 31 Dec
2014
2015
2016E
2017E
2018E
Net Interest Income (LKR mn)
27,320
30,567
37,203
41,914
47,016
Recurring net Profit (LKR mn)
11,239
11,855
13,853
15,699
17,766
7,566
11,855
13,853
15,699
17,766
12.9
13.4
15.3
17.0
18.8
EPS (LKR)
8.7
13.4
15.3
17.0
18.8
Recurring Profit YoY % Growth
6%
5%
17%
13%
13%
14.8x
9.6x
8.4x
7.5x
6.8x
Net Profit (LKR mn)
Recurring EPS (LKR)
Valuations
Voting - PER (x)
Voting - PBV (x)
1.7x
1.6x
1.5x
1.3x
1.2x
Voting - Dividend Yield (%)
5.0%
5.0%
6.5%
7.2%
7.9%
Non-Voting - PER (x)
13.0x
8.4x
7.4x
6.6x
6.0x
Non-Voting - PBV (x)
1.5x
1.4x
1.3x
1.2x
1.1x
Non-Voting - Dividend Yield (%)
5.7%
5.7%
7.3%
8.1%
9.0%
NAVPS
77.4
80.3
88.1
96.7
106.1
6.4
6.4
8.3
9.2
10.2
50%
48%
54%
54%
54%
Adjusted DPS (LKR)
Dividend Payout
17
“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
Seylan Bank Voting (Target Price: 101, Total Return: +16%) and
Non-Voting (Target Price: 70, Total Return: +16%):
P/E 31 Dec
Expected SEYB price for 2016E
PER based target price
Justified PBV based target price
Average Target Price
Voting non-voting Spread
Average Target Price
120
81
101
30%
70
Net Interest Income (LKR mn)
Net Profit (LKR mn)
EPS (LKR)
YoY % Growth
2014
2015E
2016E
2017E
2018E
11,199
11,857
15,693
17,636
20,030
3,178
3,847
4,564
5,496
6,418
9.2
11.3
13.4
16.1
18.8
37%
21%
19%
20%
17%
9.8x
8.0x
6.7x
5.6x
4.8x
Valuations
Voting - PER (x)
Voting - PBV (x)
1.2x
1.2x
1.0x
0.9x
0.8x
Voting - Dividend Yield (%)
2.8%
2.8%
3.7%
4.4%
5.2%
Non-Voting - PER (x)
7.4x
6.0x
5.1x
4.2x
3.6x
Non-Voting - PBV (x)
0.9x
0.9x
0.8x
0.7x
0.6x
Non-Voting - Dividend Yield (%)
3.7%
3.7%
4.9%
5.9%
NAVPS
73.0
76.2
86.1
98.1
112.0
2.5
2.5
3.3
4.0
4.7
27%
22%
25%
25%
25%
Adjusted DPS (LKR)
Dividend Payout
6.8%
18
“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
5.4 FC Research Banking Sector SELL List:
HNB.N, NDB.N
Hatton National Bank Voting ((Target Price: 225, Total Return:
+9%) :
Expected HNB price for 2016E
P/E 31 Dec
PER based target price
Justified PBV based target price
Average Target Price - Voting
0
192
259
225
Spread
20%
Recurring EPS (LKR)
Average Target Price - Non-Voting
182
0
2014
2015
2016E
2017E
2018E
Net Interest Income (LKR mn)
27,320
30,567
37,203
41,914
47,016
Recurring net Profit (LKR mn)
11,239
11,855
13,853
15,699
17,766
7,566
11,855
13,853
15,699
17,766
Net Profit (LKR mn)
12.9
13.4
15.3
17.0
18.8
EPS (LKR)
8.7
13.4
15.3
17.0
18.8
Recurring Profit YoY % Growth
6%
5%
17%
13%
13%
Voting - PER (x)
14.8x
9.6x
8.4x
7.5x
6.8x
Voting - PBV (x)
1.7x
1.6x
1.5x
1.3x
1.2x
Voting - Dividend Yield (%)
5.0%
5.0%
6.5%
7.2%
7.9%
Non-Voting - PER (x)
13.0x
8.4x
7.4x
6.6x
6.0x
Non-Voting - PBV (x)
1.5x
1.4x
1.3x
1.2x
1.1x
Non-Voting - Dividend Yield (%)
5.7%
5.7%
7.3%
8.1%
9.0%
NAVPS
77.4
80.3
88.1
96.7
106.1
6.4
6.4
8.3
9.2
10.2
50%
48%
54%
54%
54%
Valuations
Adjusted DPS (LKR)
Dividend Payout
National Development Bank (Target Price: 163, Total Return: +4%)
Expected NDB price for 2016E
PER based target price
Justified PBV based target price
Average Target Price
P/E 31 Dec
119.5
207.0
163.2
2014
2015
2016E
2017E
2018E
Net Interest Income (LKR mn)
7,913
7,807
10,608
11,791
13,296
Net Profit (LKR mn)
4,134
3,542
3,474
4,488
4,921
EPS (LKR)
25.0
21.4
21.2
27.3
30.0
YoY % Growth
56%
-14%
-2%
29%
10%
6.9x
8.1x
8.2x
6.3x
5.8x
Valuations
PER (x)
PBV (x)
1.0x
1.0x
0.9x
0.8x
0.7x
Dividend Yield (%)
6.4%
8.1%
6.1%
7.9%
8.7%
NAVPS
168.8
171.8
188.6
208.8
246.0
Adjusted DPS (LKR)
11.0
14.0
10.6
13.7
15.0
Dividend Payout
44%
65%
50%
50%
50%
19
“Multiple Shocks Dampen Beat”
FC Research
Banking Sector Report – 2016
Appendices
Appendix: 1
Appendix: 2
Capital adequacy ratios are well above the minimum
requirements by CBSL
Higher branch network may assist banks to improve their
profitability by maintaining higher deposit base
Figure 29: Tier 1 and Tier 2 as at 2015
Figure 30: Number of Branches
30.00%
25.00%
833
Tier 1
Tier 2
578
20.00%
15.00%
225
10.00%
249
264
159
92
5.00%
0.00%
93
137
79
64
SAMP HNB COMB NTB NDB SEYB PABC UBC DFCC BOC
V
(Source: Quarterly reports)
PB
(Source: Quarterly reports)
20
FC Research
SRI LANKA
Corporate Update
Analyst: Atchuthan Srirangan
Wediwardana
SAMPATH BANK PLC
SAMP.N0000
Current Price: LKR 235.0
STRONG BUY
Fair Values: LKR 291.0
JUNE 2016
“Profitability Driven by Higher Market Share”
KEY DATA
Share Price (LKR)
235.00
52w High/Low (LKR)
P/E 31 Dec
2014
2015
2016E
2017E
2018E
Net Interest Income (LKR mn)
16,781
18,550
23,667
26,692
30,860
5,264
6,623
7,926
9,681
11,551
EPS (LKR)
31.3
38.4
44.4
52.0
59.1
41,591
YoY % Growth
45%
26%
20%
22%
19%
Valuations
272.5/204.5
Average Daily Volume (Shares)
68,607
Average Daily Turnover (LKR mn)
16.85
Issued Share Capital (Shares mn)
Market Capitalisation (LKR mn)
Price Performance (%)
Net Profit (LKR mn)
1 mth
3 mths
12mths
0.9%
5.8%
-7.8%
PER (x)
7.5x
6.1x
5.3x
4.5x
4.0x
-2.4%
9.0%
Major Shareholders as at 31st Mar 2016
-7.5%
PBV (x)
1.1x
1.0x
0.9x
0.9x
0.8x
Dividend Yield (%)
4.7%
5.5%
6.6%
7.7%
8.8%
SAMP
ASPI
Vallibel One
14.95%
Y. S. H. I Silva
9.98%
Employees Provident Fund
9.97%
Rosewood (Pvt) Ltd
6.79%
NAVPS
205.5
227.0
248.7
273.3
295.7
Adjusted DPS (LKR)
11.0
13.0
15.5
18.2
20.7
Dividend Payout
35%
34%
35%
35%
35%
HSBC Intl. Nom Ltd- MATTHEWS Asia Growth Fund 4.58%
Public Holdings
83.31%
Figure 1: SAMP.N Price Volume Graph
900
280
800
270
700
260
600
250
500
240
400
230
300
220
200
210
100
200
0
Volume - ' 000
Price
290
Volume
Price
Disclaimer on Shareholding:
First Capital does not hold positions in SAMP nor does
First Capital envisage taking positions in this share for
the succeeding 7 trading days to this report.
SAMP as the 3rd largest private sector commercial bank in Sri Lanka with
an asset base of LKR 386Bn is likely to maintain its aggressive earnings
growth trajectory to reach a CAGR of c.21% over 2015-18E. Amidst the
tight liquidity levels in the market we expect a more moderate growth in
the loan book for 2016E of 16%YoY. We expect SAMP register total
returns of 30% with a capital gain of 24% and a dividend yield of 7%.
Net profit up 20% to LKR 7.9Bn 2016E: : We forecast 2016E net earnings
to increase by 20%YoY to LKR 7.9Bn and 2017E earnings to rise by 22%YoY
to LKR 9.6Bn. With market interest rates increasing by c.300 bps during
2016 we expect yields to be rising at a faster pace than its cost of funding
leading SAMP NIMs decline to bottom out and improve with higher
interest spreads. We believe SAMP Net Interest Spreads are likely to grow
by 50bps gradually over the next couple of quarters.
ROE of 19% driven by profit growth of 20% in 2016E: We expect SAMP’s
cost-to-income ratio to reach 48% in 2016E as opposed to 52% in 2015
largely on account of the growth in higher income base together with
effective cost management translating into an average return on equity of
19% in 2016E.
FCE recommends a STRONG BUY on SAMP with a total return of 30% on a
1-year time horizon: At LKR 233.5, SAMP trades at 2016E PER of 5.3x. Our
target price of LKR 291.0 (24% Capital Gain) and dividend yields of 6% will
provide a 1-year total return of 30%.
21
FC Research
SRI LANKA
Corporate Update
Analyst: Atchuthan Srirangan
Wediwardana
Income Statement - (LKR Mn)
2014
2015
Income
45,981
49,443
70,140
76,099
83,317
Interest income
39,696
39,706
59,134
63,292
68,414
Less: Interest expenses
22,915
21,156
35,467
36,600
37,554
Net interest income
16,781
18,550
23,667
26,692
30,860
5,133
6,621
7,415
8,602
9,978
Fee and commission income
Less: Fee and commission expenses
Net fee and commission income
Net interest, fee and commission income
Net trading income
2016E
2017E
2018E
873
1,204
1,631
1,720
1,996
4,259
5,417
5,784
6,881
7,983
21,040
23,968
29,451
33,574
38,843
413
(341)
(375)
(413)
(454)
Other operating income
1,153
3,116
3,590
4,205
4,925
Total Operating income
22,606
26,742
32,666
37,365
43,313
Less: Impairment charge/(reversal) for loans and
other losses
(1,581)
(2,718)
(1,179)
(1,288)
Net operating income
21,026
25,749
29,947
36,186
42,024
(993)
OPERATING EXPENSES
Personnel expenses
5,341
6,524
7,576
8,670
9,917
Depreciation of property & equipment
-
-
-
-
-
Amortisation of intangible assets
-
-
-
-
-
6,839
7,438
8,211
9,061
9,994
12,180
13,962
15,787
17,731
19,911
Operating profit before value added tax (VAT) and nation 8,845
building tax
11,787
(NBT) on financial
14,160 services
18,455
22,113
Other operating expenses
Less: VAT & NBT on financial services
1,598
1,998
2,826
4,611
5,445
Operating profit after value added tax (VAT)
7,247
9,790
11,334
13,844
16,668
PROFIT BEFORE INCOME TAX
7,247
9,790
11,334
13,844
16,668
Less: Income tax expense
1,979
3,161
3,400
4,153
5,000
PROFIT FOR THE YEAR
5,268
6,628
7,934
9,691
11,668
Profit attributable to Equity holders of the Bank
5,264
6,623
7,926
9,681
11,551
Profit attributable to Non-controlling interests
4
5
8
10
117
PROFIT FOR THE YEAR
5,268
6,628
7,934
9,691
11,668
EPS
31.35
38.44
44.37
51.96
59.10
22
FC Research
SRI LANKA
Corporate Update
Analyst: Atchuthan Srirangan
Wediwardana
Statement of Financial Position - (LKR Mn)
2014
2015
2016E
2017E
2018E
Cash and cash equivalents
11,645
13,713
18,602
15,942
14,331
Balances with Central Bank of Sri Lanka
17,607
21,342
29,835
34,591
40,471
1,792
5,193
5,817
6,515
7,296
31,285
-
40,146
46,971
58,189
ASSETS
Placements with Banks
Reverse repurchase agreements
Derivative financial instruments
Financial investments
Loans and receivables from banks
177
319
449
526
616
36,615
55,801
32,405
37,950
44,445
935
1,651
1,181
1,658
1,940
309,569
386,278
448,761
525,588
615,566
24,026
33,368
28,339
33,156
38,793
8,389
8,697
9,090
9,534
10,035
Intangible assets
394
368
457
447
523
Deferred tax asset
23
23
28
34
40
4,151
4,575
4,942
5,337
5,764
442,790
538,647
613,673
710,770
829,239
2,509
3,418
3,306
3,868
4,526
12,500
8,663
4,488
5,256
6,156
52
457
2,418
2,418
2,418
339,679
407,164
472,310
552,603
646,545
43,611
65,171
75,570
82,890
96,982
9,835
14,571
11,051
12,697
14,583
408,186
499,444
569,142
659,732
771,209
4,470
5,381
5,549
5,754
5,997
25,666
29,103
29,499
29,983
29,685
Total equity attributable to equity holders of the Bank 34,511
39,109
44,428
50,925
57,801
95
103
112
229
Loans and receivables from other customers
Other loans & receivables
Property plant and equipment
Other assets
Total assets
LIABILITIES
Due to banks
Securities sold under re-purchase agreements
Derivative financial instruments
Due to other customers
Debt issued and other borrowed funds
Other liabilities
Total Liabilities
EQUITY
Stated capital
Researves
Non-controlling interests
Total Equity
Total Liabilities and Equity
NAVPS
92
34,604
39,203
44,531
51,038
58,030
442,790
538,647
613,673
710,770
829,239
206
227
249
273
296
23
FC Research
SRI LANKA
Corporate Update
Analyst: Atchuthan Srirangan
Wediwardana
NATIONS TRUST BANK PLC
NTB.N0000
Current Price: LKR 77.7
STRONG BUY
Fair Value: LKR 95.0
JUNE 2016
“Focus SME Growth”
KEY DATA
Share Price (LKR)
77.70
52w High/Low (LKR)
107.9/73.0
Average Daily Volume (Shares)
30,358
P/E 31 Dec
2014
2015
2016E
2017E
2018E
Net Interest Income (LKR mn)
8,940
9,105
10,048
11,286
12,567
Net Profit (LKR mn)
2,536
2,614
2,936
3,402
3,982
Average Daily Turnover (LKR mn)
2.74
Issued Share Capital (Shares mn)
230.6
EPS (LKR)
11.0
11.3
12.7
14.7
17.1
Market Capitalisation (LKR mn)
17,918
YoY % Growth
19%
3%
12%
16%
17%
Price Performance (%)
1 mth
3 mths
12mths
Valuations
NTB
-10.1%
5.0%
-17.9%
PER (x)
7.1x
6.9x
6.1x
5.3x
4.5x
-2.4%
9.0%
Major Shareholders as at 31st Mar 2016
-7.5%
PBV (x)
1.5x
1.3x
1.2x
1.0x
0.9x
4.6%
ASPI
Dividend Yield (%)
2.7%
2.7%
3.1%
3.8%
John Keells Holdings PLC
20.00%
NAVPS
60.3
65.8
76.1
87.5
100.7
HWIC Asia Fund
15.00%
Adjusted DPS (LKR)
2.1
2.1
2.4
2.9
3.6
19%
19%
19%
20%
21%
Mackinnons Keells Limited
9.90%
Dividend Payout
Central Finance Company PLC A/C No 03
8.98%
Janashakthi General Insurance Limited
8.06%
Nations Trust Bank, one of the fastest growing commercial bank, captures a
target price of LKR 97.0 with earnings CAGR of 15% 2015-18E. NTB’s loan
book is expected to grow by 18% to LKR 143Bn in 2016E. NTB’s market
leadership in credit card business has led bank to maintain its NIM at
appropriate levels. FCR expects total return of 25% with a capital gain of
22% and a dividend yield of 3%.
Public Holdings
34.85%
Figure 1: NTB.N Price Volume Graph
400
Price
Volume ('000)
110
105
100
300
95
90
200
Spreads to improve in 2016E: NTB’s market leadership in credit card business
has led bank to maintain its NIM at appropriate levels despite its large leasing
portfolio. With the rise in interest rates we spreads to increase by at least
40bps with deposits repricing faster than its loan book. We expect NTB to
continuously work on improving its cost-to- income and while fee based
income growth is also expecting remain in line with the Bank’s historic growth
rates.
85
80
100
75
70
-
Volume ('000)
Price
Disclaimer on Shareholding:
First Capital Limited holds 475,000 shares and affiliated
Unit Trusts hold 40,000 shares in NTB. Neither First
Capital Equities (Pvt) Ltd nor related entities have
traded in the shares in the three trading days prior
to this document, and will not trade in the shares for
seven trading days following the issue of this document.
Capturing lending Market Share: Despite the loan growth we expect NTB’s
loan growth to be c.18% to LKR 143Bn. Loan growth is likely to emerge from
retail & SME lending segments. NTB’s credit card lending would continue to
enhance banks NIMs due to higher interest rate.
SME focus: NTB is planning to further strengthen SME in the coming years
with emphasis increasing on process efficiencies and relationship-driven
marketing. The strategy to growth in SMEs representing all regions and
industry sectors.
FCE recommends a STRONG BUY on NTB with a total return of 25% on a 1year time horizon: At LKR 77.70, NTB trades at a 2016E PER of 6.1x. Our
target price of LKR 95.0(+22% Capital Gain) and dividend yield of 3% will
provide a 1-year total return of 25%.
24
FC Research
SRI LANKA
Corporate Update
Analyst: Atchuthan Srirangan
Wediwardana
Income Statement
Interest Income
Interest Expense
Net Interest Income
2014
2015
2016E
2017E
2018E
17,452
(8,513)
8,940
16,628
(7,523)
9,105
22,075
(12,027)
10,048
23,691
(12,405)
11,286
26,562
(13,995)
12,567
3,008
(225)
2,783
3,438
(236)
3,201
4,547
(359)
4,188
5,375
(425)
4,951
6,370
(503)
5,867
111
282
12,116
(94)
307
12,519
188
352
14,775
252
395
16,884
172
503
19,108
1,157
985
1,165
1,124
823
10,959
11,534
13,610
15,760
18,285
Personnel Expenses
Depreciation of Property, Plant and Equipment
Amortization of Intangible Assets
Other Operating Expenses
Total Operating Expenses
2,700
324
171
3,192
6,388
2,883
375
242
3,362
6,862
3,302
383
243
3,866
7,794
3,858
437
274
4,446
9,015
4,468
513
305
5,113
10,399
Operating Profit Before Value Added Tax (VAT)
4,571
4,673
5,816
6,745
7,886
Value Added Tax (VAT) on Financial Services
Profit Before Income Tax
Income Tax Expense
Profit for the Year
744
3,827
1,290
2,536
767
3,906
1,291
2,614
1,368
4,448
1,512
2,936
1,590
5,155
1,753
3,402
1,853
6,033
2,051
3,982
11.0
11.3
12.7
14.7
17.1
Fees and Commission Income
Fees and Commission Expense
Net Fees and Commission Income
Net Trading Income
Other Operating Income
Total Operating Income
Impairment Charge / (Reversal ) for Loans and
Advances
Net Operating Income
EPS
25
FC Research
SRI LANKA
Corporate Update
Analyst: Atchuthan Srirangan
Wediwardana
Statement of Financial Position
2014
2015
Assets
Cash and Cash Equivalents
Balances with Central Bank of Sri Lanka
Reverse Repurchase Agreements
Derivative Financial Instruments
Financial Assets - Held for Trading
Financial Assets -Avalable for Sale
Financial Assets - Held to Maturity
Other Financial Assets
Loans and Advances to Customers
Other Assets
Property, Plant and Equipment
Intangible Assets
Total Assets
6,900
3,992
11,014
128
15,700
4,329
9,653
3,821
98,347
2,506
2,194
1,284
159,869
6,392
5,284
302
554
2,044
16,533
12,744
6,511
121,143
1,386
2,144
1,224
176,261
7,607
9,259
4,572
287
3,048
15,241
6,096
143,360
5,734
2,264
1,260
198,729
6,763
11,950
5,532
339
5,532
16,597
7,376
169,592
6,784
2,783
1,267
234,517
6,930
14,101
6,528
403
7,616
14,144
8,704
201,697
8,068
3,317
1,244
272,753
Liabilities
Due to Banks
Repurchase Agreements
Derivative Financial Instruments
Due to Customers
Debt Issued and Other Borrowed Funds
Current Tax Liabilities
Other Liabilities
Deferred Tax Liabilities
Total Liabilities
2,923
15,047
166
111,010
10,189
666
5,559
413
145,973
2,276
10,406
53
129,158
12,974
426
5,064
733
161,090
2,458
8,602
61
152,407
10,503
1,113
5,267
769
181,180
2,655
13,567
71
184,412
6,141
1,114
5,477
808
214,244
2,867
12,102
81
217,606
9,020
1,114
5,696
848
249,334
5,101
538
8,151
105
13,896
5,101
661
9,336
73
15,171
5,101
863
10,983
602
17,549
5,102
1,098
12,857
1,214
20,272
5,103
1,373
15,012
1,931
23,419
159,869
176,261
198,729
234,517
272,753
60
66
76
88
101
Equity Attributable to Equity Holders of the Parent
Stated Capital
Statutory Reserve Fund
Retained Earnings
Other Reserves
Total Equities
Total Liabilities and Equity
NAVPS
2016E
2017E
2018E
26
FC Research
SRI LANKA
Corporate Update
Analyst: Atchuthan Srirangan
Wediwardana
COMMERCIAL BANK
COMB.N0000
COMB.X0000
Current Price: LKR 129.6
Current Price: LKR 111.7
HOLD (V)/ BUY (NV)
Fair Value: LKR 139
Fair Value: LKR 120
HOLD
BUY
JUN 2016
“Higher NIMs & Cost Management is Key”
KEY DATA
Share Price V/NV (LKR)
129.6/111.7
52w High/Low (LKR) (Voting)
173.0/113.3
136.8/99.9
52w High/Low (LKR) (Non-Voting)
37.7/2.9
Average Daily Turnover (LKR mn) V/NV
832.5
Issued Share Capital (Shares mn)
COMB.X
2015
2016E
2017E
2018E
27,320
30,567
37,203
41,914
47,016
11,239
11,855
13,853
15,699
17,766
7,566
11,855
13,853
15,699
17,766
107,922
1 mth
3 mths
12mths
Net Profit (LKR mn)
0.7%
6.4%
-17.4%
-2.2%
0.0%
-14.7%
9.0%
-7.5%
COMB
2014
Net Interest Income (LKR mn)
Recurring net Profit (LKR mn)
Market Capitalisation (LKR mn)
Price Performance (%)
P/E 31 Dec
265/22
Average Daily Volume (Shares) V/NV
ASPI
-2.4%
Major Shareholders as at 31st Mar 2016
Voting
Recurring EPS (LKR)
12.9
13.4
15.3
17.0
18.8
EPS (LKR)
8.7
13.4
15.3
17.0
18.8
Recurring Profit YoY % Growth
6%
5%
17%
13%
13%
Voting - PER (x)
15.0x
9.7x
8.4x
7.6x
6.9x
1.7x
1.6x
1.5x
1.3x
1.2x
Valuations
DFCC Bank A/C
14.74%
Mr.Y.S. H. I. Silva
9.92%
Employees Provident Fund
9.70%
Sri Lanka Insurance Corporation Ltd. - Life Fund
5.03%
Voting - PBV (x)
CB NY S/A International Finance Corporation
4.47%
Voting - Dividend Yield (%)
5.0%
5.0%
6.4%
7.1%
7.8%
7.28%
Non-Voting - PER (x)
12.9x
8.3x
7.3x
6.6x
5.9x
Non-Voting
Employees Trust Fund Board
Non-Voting - PBV (x)
1.4x
1.4x
1.3x
1.2x
1.1x
2.78%
Non-Voting - Dividend Yield (%)
5.8%
5.8%
7.4%
8.2%
9.1%
2.48%
NAVPS
77.4
80.3
88.1
96.7
106.1
5.78% Funds
HSBC Intl. Nominees Ltd. - JPMLU- Franklin Templeton Investment
CITY Bank NY S/A Forward International Dividend Fund
3.15%
GF Capital Global Limited
HINL - JPMCB - Butterfield Trust (Bermuda) Ltd.
Public Holdings V/NV
99.6%/99.8%
Dividend Payout
4.0
170
3.0
150
2.0
130
1.0
Price
190
Volume - mn
Figure 1: COMB.N Price Volume Graph
110
Jun-15
0.0
Oct-15
Volume
Feb-16
Jun-16
Price - Voting
Volume -mn
Figure 2: COMB.X Price Volume Graph
Price
0.6
140
130
0.4
120
0.2
110
100
Jun-15
Oct-15
Volume
Adjusted DPS (LKR)
0.0
Feb-16
Jun-16
Price - Non-voting
Disclaimer on Shareholding:
First Capital does not hold positions in COMB nor does
First Capital envisage taking positions in this share for
the succeeding 7 trading days to this report.
6.4
6.4
8.3
9.2
10.2
50%
48%
54%
54%
54%
COMB as the largest private sector commercial bank in Sri Lanka is expected to
record c.17%YoY earnings in 2016E. We expect yields to be rising at a faster
pace than its cost of funding leading COMB NIMs decline to bottom out and
improve with higher interest spreads. We believe COMB Net Interest Spreads
are likely to grow gradually over the next couple of quarters. Amidst the tight
liquidity levels in the market we expect a more moderate growth in the loan
book for 2016 of c.13%YoY. We expect COMB voting and non-voting shares to
register total returns of 14% and 15% respectively including dividends over 1
year period. BUY (V), HOLD (NV)
NIMs may even out at 4.27% for 2016E: Despite the lower loan growth recorded
in 2015, we expect COMB’s loans to grow by 13% to LKR 585Bn in 2016E owing to
growing trade related and SME sector borrowing. Being the largest list bank, we
expect COMB maintain its high CASA base compared to the industry and rate
adjustment to drive net interest income to LKR 37Bn 2016E.
ROE of 19% driven by profit growth of 17% in 2016E: We expect COMB’s cost to
core income ratio to reach 46% in 2016E as opposed to 48% in 2015 largely on
account of the growth in higher income base together with effective cost
management translating into an average return on equity of 19% in 2016E.
COMB.N & COMB.X to provide likely total returns of 14% & 15%: COMB voting
currently trades at 8.4x PER & 1.5x PBV on 2016E earnings while the non-voting
counter trades at a 7.3x PER and 1.3x PBV. Our 1-year target price for COMB.N is
LKR 139.0 (+7%) and LKR 120.0(+7%) for COMB.X providing a total 1-year return
of 14% and 15% respectively including dividend yields of 6% for COMB.N and 7%
for COMB.X. HOLD (V), BUY (NV)
27
FC Research
SRI LANKA
Corporate Update
Analyst: Atchuthan Srirangan
Wediwardana
Income Statement
P/E 31 December
2014
2015
2016E
2017E
2018E
Interest Income
61,933
66,339
86,857
95,931
105,404
Less: Interest Expenses
34,613
35,772
49,654
54,017
58,388
Net Interest Income
27,320
30,567
37,203
41,914
47,016
Fee and Commission Income
5,614
6,330
7,216
8,154
9,214
Fees and Commission Expense
764
4,849
920
5,410
1,082
6,134
1,223
6,931
1,382
7,832
813
200
694
930
Net Fee and Commission Income
Net Gain from Trading
Net Gain from Financial Investments
Other Operating Income
(305)
2,273
(237)
1,006
0
1,128
5,024
4,049
5,580
6,706
7,523
39,160
41,534
50,047
56,320
63,499
4,898
4,100
4,631
4,399
4,398
34,262
37,434
45,417
51,921
59,101
Personnel Expenses
8,956
10,261
11,801
13,463
15,353
Other Operating Expenses
6,764
7,161
8,259
9,705
11,187
Total Operating Expenses
15,720
17,421
20,060
23,168
26,540
Operating Profit before Value Added Tax (VAT)
18,542
20,013
25,356
28,753
32,560
Total Operating Income
Less: Impairment Charge/(Reversal) for Loans and other
Losses
Net Operating Income
OPERATING EXPENSES
Less: Value Added tax (VAT) on Financial Services
Operating profit after value added tax (VAT)
Share of Profit/(Loss) of Associates (Net of Income Tax)
2,689
2,890
5,574
6,332
7,187
15,853
17,122
19,783
22,421
25,373
7
14
14
14
15
PROFIT BEFORE INCOME TAX
15,860
17,136
19,797
22,435
25,388
Less: Income Tax Expense
4,617
11,243
5,277
11,859
5,939
13,858
6,730
15,704
7,616
17,772
11,239
4
11,243
11,855
4
11,859
13,853
5
13,858
15,699
5
15,704
17,766
6
17,772
12.9
13.4
15.3
17.0
18.8
PROFIT FOR THE YEAR
Profit Attributable to Equity Holders of the Bank
Non-Controlling Interest
PROFIT FOR THE YEAR
EPS
28
FC Research
SRI LANKA
Corporate Update
Analyst: Atchuthan Srirangan
Wediwardana
Statement of Financial Position
P/E 31 December
2014
2015
2016E
2017E
2018E
ASSETS
Cash and Cash Equivalents
20,622
20,107
25,736
43,977
48,928
Balances with Central Banks
19,634
28,221
42,230
49,994
58,993
Placements with Banks
14,508
17,194
19,257
21,568
24,156
Securities Purchased under Resale Agreements
41,198
8,002
8,162
8,978
9,158
460
4,118
1,604
1,893
2,233
6,327
7,656
11,139
13,144
15,510
Derivative Financial Instruments
Other Financial Assets Held-For-Trading
Loans and Receivables to Banks
551
601
891
1,052
1,241
Loans and Receivables to Other Customers
406,531
509,923
584,550
677,373
785,753
Financial Investments - Available-for-sale
214,225
204,262
256,192
289,163
341,212
50,436
57,724
58,879
67,711
73,128
106
105
103
101
99
11,135
11,181
11,226
11,154
11,153
Intangible Assets
856
884
1,169
1,475
1,853
Leasehold Property
109
107
106
105
103
Other Assets
10,560
12,097
14,852
17,525
20,680
Total assets
797,258
882,183
1,036,095
1,205,210
1,394,197
25,669
31,789
29,228
33,869
39,288
1,193
1,891
1,754
2,032
2,357
Securities sold under repurchase agreements
124,391
112,250
128,601
149,022
172,866
Due to Other Customers
529,267
624,021
742,585
876,251
1,033,976
11,637
9,986
23,088
19,099
21,266
Current Tax Liabilities
5,711
3,026
2,969
3,365
3,808
Deferred Tax Liabilities
2,876
468
2,969
3,365
3,808
2
2
2
2
2
17,670
15,749
11,691
13,547
15,715
Financial Investments - Loan and Receivables
Investments in Associates
Property, Plant & Equipment
LIABILITIES
Due to Banks
Derivative Financial Instruments
Other Borrowings
Other Provisions
Other Liabilities
Subordinated Term Debts
Total liabilities
11,263
11,988
13,636
15,409
931
729,678
811,169
956,523
1,115,961
1,294,017
31,645
EQUITY
Stated Capital
21,458
23,255
25,731
28,514
Statutory Reserves
4,327
4,922
5,615
6,400
7,289
Retained Earnings
4,418
4,468
6,314
8,154
10,236
Other Reserves
37,330
38,319
41,857
46,120
50,943
Total Equity to Equity Owners of the Bank
67,533
70,964
79,518
89,189
100,114
Non-Controlling Interest
Total Equity
NAVPS
48
50
55
60
67
67,580
71,014
79,573
89,249
100,180
797,258
882,183
1,036,095
1,205,210
1,394,197
77.4
80.3
88.1
96.7
106.1
29
“Multiple Shocks Dampen Beat”
Banking Sector Report – 2016
FC Research
HATTON NATIONAL BANK PLC
SELL (V)/ HOLD (NV)
JUN 2016
P/E 31 December
Interest income
Interest expenses
Net interest income
Fee and commission income
Fee and commission expenses
Net fee and commission income
Net loss from trading
Net gain from financial investments
Other operating income
Total Operating income
Less: Impairment charge/(reversal) for loans and other
losses
Net operating income
Operating Expenses
Personnel expenses
Other overhead expenses
Current Price - LKR 216.0/175.0
2014
2015
2016E
2017E
2018E
53,063
27,078
25,985
56,894
27,200
29,694
85,823
46,633
39,190
93,523
50,060
43,462
103,679
53,151
50,528
5,196
617
4,579
6,426
182
6,244
7,454
895
6,560
8,647
1,038
7,609
10,030
1,204
8,827
(442)
1,494
5,713
37,329
362
298
6,047
42,644
(971)
313
6,526
51,618
(1,150)
329
7,376
57,625
(1,333)
345
8,348
66,715
(2,533)
(1,022)
(4,599)
(3,597)
(3,126)
34,796
41,622
47,018
54,028
63,589
8,108
11,132
19,240
9,155
13,305
22,460
10,610
14,377
24,986
12,333
16,134
28,467
14,331
18,253
32,584
Operating profit before value added tax (VAT)
15,556
19,162
22,032
25,561
31,005
Value Added Tax (VAT) on Financial Services
Operating profit after value added tax (VAT)
2,550
13,005
3,062
16,100
3,917
18,115
4,547
21,014
5,440
25,565
Share of profit/(loss) of Associates (net of income tax)
Profit before income tax
143
13,148
60
16,160
66
18,181
73
21,086
80
25,645
Income Tax Expense
Profit for the Year
3,080
10,068
5,064
11,096
5,454
12,727
6,326
14,761
7,693
17,951
Profit attributable to Equity holders of the Bank
Profit attributable to Non-controlling interests
Profit for the Year
9,820
248
10,068
10,554
542
11,096
12,090
636
12,727
14,022
738
14,761
17,054
898
17,951
Statement of Financial Position
P/E 31 December
Assets
2014
2015
2016E
2017E
Cash and cash equivalents
Balances with central banks
Placements with banks
Reverse repurchase agreements
Derivative financial instruments
Other financial assets held for trading
Loans and receivables to other customers
Financial investments - Available-for-sale
Financial investments - Held-to-maturity
Financial investments - Loans and receivables
Investments in Associates
Investment properties
Property, plant and equipment
Intangible assets
Other assets
Total assets
13,848
16,908
5,096
19,575
178
1,053
401,282
69,443
955
38,846
725
1,042
18,290
1,132
11,668
600,272
15,508
20,096
1,174
7,782
1,303
1,949
507,244
79,718
1,257
87,087
785
1,042
23,909
1,144
7,328
757,347
17,416
39,785
4,478
586
6,219
585,619
93,287
1,244
87,068
851
1,037
14,393
1,155
19,901
873,039
24,688
30,675
47,285
54,851
5,194
6,025
678
787
14,428
16,737
678,271
786,794
93,785
117,159
1,443
1,674
100,999
117,159
924
1,004
1,032
1,027
4,404 6,151
1,167
1,178
23,085
26,779
997,384
1,155,698
Liabilities
Due to banks
Derivative financial instruments
Due to other customers
Dividends payable
Other borrowings
Debt securities issued
Current tax liabilities
Subordinated debentures
Insurance provision - Life
Insurance provision - General
Other provisions
Other liabilities
Total Liabilities
43,505
631
425,620
587
21,329
4,843
3,395
11,674
5,563
1,279
2,123
10,086
530,634
58,284
304
536,133
765
43,626
4,417
4,763
12,086
7,007
1,546
2,746
7,251
679,507
62,257
1,165
621,914
296
46,849
5,518
5,454
16,476
8,689
1,825
5,856
7,976
784,276
73,142
1,380
721,420
344
40,696
5,917
6,326
18,515
10,774
2,153
6,783
8,774
896,223
84,806
1,600
836,848
418
47,208
6,383
7,693
20,902
13,360
2,541
7,868
9,651
1,039,277
Equity
Stated capital
13,290
Statutory reserves
3,160
Retained earnings
10,397
Other reserves
41,058
Total equity attributable to equity holders of the Bank
67,905
Non-controlling interests
1,734
Total Equity
69,639
13,827
3,760
7,950
50,028
75,564
2,276
77,841
14,103
4,365
14,173
53,209
85,850
2,913
88,763
14,385
5,066
21,159
56,900
97,510
3,651
101,161
14,673
5,918
29,894
61,387
111,873
4,548
116,422
600,272
757,347
873,039
997,384
1,155,698
169.0
188.1
213.7
242.7
278.5
Total Liabilities and Equity
EPS
24.4
26.0
29.8
34.5
42.0
Fair Value – LKR 225.0/182.0
NAVPS
2018E
30
“Multiple Shocks Dampen Beat”
Banking Sector Report – 2016
FC Research
NATIONAL DEVELOPMENT BANK PLC [ NDB.N0000]
JUN 2016
SELL
Current Price - LKR 171.7
NATIONAL DEVELOPMENT BANK (LKR MN)- INCOME STATEMENT 2014
2015
2016E
2017E
2018E
Fair Value – LKR 163.0
NATIONAL DEVELOPMENT BANK (LKR MN) - BALANCE SHEET
2014
2015
2016E
2017E
2018E
Interest income
21,152
21,432
30,732
33,317
35,536
ASSETS
Interest expense
13,239
13,625
20,123
21,526
22,240
Cash and cash equivalents
3,274
11,854
11,162
9,846
11,814
Balances with Central Bank
6,741
7,000
10,082
14,332
16,912
7,913
7,807
10,608
11,791
13,296
Placements with banks
2,722
1,154
3,683
4,383
5,172
Derivative financial instruments
1,904
1,904
2,191
2,586
3,051
Other financial assets held for trading
6,029
5,229
7,366
8,766
10,343
Net interest income
Net fee and commission income
2,564
3,157
3,433
3,972
4,604
Net trading income/(expense)
2,240
1,582
1,068
1,404
1,830
248
745
400
420
441
12,966
13,291
15,509
17,588
20,171
529
746
1,575
896
998
Other operating income
Total operating income
Impairment charge/ (reversal) for loans and other losses
Net operating income
12,437
12,545
13,934
16,692
19,173
Loans and advances to banks
311
103
1,096
1,293
1,526
175,236
209,666
242,502
284,020
332,645
Other financial assets classified as loans and receivable
38,683
37,369
31,306
39,445
46,546
Financial assets - held to maturity
10,167
5,661
18,415
21,914
25,859
Financial assets - available for sale
18,058
28,965
18,415
19,723
23,273
Investments in associate companies
-
-
-
-
-
1,876
2,049
2,630
3,103
3,662
Loans and advances to customers
Other assets
Less: Operating Expenses
Intangible assets
Personnel expenses
3,172
3,634
4,006
4,497
5,540
Property, plant & equipment
Other operating expenses
2,738
3,196
3,602
4,102
4,663
Total assets
Total operating expenses
5,911
6,830
7,608
8,598
10,203
Investment properties
Derivative financial instruments
6,527
5,715
6,326
8,094
8,970
Value Added Tax (VAT) on financial services
(1,029)
(910)
(1,343)
(1,637)
(1,886)
Operating profit after value added tax
5,497
4,805
4,983
6,457
7,083
97
78
82
86
90
Share of associate companies’ profit
Profit before tax
5,595
4,883
5,064
6,543
7,173
Income tax expense
(1,349)
(1,213)
(1,519)
(1,963)
(2,152)
Profit for the year
4,246
3,670
3,545
4,580
5,021
Profit attributable to equity holders of the parent
Profit attributable to minority interest
4,134
3,542
3,474
4,488
4,921
112
128
71
92
100
4,246
3,670
3,545
4,580
5,021
Due to customers
Debt securities issued and other borrowed funds
Tax liabilities
Other liabilities
Subordinated term debts
21.45
21.16
27.33
152
140
2,402
2,442
1,546
1,672
1,672
1,672
1,672
269,130
315,354
353,070
413,636
485,055
7,029
11,620
9,043
13,163
15,417
663
639
1,455
1,704
1,996
151,485
184,152
219,141
258,587
305,132
61,926
60,498
55,794
64,825
75,718
806
524
395
510
560
6,361
7,936
9,700
9,657
11,310
11,149
19,574
24,582
28,588
31,793
610
713
927
1,205
1,566
Employee benefit liabilities
301
297
-
240,331
285,953
321,037
378,239
443,491
Stated capital
1,145
1,163
1,206
1,248
1,291
Statutory reserve fund
1,011
1,243
1,243
1,243
1,243
Investment Fund
1,474
1,000
1,462
2,036
2,687
24,246
24,976
27,060
29,754
35,167
27,876
28,382
30,971
34,281
40,387
923
1,019
1,061
1,116
1,176
28,798
29,401
32,032
35,397
41,564
269,130
315,354
353,070
413,636
485,055
Total
liabilities
EQUITY
ATTRIBUTABLE TO EQUITY HOLDERS OF
PARENT
Retained Earnings
Non-controlling interests
Total liabilities and total equity
25.04
184
2,365
Deferred Tax
Total Equity
EPS
275
2,455
LIABILITIES
Due to Banks
Operating profit before value added tax
297
2,253
-
-
29.97
NAVPS
168.85
171.84
188.62
208.77
31
245.96
“Multiple Shocks Dampen Beat”
Banking Sector Report – 2016
FC Research
SEYLAN BANK PLC [ SEYB.N/SEYB.X]
JUN 2016
Income Statement
P/E 31 December
HOLD
Current Price - LKR 90.1/63.1
2014
2015
2016E
2017E
Statement of Financial Position
2018E
P/E 31 December
Interest Income
23,422
24,167
36,372
37,666
42,683
Interest Expense
(12,223)
(12,309)
(20,679)
(20,030)
(22,653)
11,199
11,857
15,693
17,636
20,030
Net Interest Income
Fees and Commission Income
Fees and Commission Expense
Net Fees and Commission Income
2,347
2,811
3,658
4,301
5,056
(97)
(120)
(146)
(172)
(202)
2,250
2,691
3,512
4,129
4,854
Net Trading Income
1,079
1,254
416
495
498
Net Gain on Financial Investments
1,190
232
349
349
349
591
165
235
529
801
16,308
16,199
20,204
23,138
26,533
Total Operating Income
Impairment Charge / (Reversal ) for Loans and
Advances
2014
2015
2016E
2017E
2018E
Assets
Cash and Cash Equivalents
6,673
7,801
9,010
10,723
10,362
Balances with Central Bank of Sri Lanka
7,432
8,564
12,055
13,984
16,043
Placements with Banks and Finance Companies
2,334
757
1,537
1,783
2,068
191
130
466
549
646
2,534
6,025
10,598
9,220
10,695
Derivative Financial Instruments
Financial Assets - Held for Trading
Reverse Repurchase Agreements
17,763
2,313
5,299
10,757
10,695
154,963
193,104
232,900
274,254
322,949
Financial Investments - Available-for-Sale
23,838
48,076
35,767
36,880
39,215
Financial Assets - Held to Maturity
22,520
18,229
26,494
24,586
24,955
4,576
4,875
6,934
9,406
11,462
609
600
971
1,317
1,605
1,183
1,090
1,081
1,072
1,063
Intangible Assets
280
250
291
335
380
Deferred Taxation Assets
-
-
-
-
-
Loans and Advances to Customers
Other Operating Income
Fair Value – LKR 101.0/70.0
Property, Plant and Equipment
Leasehold Rights
Investment Properties
2,135
489
1,961
1,954
2,408
Other Assets
6,660
6,773
9,316
10,970
12,918
14,173
15,710
18,243
21,184
24,125
Total Assets
251,558
298,586
352,717
405,833
465,056
Personnel Expenses
3,957
4,222
4,314
4,861
5,360
11,615
19,784
23,741
28,489
34,187
Depreciation of Property, Plant and Equipment
1,685
1,773
1,918
2,071
2,230
211
50
609
707
820
Other Operating Expenses
2,493
2,636
3,031
3,486
4,009
185,924
224,525
264,940
307,330
356,503
Total Operating Expenses
8,135
8,631
9,264
10,418
11,599
12,420
11,410
6,987
8,228
9,688
15
16
22
26
30
Debentures
7,656
7,180
17,180
17,180
14,583
Current Tax Liabilities
1,323
505
525
547
568
Other Liabilities
6,038
7,376
7,671
7,977
8,297
225,238
271,231
321,675
370,484
424,676
10,530
10,530
10,530
10,530
10,530
996
1,187
1,433
1,719
2,053
9,294
11,376
13,801
16,633
19,941
Net Operating Income
Liabilities
Operating Expenses
Operating Profit Before Value Added Tax (VAT)
6,038
7,079
8,980
10,766
12,526
Value Added Tax (VAT) on Financial Services
1,203
1,256
1,662
1,953
2,236
Profit Before Income Tax
4,835
5,823
7,318
8,813
10,290
Income Tax Expense
1,583
1,937
2,415
3,084
3,601
Profit for the Year
3,253
3,886
4,903
5,728
6,688
Due to Banks
Derivative Financial Instruments
Due to Customers
Repurchase Agreements
Other Borrowings
Total Liabilities
Equity Attributable to Equity Holders of the Parent
Stated Capital
Statutory Reserve Fund
Retained Earnings
Other Reserves
Profit attributable to:
Equity Holders of the Bank
Non-Controlling Interests
Profit for the Year
EPS
3,217
3,847
4,854
5,671
6,622
36
39
49
57
67
3,253
3,886
4,903
5,728
6,688
9.4
11.3
14.2
16.6
19.4
Non-Controlling Interest
Total Equity
Total Liabilities and Equity
NAVPS
4,376
3,194
4,165
5,299
6,624
25,195
26,288
29,928
34,181
39,148
1,124
1,067
1,114
1,168
1,232
26,320
27,355
31,042
35,350
40,379
251,558
298,586
352,717
405,833
465,056
73.0
76.2
86.8
99.1
113.5
32
First Capital Equities (Pvt) Ltd
347 1/1, Dr. Colvin R. De Silva Mawatha,
Colombo 2
Sales Desk:
+94 11 2145 000
Fax:
+94 11 2145 050
http://www.firstcapital.lk/investment_bank_contact/
HEAD OFFICE
BRANCHES
347 1/1,
Matara
Negombo
Dr. Colvin R. De Silva Mawatha,
No. 24, 1/3, 2nd Floor,
No.72A, 2/1,
Colombo 2
Lakshman Cooray Building,
Old Chilaw Road,
Anagarika Dharmapala Mw,
Negombo
Sales Desk:
+94 11 2145 000
Matara
Fax:
+94 11 2145 050
Tel:
SALES
CEO
+94 41 2237 636
Tel:
+94 31 2233 299
BRANCHES
http://www.firstcapital.lk/investment-bank-about-us/leadership/
Jaliya Wijeratne
+94 70 2910 042
Negombo
Colombo
Priyanka Anuruddha
+94 70 2910 035
Priyantha Wijesiri
+94 70 2910 036
Damian Le Grand
+94 70 2910 032
Nishantha Mudalige
+94 70 2910 041
Matara
Isuru Jayawardana
+94 70 2910 034
Sumeda Jayawardana
+94 70 2910 038
Anushka Buddhika
+94 70 2910 030
Kapila Weerasinghe
+94 70 2910 033
Gamini Hettiarachchi
+94 70 2910 039
Thushara Abeyratne
+94 70 2910 037
RESEARCH
Dimantha Mathew
+94 11 2145 016
Amanda Lokugamage
+94 11 2145 015
Atchuthan Srirangan
+94 11 2145 017
Michelle Weerasinghe
+94 11 2145 018
FIRST CAPITAL GROUP
http://www.firstcapital.lk/investment-bank-about-us/leadership/
HEAD OFFICE
BRANCHES
No. 2, Deal Place,
Matara
Kurunegala
Kandy
Colombo 3
No. 24, 1/3, 2nd Floor,
No. 6, 1st Floor,
No.213-215,
Tel:
Lakshman Cooray Building,
Union Assurance Building,
Peradeniya Road,
Anagarika Dharmapala Mawatha,
Rajapihilla Mawatha,
Kandy
Matara
Kurunegala
+94 11 2576 878
Tel:
+94 41 2222 988
Tel:
+94 37 2222 930
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This Review is prepared and issued by First Capital Equities (Pvt) Ltd. and is based on information available in the public domain, internally developed and other sources believed
to be correct. Although all reasonable care has been taken to ensure that the contents of this document are accurate, First Capital Equities (Pvt) Ltd and its Directors and
employees, are not responsible for its accuracy, usefulness and reliability and disclaim liability for any loss suffered by the use of information contained herein.
First Capital Equities (Pvt) Ltd may act as a Broker in the investments which are the subject of this document or any related investments and may have acted on or have used the
information contained in this document, or the research or analysis on which it is based, before its publication.