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JKSB Quarterly Highlights_Sampath Bank PLC (SAMP)_3QCY17

SAMP reported a healthy 12% YoY increase in earnings for 3QCY17, with net interest income and net fee & commission income up by 25% YoY and 23% YoY respectively amid a controlled increase in operating expenses (cost to income ratio -5.9ppt YoY to 43%). The bank’s NIM improved marginally YoY and QoQ (+10bps and +4bps respectively) amid upward re-pricing of new advances, while at Group level the CASA ratio recorded an anticipated decline (-6.1ppt YoY; -4.7ppt YTD) to 34% on the back of a sharp increase in SAMP’s fixed deposit base. NPLs remained higher YTD for the bank but improved QoQ (from 1.61% in 4QCY16 and 1.77% in 2QCY17 to 1.74% in 3QCY17), and remain one of the lowest among the larger private sector banks. Loan book growth for SAMP has remained strong (+18% in 9MCY17; +4.9% QoQ), despite an industry wide slowdown in the pace of credit growth, while on the funding side, term deposits have increased by 30% in 9MCY17 vs. a 19% increase in SAMP’s total deposit base, with SAMP having offered a rate of 12% on its one year FDs during the quarter, +1ppt higher than peers HNB and COMB.

 With 9MCY17 earnings at Rs. 8.8bn (+27% YoY), we have upgraded our full year earnings projection to Rs. 11.4bn for CY17 (+20% YoY). SAMP reduced its 3 month and 1 year FD rates twice in October 2017 - with current rates at 8.5% and 10.25% respectively (vs. rates of 10.92% and 12% respectively as at end 3QCY17) - which should translate to improved NIMs amid continued strong loan book growth and an improved cost to income ratio YoY. At its current price of Rs. 344.50, SAMP trades at a CY17E P/E of 5.6x (based on current share count) and a P/BV of 1.1x (based on NAVPS as at end September 2017), at an unwarranted discount to our banking & finance coverage universe P/E and continues to offer a strong value proposition to long term investors.