Sampath Bank one of the leading Commercial bank in Sri Lanka. Research reports show in 2013 bank profit up 19.4%, and net interest income growth 26%.
Profit Down first quarter 2013
SAMP’s 1Q2013 profits came in at LKR1. 1bn vs. 1Q2012’s LKR1.5bn
Reasons for profit down
* forex translation losses
* higher impairment provisioning led to a decline in
profitability.
* Increasing running cost recuitment new staff salary hike.
However, core profitability showed robust growth of 66% YoY to LKR1.5bn.
In 1Q2013, SAMP’s loan book grew by 6% amidst the prevalence of higher interest rates. Net interest margins declined marginally from 4.2% to 4.1% during 1Q2013.
Forex losses and higher impairment charges lead to a decline in profitability
SAMP’s gross NPL’s reduced marginally from 2.1% in Dec 2012 to 2% in Mar 2013, amidst the bank increasing impairment charges by LKR293mn vs. an impairment reversal of LKR200mn in 1Q2012. CAL remains cautious on SAMP’s gold portfolio (c.25% of the loan book) due the reduction in gold prices which is likely to marginally increase NPL’s. For 2013E, CAL has factored in an impairment expense of LKR857mn (1.4% of gold portfolio). SAMP’s other operating income which includes forex translation gains declined from LKR1.6bn in 1Q2012 to LKR250mn in 1Q2013 as a result of a c.2% LKR appreciation from Jan-Mar 2013 leading to overall profitability declining 31% to LKR1.1bn. CAL’s revised 2013E net profit of LKR5.3bn (+0% YoY) factors in a LKR412mn reduction in other operating income from our previous estimate of LKR2.9bn.
Important evens expected in 2013
*Net interest income up 31% YoY to LKR3,322.8 mn.
* Net loan book grew 6.2% QoQ at LKR225.7 bn.
Pawing contributed near 24% of the total, credit cards and SME lending activities
* Non-interest income down 54% YoY to LKR1,142.1 mn.
main adverse form foreign exchange earnings
* Equity holders profit down 31% to LKR1,056.6 mn.
* Forecast 2013E net profit up 19.4% to LKR6,225.1 mn.
VALUATION
Forecast 2013E net profit up 19.4% to LKR6,225.1 mn. SAMP's net interest margin is expected to be intact at around 4.0%, whilst continuing to benefit from the wider reach facilitated by the current 230 branches coupled with its retail focus (nearly 55% retail focus). Therefore we forecast 2013E net profit to grow 19.4% YoY to LKR6,225.1 mn and 2014E net profit to grow 23.8% YoY to LKR7,705.3 mn.
Share offers good value on 6.2X forecast 2013E net profit.
The share is attractive on 6.2X forecast 2013E net profit and 5.0X forecast 2014E net profit whilst trading on 1.3x PBV.
Research Guide to Investment Rating
* BUY : Share price may exceed 20% over the next 12 months
* Trading BUY : Share price may exceed 10% over the next 3 months, however longer-term outlook remains
uncertain
* Neutral : Share price may fall within the range of +/- 10% over the next 12 months
Take Profit : Target price has been attained. Look to accumulate at lower levels
Sell : Share price may fall by more than 20% over the next 12 months
Sampath Bank Earning Review
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