SCB released FY 19 results, which saw net profit rise by 34% yoy, coming in 26% above our forecast and resulting in EPS of GHS2.09. The performance was on the back of 1) higher-than-expected net interest income, up 22% yoy, and 2) lower-than-expected impairment charges (35% below our forecast), which resulted in EPS of GHS2.09.
Net interest margin was down 0.3ppts due to lower yields on investment securities following the rate cut in January 2019, while funding costs stayed flat. ROE was up 4ppts yoy to 25.4%, well ahead of our forecast of 20.7% as operating expenses and net impairment charges came in lower than expected. Compared with 9M 19, PAT was up 39% and NIM and ROE expanded by 0.5ppts and 0.4ppts, respectively.
We reiterate our Hold recommendation on SCB with a TP of GHS15.7 (-12% ETR). Our recommendation is on account of 1) its relatively high valuation relative to peers, with its FY 20f P/B of 2.2x, implying a 146% premium, and 2) its FY 19 NPL ratio at 17.2%, which although trending lower yoy, is still 2x higher than at CAL Bank.
Key positives
- Cost/income ratio was down 1.6ppts to 38.6%; historically, SCB has the lowest ratio among our coverage.
- Loans grew by 5% qoq as the bank continued to drive its retail lending franchise.
- Asset quality also improved, albeit at a slower rate. NPL ratio improved by 0.6ppts qoq to 17.2%, compared with the last four quarters, which have had an average improvement of 3.2%.
Key negatives
- Reduction in margins as funding cost inched up by 0.2ppts despite a 6% decrease in deposits.
Outlook
Strong capital ratios (CAR at 27.5%) should support continued loan growth in 2020. In FY 19, loans/assets was 23% from 22% in FY 18.
| GHS mn | FY 19 | FY 18 | yoy | 9M 19 | qoq |
|---|---|---|---|---|---|
Net interest income | 595 | 489 | 22% | 424 | 40% |
Non-interest income | 258 | 224 | 15% | 200 | 29% |
Total income | 853 | 713 | 20% | 624 | 37% |
Operating expenses | 329 | 286 | 15% | 240 | 37% |
Pre-provision profit | 524 | 427 | 23% | 384 | 36% |
Net impairment | 100 | 101 | -1% | 95 | 5% |
Net attributable profit | 281 | 11 | 34% | 203 | 39% |
EPS | 2.09 | 1.56 | 34% | 1.50 | 39% |
Net loans | 1,771 | 1,302 | 36% | 1,693 | 5% |
Total deposits | 5,419 | 4,302 | 26% | 5,788 | -6% |
NII margin | 8.8% | 9.1% | 7.9% | ||
Cost/income ratio | 38.6% | 40.2% | 38.4% | ||
ROE | 25.4% | 21.4% | 25.0% | ||
Cost of funds | 2.3% | 2.3% | 2.1% | ||
NPL ratio | 17.2% | 30.8% | 17.8% |