Earnings Report /
Sri Lanka

Hatton National Bank: Profitability outlook yet to be reflected in valuations; reiterate Buy

  • We maintain our Buy rating on HNB with an unchanged TP of LKR200.00/ share (+41.7% TSR)

  • ROE to trend higher in CY20E, with 1) stronger loan growth, 2) a lower tax bill and 3) moderating impairments

  • With a tier 1 ratio of 14.57% (min. req. 9.5%) the bank is well capitalised to drive loan growth in CY20E

Asia Securities
2 March 2020
Published byAsia Securities

We maintain our Buy ratings on HNB with an unchanged TP of LKR200.00/ share (+41.7% TSR), and HNB NV (LKR160.00/share, +33.7% TSR). 

Overall, we expect to see higher ROE of 13.6% in CY20E, with: 

  1. Stronger loan growth; 
  2. A lower tax bill; and 
  3. Moderating impairments. 

HNB’s 4Q CY19 net profit of LKR6.3bn (+27.8% YoY; +79.8% QoQ) was driven mainly by a LKR1.8bn tax reversal on SLDB interest. Operating income was soft, with sector-wide contraction in NIM. 

The NPL stock saw a sharp rise in 4Q CY19 due to a single exposure, but excluding this, the underlying quality seems to be improving, which is a major positive. 

With a tier 1 ratio of 14.57% (min. req. 9.5%), the bank is well capitalised to drive loan growth in CY20E.