SAMP's net profit increased 66% YoY during 2Q2010 mainly backed by improving core business activities (NII grew by 9.4% YoY) and capital gains realized from the sale of Lanka Bangla shares enabled the 1H2010 net profit to increase by 58.8% YoY to LKR1,344.5 mn.
With interest rates stabilizing (3 month treasury bill rate near 8%) and the private sector credit showing signs of growth (grew 2.2% YoY in May) which is expected to gather momentum during 2H2010 to record circa 10-12% growth by end 2010E, thus banking sector outlook remains positive. SAMP's net interest margins is expected to be intact at around 5%, whilst continuing to benefit from the wider reach facilitated by the current 149 branches coupled with its retail focus (nearly 60% retail exposure).
We are revising up our 2010E forecast by 2.6% to LKR2,457.0 mn (up 19% YoY) whilst maintaining our 2011E forecast at LKR2,698.4 mn (up 10% YoY). Thus the share offers good value on 11.2x forecasted 2010E earnings and 10.2x forecasted 2011E earnings whilst trading on 1.7x PBV. Maintain BUY
Interest income has reduced 17% YoY during 2Q2010 to LKR4,588.8. Interest income dropped 16.6% YoY during 2Q2010 due to a 13.1% YoY decrease in interest income from loans and advances to LKR 3,523.3mn and 26.2% YoY dip in interest income on other interest earning assets to LKR1,065.5 mn.
Interest income on loans and advances dipped despite a 2.5% growth in performing loans on the back of low interest rates. Government securities portfolio (held to maturity) dipped 56.3% during 2Q2010which was reflected in the reduction in interest income on other interest earning assets.
Interest expenses have dropped 30% YoY to LKR2,498.2 mn in 2Q2010. Interest expenses dropped 30.4% YoY in 2Q2010 mainly due to 27.1% YoY drop in interest expenses on deposits to LKR2,235.9 mn while interest expenses on other interest bearing liabilities also dropped 49.5% YoY to LKR262.3 mn. Total deposits increased 5.2% during the quarter to LKR 139.7 bn where low cost CASA deposits accounted for circa 46% (grew from near 44% during 1Q2010) of total deposits.
Net interest income has increased 9% YoY to LKR 2,090.6 mn. During 2Q2010, despite interest income dropping 16.6% YoY, interest costs dropped at a sharper pace of 30.4% YoY which resulted in the 9.4% YoY increase in net interest income.
Non interest income grew 71%YoY to LKR1,361.5 during 2Q2010. Non interest income grew 71.2% YoY mainly on the back of capital gain realized from selling off 1.2 mn shares (Due to this, Bank’s holding of 13.55% as at 31.12.2009 was reduced to 11.29% as at 30.06.2010) in Lanka Bangla Finance Ltd which boosted other income by 85.9% YoY.
Non interest expenses increased 15.7%YoY in 2Q2010 to LKR1,593.3 mn. Non interest expenses increased 15.7% YoY mainly due to 10.6% YoY increase in personnel cost to LKR673.2 mn and 13.5% YoY rise in overheads to LKR535.9. The increase in operating costs can be attributable to the expansions undertaken by the bank where it opened 6 new branches during 2Q2010. Further cost to income ratio stood at near 46% end of 2Q2010.
Provisions have increased 296% YoY in 2Q2010. Provisions have increased 296% YoY in 2Q2010 to LKR 322.4 mn largely owning to LKR255.0 mn specific provision on account of investment in Union Bank shares which increased total specific provisions to LKR669.5 mn. However recoveries have increased drastically during 2Q2010 by 239.1% YoY to LKR377.0 mn.
Operating profit has risen 27% YoY to LKR1,415.0 mn in 2Q2010. Operating profit rose 27.4% YoY during 2Q2010 to LKR1,415.0 mn backed by 9.4% YoY increase in net interest income and 71.2% increase in other income.
Total tax bill reduced 7% YoY to LKR 653.9mn. Total tax bill has reduced 6.9% in 2Q2010 due to 28.5% YoY decrease in corporate tax. However the VAT on Financial services has increased by 18.5%. The effective tax rate as at 30th June 2010 stood at 46%.
Net profit up 66% YoY to LKR746.1mn. SAMP’s net profit increased 66.1% during 2Q2010 mainly backed by improving core business activities (NII grew by 9.4% YoY) and capital gains realized from the sale of Lanka Bangla shares enabling the 1H2010 net profit to increase by 58.8% YoY to LKR1,344.5 mn.
Improved NPL ratios during 2Q2010. SAMP’s gross NPL ratio improved to 6.8% in 2Q2010 from 7.6% as at 31st December 2010 whilst net NPL ratio improved to 1.7% from 2.8%.
SAMP remains well capitalized. Tier I CAR stood at 11.1% (Tier I – Min 5%) whilst Tier II CAR was at 14.2% (Tier II – Min 10%) during 2Q2010.
Forecast 2010 net profit revised up by 2.6% to LKR2,457.0 mn (up 19% YoY). With interest rates stabilizing (3 month treasury bill rate near 8%) and the private sector credit showing signs of growth (grew 2.2% YoY in May) which is expected to gather momentum during 2H2010 to record circa 10-12% growth by end 2010E, thus banking sector outlook remains positive. SAMP’s net interest margin is expected to be intact at around 5%, whilst continuing to benefit from the wider reach facilitated by the current 149 branches coupled with its retail focus (nearly 60% retail focus).
Therefore we forecast 2010E net profit to grow by 19% YoY to LKR2,457.0 (revised up by 2.6%) and 2011E net profit to grow by 10% YoY to LKR2,698.4 mn. Share offers good value on 11.2x forecasted 2010E net profit. The share offers good value trading on 11.2x forecasted 2010E net profit and 10.2x forecasted 2011E net profit whilst trading on 1.7x PBV. Maintain BUY.
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