Equity Analysis /
Sri Lanka

Sampath Bank: SAMPATH BANK: 9M 17 - Strong revenues, adjust TP ex-rights

    Rahul Shah
    Rahul Shah

    Head of Financials Equity Research

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    Tellimer Research
    7 November 2017
    Published byTellimer Research
    9M profits increased 27% yoy, 10% above our expectations, mainly on the back of higher than forecast net interest income (lower funding costs, with customer deposits replacing wholesale borrowing), fee income and trading income.
    Adjusting for the rights issue, we revise our target price to LKR306 from LKR298 earlier. We incorporate the new capital and higher number of shares, but also reduce the dilution discount to 15% from the 30% we had applied earlier (a 15% discount is still applied due to our expectation of a follow-up right issue in 2018).
    Hold maintained. Higher loan volumes, fee income growth and an improved cost/income ratio have all helped the bank in recent periods. However, we are concerned that fast credit growth (up 25% yoy) could drive a deterioration in credit quality. Once we account for the recent new share issuance and potential future dilution, we see no upside to the shares, which are trading at a 2017f P/B of 1.1x.