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N0000] Withstanding
a Hit from Gold Maintain a BUY (1-year total return of 22%)
,.
SCENARIO ANALYSIS ON SAMPS GOLD PORTFOLIO
Impairment losses on pawning advances (LKR mn) to varying gold prices (USD/Oz)
1,220 2% 4%
Impairment %
1300 (140) (280) (420) (560) (699) (839) (979) (1,119) (1,399)
1220 (206) (412) (618) (824) (1,030) (1,236) (1,442) (1,648) (2,060)
1100 (305) (610) (915) (1,220) (1,525) (1,830) (2,136) (2,441) (3,051)
1000 (388) (775) (1,163) (1,551) (1,938) (2,326) (2,714) (3,101) (3,877)
Market Capitalization (USD): 248mn 6mos avg. Daily T/O (USD): 335k Free Float: 85%
CALs previous 2013E assumed a gold price of c.USD1300/oz and a 6% impairment rate, which translated to an impairment charge of LKR356mn on SAMPs gold loan portfolio (total impairment charge of LKR856mn). Our revised 2013 estimates, assume a conservative USD1100/oz and an 8% impairment rate, translating to an LKR1.2bn impairment charge (total impairment charge of LKR1.7bn). CALs conservative 8% impairment assumption is equivalent to the avg. delinquency rates of two India companies with high exposure to gold as of March 2013, Muthoot Finance (7.3%) and Mannapuram Finance (9.4%). The 8% is also within range of the c.10% impairment provisioning on real estate loans provided for by US commercial banks in 2009. Further, CAL assumes that borrowers have not paid any interest (c.20%) on their outstanding gold loans and we have not factored in the 10% import duty imposed on gold. The revision results in a 2013E LKR4.6bn profit (-13% YoY) and a revised target price of LKR225, down from our previous LKR254. CAL Research is maintaining a BUY on SAMP for a 1-year total return of 22%, based on our target price of LKR225 and a dividend yield of 5%. BUY
CAL Research
Level 5, Millennium House, No.46/58, Nawam Mawatha, Colombo 2 Tel: +94 11 2317746 Email: udeeshan@capitalalliance.lk
Udeeshan Jonas
As at 08July2013
If Gold prices
when gold prices when gold prices are were to reduce USD1220/Oz to USD1100/Oz
Est. amount of gold held by Sampath (Oz mn) Exchange rate (LKR/USD) Value of the security (LKR mn) Pawning loan portfolio as at 31Dec2012 (LKR mn) Loan to Value ratio Expected default rate on gold loans Est. default gold loans + Interest written off (LKR mn) Recoverable amount from selling off security (LKR mn) Impairment charge (LKR mn) After-tax impact to P&L (LKR mn)
Sampath Banks total loan portfolio comprises c.24% of gold loans and falling gold prices has remained a concern. With avg. LTV of SAMPs gold loans ranging between c.75-80%, the collateral value stood close to LKR 67bn as at end-2012 vs. a pawning loan value of c.LKR 51bn. Consequent to the c.27% fall in gold prices since Dec 2012, the collateral value stands equivalent to the pawning advances. However, assuming that the customers who default on gold loans (c.8%) have not paid any interest to date (c.20% interest) SAMP may have on avg. a c.17% shortfall in recovering the value lent.
Gold prices fell to a 3-year low of USD 1220/Oz on Friday consequent to US Federal Reserve Chairman Ben Bernanke stating that the Fed may pull back quant easing and improved US job data. As a result of the c.27% decline in gold prices YTD, CAL has taken a conservative approach and revised SAMPs total 2013E impairment charge to LKR1.7bn. Impairment due to SAMPs gold portfolio is forecast to be LKR1.2bn (from our previous LKR356mn), based on a USD1100/oz for gold and an 8% default rate. Gold prices currently stand at USD1220/oz (USD1342/oz with the recent 10% import duty on gold in SL).
30%
4,622
26%
6,912
18%
8,788
55%
5,343
50%
4,646
27%
6,887
Profit growth
EPS (LKR) NAVPS PER (x) P/BV (x) DPS (LKR) Dividend Yield %
45%
32.8 167.1 6.7 1.3 12.0 5.5%
-13%
27.7 187.1 7.9 1.2 10.2 4.7%
48%
41.1 216.6 5.3 1.0 15.2 6.9%
FY11 Net interest margin Cost-to-income Average ROE Average ROA Loan Growth 4.77% 73% 16.3% 1.67% 34.5%
Contacts
Research Team
Tel No: +94 11 231 7777 (General) Email: teamresearch@capitalalliance.lk
Head of Research
Purasisi Jinadasa Tel No: +94 11 231 7786 Email: purasisi@capitalalliance.lk Udeeshan Jonas Tel No: +94 11 231 7746 Email: udeeshan@capitalalliance.lk Reshan Wediwardana Tel No: +94 11 231 7777 (Ext: 7814) Email: reshan@capitalalliance.lk Dushan De Silva Email: dushan@capitalalliance.lk Thushani De Silva Email: thushani@capitalalliance.lk
Disclaimer
This document has been prepared and issued on the basis of publicly available information, internally developed data and other sources, believed to be reliable. Capital Alliance Securities (Private) Limited however does not warrant its completeness or accuracy. Opinions and estimates given constitute a judgment as of the date of the material and are subject to change without notice. This report is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities, investments or financial instruments mentioned herein. Securities or financial instruments mentioned may not be suitable to all investors. Capital Alliance Securities (Private) Limited its directors, officers, consultants, employees, outsourced research providers associates or business partner, will not be responsible, for any claims damages, compensation, suits, damages, loss, costs, charges, expenses, outgoing or payments including attorneys fees which recipients of the reports suffers or incurs directly or indirectly arising out actions taken as a result of this report. This report is for the use of the intended recipient only. Access, disclosure, copying, distribution or reliance on any of it by anyone else is prohibited and may be a criminal offence.