JKSB Quarterly Highlights_Sampath Bank PLC (SAMP)_2QCY17
SAMP reported a strong 39% YoY increase in earnings for 2QCY17, driven mainly by 1) healthy growth in net interest income (+24% YoY); and 2) an impressive 8.4ppt YoY improvement in its cost to income ratio which dropped to 40% (below the industry average despite SAMP having a relatively younger branch network vs. its closest peers). Despite upward re-pricing of new advances amid strong loan book growth (+12.8% in YTD CY17; +5.7% QoQ), SAMP’s NIM contracted slightly (-0.04ppt YoY) for the quarter, amid an expected drop in its CASA ratio.
SAMP has also announced a long anticipated equity capital raising aimed at increasing its Tier 1 capital to meet new Basel III requirements, with a planned rights issue of one new share for every six existing shares at an issue price of Rs. 245 per share (translating to an equity infusion of ~Rs. 7.6bn). Under new Basel III requirements, banks with an asset base of Rs. 500bn and above will have to maintain Tier 1 capital of 10% and Tier 2 capital of at 14% by the start of 2019.
While net loan book growth and earnings growth have exceeded our expectations for the quarter, we maintain our full year earnings projection of Rs. 11bn for CY17 (+16% YoY) for now. At its current price of Rs. 273.90, SAMP trades at a CY17E P/E of 4.6x (based on current share count) and a P/BV of 0.9x (based on NAVPS as at end June 2017), at an unwarranted discount to our banking & finance coverage universe P/E. We expect SAMP’s NAVPS to be ~Rs. 320 by end Dec 2017.
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