Earnings Report /
Sri Lanka

National Development Bank: 4Q CY19 – Capital overhang cleared; robust growth continues

    Asia Securities
    24 February 2020
    Published byAsia Securities

    We maintain our TP for NDB at LKR 125.00/share (+27.7% upside; +34.8% TSR) valuing the stock at a conservative 0.6x CY20E BV. We maintain our BUY rating.

    NDB reported 4Q CY19 EPS of LKR 8.29 (+5.6% YoY) which benefited from a LKR 350mn tax reversal (SLDB-related). The key highlight was the strong loan growth during the quarter, which, at 5.0% QoQ and 15.8% YoY outpaced the industry by a large margin. On the other hand, NIMs saw only a modest decline, given the focus towards retail and project financing. With stronger loan growth expected in CY20E and the tax cuts providing a boost to the bottom line, we expect the bank to report a ROE of 14.6%. 

    Basel III capital requirements were officially revised in December 2019, and NDB’s minimum tier 1 CAR would remain at 8.50%. This removes the need for a large capital infusion, supporting our positive view.