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Sampath Bank: 1Q CY21 - Solid 1Q result drives CY21E bottom line upgrade

  • Net profit beats estimate on strong top line and lower impairment charge
  • Loan book sees robust growth; third wave concerns to push back recovery
  • We maintain our post-split TP at LKR 65.00/share and BUY rating

We maintain our post-split TP at LKR 65.00/share (+29.5% upside; +37.7% TSR) and BUY rating, given that the current valuations are attractive with the earnings pickup expected in CY21E. 1Q CY21 net profit was up 90.7% YoY mainly on strong trading and FX gains coupled with a lower impairment charge. SAMP, having taken early impairment charges continues to benefit with stabilising asset quality. We forecast CY21E loan growth at 6.0% and maintain our view that NIMs would pick up in CY21E, supporting the bottom line. We believe that the ongoing third wave could dampen growth and threaten the improvement in credit quality which we adjust in our estimates. The valuations, which were already low, have more than discounted the third wave concerns which drives our BUY recommendation.

Net profit beats estimate on strong top line and lower impairment charge

Net profit of LKR 5.1bn in 1Q CY21 beat our estimates, with better-than-expected NII growth and impairment charge. SAMP continued to see a lower CoR (1Q: 77bps vs. CY20: 166bps) on the back of taking higher provisions earlier on in the credit cycle while recoveries improved as well. We continue to expect a CoR of 125bps for CY21E after accounting for the third-wave impact. Although this means the quarterly run rate of impairment charges for the rest of the year would be higher than Q1, given the bank’s strong provisioning policy, we expect impairments to mark a 20.2% YoY drop for the full year.

Loan book sees robust growth; third wave concerns to push back recovery

Gross loans grew 2.7% QoQ (+4.0% YoY), driven mainly by term loans (+2.6% QoQ), overdrafts (+4.6%) and housing loans (+5.5%). While this represents an improvement from the previous quarters, we see this momentum facing headwinds in 2Q CY20, with the current lockdowns. We cut back our loan growth expectation to 6.0% (vs. 8.0% before) for CY21E. NPL ratio dropped to 5.92% in Q1, and NPL stock dropped 3.5% QoQ as the bank focused more on collections, and moratorium customers continued to make payments. We expect the NPL ratio to remain at 5.90% for CY21E with recovery pushed back given the third wave impact.

We maintain our post-split TP at LKR 65.00/share and BUY rating

SAMP concluded its 3-for-1 share split in March (our per share data reflect this). The share currently trades at 0.5x BV CY21E with a ROE of 10.8%, and we note that the weak valuations reflect the third wave concerns and the uncertainty on growth and credit quality. We continue to believe that the long-term value is not captured in the current valuations and maintain our TP at LKR 65.00/share (+29.5% upside; +37.7% TSR).


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