Nations Trust Bank's (NTB) net profit has grown by 19% YoY to LKR214.1 mn in 1Q2010, broadly inline with our forecast. The net profit growth in 1Q2010 was driven by a 17.5% YoY growth in net interest income and 56.8% YoY reduction in provisioning costs. With low interest rates and expected economic boom, banking sector outlook remains positive with loan growth expected to gather momentum from 2H2010 onwards, NTB's net interest margins has improved to near 5.5% whilst the young and dynamic bank is set to grow in the coming years . We are maintaining our forecast 2010E net profit at LKR969.7 mn (up 41% YoY) and projected 2011E net earnings at LKR1,296.9 mn (up 34% YoY). Thus the share is attractive on 8.9x forecast 2010E net profit, 6.7x projected 2011E net earnings, 1.2x PBV.
Interest income has dipped 19% YoY to LKR2,459.2 in 1Q2010. NTB’s interest income has dipped 19.4% YoY to LKR2,459.2 mn in 1Q2010, caused by a 21.9% YoY dip in interest income on loans and advances to LKR1,576.9 mn and a 14.4% YoY dip in Interest income on other interest earning assets to LKR 882.2 mn. The interest income on loans and advances have dipped despite the 8% YoY increase in performing loans mainly on the back of low interest rates. Though the holding of government securities has grown by circa 20% YoY, the dip in Treasury bill rates has impacted the income from fixed income securities negatively.
Interest Expenses has dipped 35% YoY to LKR1,396.2 mn in 1Q2010. Interest expenses has dipped 35% YoY to LKR1,396.2 mn mainly on the back of a 51% YoY dip in interest expense on other interest bearing liabilities as well as a drop of 13% YoY to LKR802.1 mn in interest expense on deposit. The interest
cost was reduced with low deposit rates and shift in the deposit mix towards low cost CASA products. The reduction in other interest bearing liabilities cost is largely attributable to reduction in money market borrowings.
Net interest income has increased by 17% YoY to LKR1,063.0 mn in 1Q2010. Despite interest income having dipped by 19% YoY interest cost has dipped at a faster pace by 35% YoY enabling the net interest income grow by 17% YoY to LKR1063.0 mn.
Non interest income has reduced by 29% YoY in 1Q2010. Non interest income has reduced by 29% YoY to LKR434.1 mn in 1Q2010 due to forex earnings falling by 62% YoY to LKR60.4 mn and other income also fell by 18% YoY to LKR373.7 mn.
Operating costs have marginally increased by a mere 0.5% YoY in 1Q2010. Operating costs have marginally increased by a mere 0.5% YoY to LKR852 mn, which was resulted by a 3% YoY decrease of other operating expenses to LKR 300 mn. Personal cost has increased by 3% YoY to LKR344 mn which could be attributable to the increase in the number of employees. Further the premises, equipment and establishment expenses have increased marginally by 2% YoY to LKR196 mn.
Provision for bad and doubtful debts and loans has decreased by 57% YoY in 1Q2010. Provision for bad and doubtful debts and loans has decreased by 57% YoY to LKR114.7 mn, which was resulted by the 63% YoY decrease in specific-provision to LKR 96.7 mn. Further NTB's gross NPL ratio is at 7.1% and net NPL ratio of 3.8%.
Total tax bill has increased 41% YoY to LKR316.3 mn in 1Q2010. Value Added Taxation on banking income has increased by 29% YoY to LKR93.8 mn whilst tax on consolidated profit has also increased by 47% YoY to LKR222.6 mn which increased the total tax bill by 41% YoY to LKR316.3 mn in 1Q2010. Thus the effective tax rate in 1Q2010 is near 60%.
Net profit up 19% YoY to LKR214.1 mn in 1Q2010. Consequently a 17% YoY increase in net interest income and 57% YoY reduction in provisioning cost has pushed up NTB's net profit by 19% YoY to LKR214.1 mn in 1Q2010.
Forecast 2010 net profit maintained at LKR969.7 mn (up 41% YoY). With the expected growth in the economy and low interest rate environment the banking sector outlook remains positive with loan growth expected to gather momentum 2H2010 onwards, NTB's net interest margins is expected to be intact at around 5%, whilst the young and dynamic bank is set to grow in the coming years. Therefore, we are maintaining our forecast 2010E net profit at LKR969.7 mn (up 41% YoY) and projected 2011E net earnings at LKR1,296.9 mn (up 34% YoY).
Share is attractive on 8.9x forecast 2010 net profit. The share is attractive on 8.9x forecast 2010E net profit, 6.7x projected net 2011E earnings, 1.2x PBV.
Courtesy - Asia Research
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