EUR 4.56 For Business Accounts Only

JKSB Quarterly Highlights_Commercial Bank of Ceylon PLC (COMB)_2QCY17

COMB reported an 18% YoY increase in earnings for 2QCY17, driven primarily by 1) 15% YoY growth in net interest income, supported by a healthy 21% YoY increase in net loan book amid a slight 0.15ppt YoY contraction in NIM; 2) a sharp reversal in net trading gains/losses (gain of Rs. 482mn for the quarter vs. a loss of Rs. 1.9bn in 2QCY16); and 3) increased net fee & commission income (+33% YoY), supported by growth in remittances and credit/debit card operations.  The contraction in NIM comes amid an anticipated decline in COMB’s CASA ratio, from 46% in 2QCY16 to 40% in 2QCY17 (YTD decline of ~1.5ppt), with customers shifting to higher yielding fixed/term deposits amid rising interest rates. The bank’s gross NPL ratio - at 2.12% as at end June 2017 - was broadly flat YTD, but trended lower YoY (2.64% gross NPL ratio in 2QCY16).

 COMB’s cumulative earnings amount to Rs. 7.7bn for 1HCY17, +18% YoY. However, we maintain our full year earnings projection of Rs. 15.8bn for CY17E (+9% YoY), given an expected industry-wide slowdown in credit growth during 2HCY17. We expect COMB to maintain above industry NIMs during the year, given its larger market share and deposit franchise coupled with increasing exposure to retail and SME lending. The voting and non-voting shares trade at CY17E P/Es of 8.7x and 6.6x respectively, at a warranted premium to the banking sector.