EUR 4.56 For Business Accounts Only

JKSB Full Year Highlights_Sampath Bank PLC (SAMP)_CY17

SAMP reported full year earnings of Rs. 12.7bn (+34% YoY) for CY17, supported mainly by 1) a strong 27% YoY increase in net interest income (driven by robust above-industry loan book growth amid a marginal expansion in NIM); and 2) an improved cost to income ratio which reached the bank’s target of 42% for the year (-5.5ppt YoY) amid a maturing of its branch network (SAMP has a younger branch network vs. peers HNB and COMB, with an average branch age of ~11 years, following an aggressive expansion drive over 2010-2011). Gross NPLs were marginally higher (+3bps to 1.64%) for the year, but remain one of the lowest among the larger private sector banks, thanks to a centralised credit approval system (all loan approvals are carried out by seven zonal offices and the head office which approves all big ticket loans of > Rs. 200mn). The bank reported above-industry loan book growth and deposit growth for the year (+24% YoY respectively).

 We conservatively project full year earnings of Rs. 14bn (+11% YoY) for CY18E, given an expected slowdown in credit growth during the year for the bank and the sector as a whole, coupled with a potential sharp hit from increased provisioning due to implementation of SLFRS 9 and a projected tax hit of Rs. 5mn - Rs. 6mn from removal of the notional tax credit on government securities and other tax changes. We expect the company’s cost to income ratio to improve to 40% by end CY18. SAMP’s NIM could be pressured in 1HCY18, in the event of a decline in interest rates, but should improve in 2HCY18. We have not factored in the impact of implementation of the FTL (Financial Transaction Levy) into our projections. At its current price of Rs. 329.80, SAMP trades at an attractive  CY18E P/E of 5.1x (based on current share count) and a P/BV of 1.0x (based on current share count & NAVPS as at end December 2017), and continues to offer a strong value proposition to long term investors.