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JKSB: Quarterly Highlights: LB Finance PLC (LFIN): 4QFY19

LFIN reported a 28% YoY growth in earnings for 4QFY19 from increased contributions from NII (+12% YoY) and net fee & commission income (+20% YoY), coupled with a sharp decline in impairment charges (-80% YoY) amid larger tax expenses. Full year earnings grew by 20% YoY mainly due to healthy growth in topline despite higher taxes and impairment charges. NII grew by 22% YoY during FY19 supported strongly by the expansion of the gold loan segment while fee & commission income grew by 19% YoY during the year. LFIN faced a sharp increase in impairment charges during the year reflecting increasing NPLs for the firm as well as the industry (LFIN follows a more conservative NPL classification policy) and the change in accounting standards from LKAS 39 to SLFRS 9. Introduction of the Debt Repayment Levy during the second half of the financial year has resulted in a 32% YoY increase in total taxation. LFIN managed to improve its cost to income ratio from 37.37% to 34.22% at the end of the year while improving its NIMs to 11.87% in FY19 compared to 11.15% in FY18. LFIN contained its NPL ratio to 2.69%, well below the industry average of 7.7%

We project full year earnings of Rs.4.8bn for FY20E (-5.0% YoY). We expect the slowdown in business and consumer activity due to prevailing economic conditions to negatively impact the company’s performance. LFIN will continue to offset dampened business in the vehicle financing segment through aggressively increasing its presence in the gold loans market. At its current price of Rs.123.50, LFIN trades at a P/BV of 0.93x (based on NAVPS as at end March 2019) and a FY20E P/E of 3.54x.