We maintain our TP at LKR 65.00/share (+22.0% upside; +32.4% TSR) and BUY rating. We account for the proposed VAT increase in CY22E earnings, while adjusting for the surcharge tax of 25% (LKR 3.0bn) in CY21E net profit. We expect the 2.5% Social Security Contribution (SSC) to be passed-on to customers indirectly through higher interest rates and fees. PAT for 3Q CY21 was up 87.2% YoY mainly on strong net interest income (NII) backed by deposit repricing and modest loan growth (+1.6% QoQ). The bank continued to take higher impairments through management overlay, in preparation for any impact from the 18% of loans currently in moratorium. We expect NIMs would pick up through CY22E, driving the bottom line, while moderating impairment charges would also contribute to PAT growth.
Strong NII anchors PAT; increase estimates on loan growth and rate pickup
PAT of LKR 2.3bn in 3Q CY21 was driven mainly by solid NII and was supported by Net Fee Income and trading/FX gains. NII was backed by 1.6% QoQ growth in gross loans (+6.9% YoY), with pawning (+7.7% QoQ) export loans (+40.0%) and import loans (+5.7%) driving growth. We expect the loan demand to improve slightly in 4Q as seasonally observed in the last quarter. Our loan book upgrade for CY21E comes largely on the strong 9M performance, but we expect better loan growth in CY22E (+12.0% YoY) driven primarily by corporate and retail, with some SME activity. However, this depends on how COVID develops next year. On the other hand, lending rates have started to pick up (SAMP’s AWPR up 288bps from 01-Oct to 19-Nov) which should back higher NII while trading gains would be lower with interest rates picking up.
Asset quality stable; higher management overlay improves provision cover
NPL stock dropped 2.8% QoQ in 3Q CY20 and management indicated that the customers that exited the moratorium continued to make regular payments. Despite this, SAMP booked a higher impairment charge of LKR 5.3bn in Q3, with a sizable management overlay, risk-elevated sector adjustment and economic factor adjustment. Approx. 18% of the loan book is in moratoriums including customers that are heavily impacted and we note that the higher impairments will continue in 4Q as well before turning lower in CY22E.
We maintain our TP at LKR 65.00/share and BUY rating
We rollover our valuations to CY22E, and SAMP currently trades at 0.5x BV with an ROE of 14.1%. We estimate a 3.5% impact to book value from tax surcharge; reflected in CY21E (and carried forward to CY22E through equity). 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 (+22.0% upside; +32.4% TSR).