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Target Price

Recommendation

LKR 270.40 (+15.7%)


BUY

1QFY16 Earnings Update

Analyst
Date

Dhinali Peiris
18.05.2016

Interest income improvement with increasing yields Interest income


of SAMP increased by 27.7% YoY to LKR 11.7 Bn during 1QFY16. The
group loan portfolio grew by 7.2% during 1QFY16 which was higher than
our expectations. The gold exposure recorded was 3.2% of the loan book
in 1QFY16 compared to 3.6% in FY15. Hence, we expect the gold
exposure to remain at these low levels. The main contribution to the
loan growth was from term loans, import loans, overdrafts and leasing.
Hence, we re-estimate the diversified loan book and interest income 3
year CAGR at 17.2% (previous update 16.0%) and 21.5% (previous
update 22.6%) respectively, from FY16 to FY18.

Share Data
Data
Share
Market Price
Price as
as at
at 18.05.2016
09.05.2016
Market
52 Week
Week Range
Range
52
Shares in
in Issue
Issue (as
(as at
at 31.03.2016)
31.03.2016)
Shares
Average
Daily
Volume
(52Weeks)
Weeks)
Average Daily Volume (52
Estimated
Free
Float
(%)
Estimated Free Float (%)
Main Shareholders as at 31.03.2016
Vallibel One PLC
Mr Y S H I Silva
Employees' Provident Fund
Rosewood (Pvt) Limited
MATTHEWS International Funds

LKR233.80
234.80
LKR
LKR206.51
206.51--269.40
269.40
LKR
172,312,655
172,312,655
121,896
117,667
85.0
85.0
No. of Shares
25,765,740
17,194,764
17,184,045
11,697,866
7,897,235

LKR

%
15.0
10.0
10.0
6.8
4.6

270

Volume,
Mn 1.4

260

1.2

250

1.0

240

0.8

230

0.6

220

0.4

210

0.2

200
May-15

0.0
Aug-15
Volume

Nov-15
Price

Feb-16

Minor decrease in low cost deposits The interest expense increased


by 39.7% YoY to LKR 6.7 Bn during 1QFY16. The group deposits grew by
7.0% during 1QFY16, which was higher than expected. The low cost
CASA ratio slightly decreased from 47.5% in FY15 to 45.1% in 1QFY16
which was expected with the increasing trend in interest rates. Hence,
we re-estimate a 3 year CAGR in deposits and interest expenses of 17.0%
(previous update 15.4%) and 25.3% (previous update 28.1%)
respectively, from FY16 to FY18.
Non-interest income increase fuelled by fee income growth The
group net fee based income increased YoY by 20.8% recording LKR 1.5
Bn during 1QFY16. Other operating income including foreign exchange
revaluation gains and income from currency note operations increased
by 12.1% to LKR 0.8 Bn during 1QFY16. Net trading losses of LKR 0.1 Bn
was recorded in 1QFY16 mainly due to mark to market losses in foreign
currency forward contracts and Treasury bill portfolios. Going forward,
we expect the momentum in fee based income to continue. Therefore,
in line with our previous update, we estimate non-interest income to
grow at a 3 year CAGR of 11.6% from FY16 to FY18 respectively.

Adjusted ASPI

SAMP profit increase to continue The group profits recorded a 16.6%


growth in 1QFY16. We expect the benefits of the recent branch
expansion, aggressive growth in the loan portfolio and increased fee
income to help SAMP profits to grow at a CAGR of 14.5% (previous
update 12.3%) through FY16 to FY18. This is estimated to result in an
average ROE of 17.5% over the next three years. Therefore, we re-iterate
our BUY recommendation.
Figures in LKR Mn
Net Interest Income
Non Interest Income
Net Profit Attributable to Equity Holders
EPS (LKR)*
Forward P/E (X)**
DPS (LKR)***
Dividend Yield (%)
BV (LKR)*
PBV (X)**
ROE (%)
Tier 1 (%)

FY13 (A)
15,095
5,265
3,635
20.5
7.9
8.0
4.9
178.9
0.9
12.3
10.1

FY14 (A)
16,781
7,363
5,263
29.7
7.5
5.0
2.2
195.0
1.1
15.9
9.0

FY15 (A)
18,550
8,192
6,623
37.4
6.5
6.0
2.5
221.0
1.1
18.0
8.0

FY16 (E)
21,730
9,143
7,469
42.2
5.5
6.0
2.6
257.2
0.9
17.7
7.2

FY17 (E)
25,557
10,254
8,559
48.4
4.8
8.0
3.4
297.5
0.8
17.4
6.9

FY18 (E)
29,541
11,389
9,954
56.2
4.2
8.0
3.4
345.8
0.7
17.5
6.4

*Restated according to the existing number of shares


**P/Es and PBVs from FY13-FY15 have been calculated using the year-end share price, P/Es and PBVs for FY16-FY18 have been calculated using the current
trading price***No Scrip Dividends Forecasted

Research Team Sidath Kalyanaratne, Dhinali Peiris, Tharindra Gooneratne, Raguram Raamakrishnan, Upul Atapattu, Lakmi Piyumika

Cost to income ratio continues to improve with the slowdown in branch expansion
The group cost to income ratio (CIR) improved from 52.2% in FY15 to 51.0% in 1QFY16
mainly due to the branch expansion slowing down and its benefits gradually creeping
into the system. We estimate the bank to open on average 5 branches per year which
is in line with our earlier expectations. Hence, we continue to estimate the CIR to
decrease to 50.4%, 49.6% and 48.9% in FY16, FY17 and FY18 respectively.
NIMs to stabilize medium term due to increasing interest rates The estimated group
NIM continued to decrease from 4.1% (FY15) to 3.9% (1QFY16) mainly due to repricing
of its product portfolio. We do not expect interest rates to rise exponentially as in
1QFY16 (162 bps increase in the weekly AWPLR during 1QFY16). With the expectation
of interest rates to increase at a slower rate coupled with repricing of its deposit and
loan portfolios, we have revised down the FY16 NIM from our previous update from
4.1% to 3.9% in FY16 and increased to 4.0% in FY17 and estimated to remain the same
in FY18.
Further decline in capital ratios due to loan growth The banks core and total capital
ratios have contracted further from 7.9% and 12.2% in 4QFY15 to 7.4% and 11.5% by
end 1QFY16 respectively. The core capital ratio declined by 54 bps during 1QFY16
compared to the decline of 93 bps in FY15. The total capital ratio which is slightly above
the regulatory requirement of 10% is expected to improve with the proposed
subordinated debenture issue of LKR 6 Bn in 2QFY16. As mentioned in our previous
update, SAMP core and total capital ratios declined due to rebalancing of the gold
exposure SAMP had in 2013. The expected rapid loan growth will further have pressure
on the capital ratios. Hence, going forward, an equity infusion would help avoid the core
capital ratio declining further, below the regulatory requirement of 5%.

NDB Securities (Pvt) Ltd Sampath Bank PLC

Financials
Income Statement
Figures In LKR Mn
Interest Income
Less : Interest expense
Net interest income
Non-Interest Income
Total Operating Income
Impairment (Charge)/Reversal
Net Operating Income
Operating Expenses
Personnel Cost
Other Operating Expenses
Operating Profit Before Tax
Tax
Profit After Tax
Non controlling interest
Profit Attributable to Equity Holders
Balance Sheet
Figures In LKR Mn
Assets
Cash and cash equivalents
Balances with CBSL
Placements with banks
Tbills & Investments
Loans and receivables
Other assets
Intangible assets
Total Assets
Liabilities
Due to other customers
Borrowings
Debt issued & other borrowed funds
Other liabilities
Shareholder's Funds
Stated capital
Reserves
Non controlling interests
Total Liabilities & Shareholders' Funds

Growth Ratios
Profit Growth (%)
Deposit Growth (%)
Loans & Advances Growth (%)
Share Ratios
EPS (LKR)
DPS (LKR)
Dividend Yield (%)
BV (LKR)
PBV (X)
Capital Adequacy
Tier 1 (%)
NDB Securities (Pvt) Ltd Sampath Bank PLC

FY13 (A)
42,320
27,226
15,095
5,265
20,360
(3,574)
16,786
(11,066)
(4,672)
(6,394)
5,720
(2,082)
3,638
(3)
3,635

FY14 (A)
39,696
22,915
16,781
7,363
24,143
(2,444)
21,699
(12,854)
(5,341)
(7,513)
8,845
(3,578)
5,268
(4)
5,263

FY15 (A)
39,706
21,156
18,550
8,192
26,742
(993)
25,749
(13,962)
(6,524)
(7,438)
11,787
(5,159)
6,628
(5)
6,623

FY16 (E)
49,419
27,689
21,730
9,143
30,872
(1,271)
29,602
(15,550)
(7,184)
(8,366)
14,051
(6,577)
7,475
(6)
7,469

FY17 (E)
60,319
34,762
25,557
10,254
35,811
(1,644)
34,167
(17,775)
(7,927)
(9,848)
16,392
(7,826)
8,566
(7)
8,559

FY18 (E)
71,180
41,639
29,541
11,389
40,930
(1,868)
39,062
(19,999)
(8,744)
(11,256)
19,063
(9,101)
9,961
(8)
9,954

FY13 (A)

FY14 (A)

FY15 (A)

FY16 (E)

FY17 (E)

FY18 (E)

8,341
15,767
1,791
72,984
278,698
13,409
313
391,304

11,645
17,607
1,792
64,258
334,530
12,563
394
442,790

13,713
21,342
5,193
63,435
421,297
13,298
368
538,647

14,049
32,359
3,952
71,634
507,166
16,303
394
645,857

11,671
37,369
4,564
79,872
586,401
18,827
394
739,098

13,255
42,753
5,222
84,854
678,517
21,540
394
846,535

300,382
5,944
44,749
8,470
359,544

339,679
15,061
43,611
9,835
408,186

407,164
12,538
65,171
14,571
499,444

494,025
14,821
74,104
17,291
600,241

570,518
15,974
79,872
19,968
686,333

652,721
18,276
91,381
22,845
785,224

4,460
27,210
31,671
89
391,304

4,470
30,041
34,511
92
442,790

5,381
33,727
39,109
95
538,647

6,471
39,044
45,515
100
645,857

6,471
46,187
52,659
107
739,098

6,471
54,228
61,197
115
846,535

FY13 (A)

FY14 (A)

FY15 (A)

FY16 (E)

FY17 (E)

FY18 (E)

(32.0)
23.6
24.7

44.8
13.1
20.0

25.8
19.9
25.9

12.8
21.3
20.4

14.6
15.5
15.6

16.3
14.4
15.7

20.5
8.0
4.9
178.9
0.9

29.7
5.0
2.2
195.0
1.1

37.4
6.0
2.5
221.0
1.1

42.2
6.0
2.6
257.2
0.9

48.4
8.0
3.4
297.5
0.8

56.2
8.0
3.4
345.8
0.7

9.0

8.0

7.2

6.9

6.4

10.1

Disclaimer
This document is based on information obtained from sources believed to be reliable, but NDB Securities (Pvt) Ltd.,
(NDBS) accepts no responsibility or makes no warranties or representations, express or implied, as to whether the
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