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ComBank to preserve positive growth momentum in its loan book

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Impairment provisioning also noticed a significant drop of 41.9% YoY

ComBank is expected to keep up the positive momentum in its loan book while maintaining growth within a range of 11% – 12% in the coming years, according to the Bank’s earnings update released by First Capital Research.

“Commercial Bank of Ceylon plc., has posted exceptional results for 3Q2021 with earnings improved by 78.4%YoY to LKR 6.6 billion compared to LKR 3.7 billion recorded in 3Q2020. Improvement in NII, Fee and Commission Income and Other Operating Income have largely contributed towards the outstanding results of the quarter. Moreover, impairment provisioning also noticed a significant drop of 41.9% YoY despite recording a rise of 7.6%YoY for 9M2021,” First Capital said.

The update further said,” ComBank recorded a gross loan growth of 10.9% to LKR 1.1 trillion for 9M2021 with a net loan growth of 9.9% year-to-date. Increased appetite for credit by corporate as well as individuals is expected to stimulate the gradual economic recovery and thereby enable ComBank to persevere the positive growth momentum in the loan book.”

“Thus, we are upgrading our earnings forecast for 2021E and 2022E to LKR 25.1Bn and LKR 27.3Bn, respectively. However, considering the higher risk-free rate stemming from the increased interest rates, we are almost rolling over our previous target price for 2021E of ComBank for 2022E at LKR 115.0 together with a total upside potential of 55.0%.”

“Improvement in NII, Fee and Commission Income and Other Operating Income have largely contributed towards the outstanding results of the quarter. Interest expense displayed a notable reduction owing to the low interest rate regime and the considerable lag in terms of repricing of deposits, thereby improving the NII by 16.7%YoY to LKR 16.4Bn. Fee and Commission Income also posted a sizable expansion by 24.6%YoY promoted by the extensive use of card transactions and online payment platforms during the lockdown period. Net Other Operating Income posted an enormous growth of 644.7%YoY to LKR 2.6Bn on account of the higher foreign exchange gains. Moreover, impairment provisioning also noticed a significant drop of 41.9%YoY despite recording a rise of 7.6%YoY for 9M2021. Considering more than expected earnings delivered during 9M2021, we have enhanced our NII target for 2021E to LKR 60.3Bn (+23% from the previous target) and for 2022E to LKR 64.0Bn (+16% from the previous target). We have also restated our earnings targets for 2021 and 2022 to LKR 25.1Bn and LKR 27.3Bn, respectively.”

“Revival in private sector credit advanced the Gross Loan Book by 10.9%.”

“COMB has achieved a gross loan growth of 10.9% to LKR 1.1Tn during the 9M2021 while recording a net loan growth of 9.9% year-to-date. A notable improvement witnessed in private sector credit growth during Oct – Nov 2021 which exhibited an increased appetite for credit by corporate as well as individuals propels the gradual economic recovery, thereby it is expected ComBank to keep up the positive momentum in the loan book while maintaining the growth within a range of 11% – 12% in the coming years.”

“We have accounted for proposed surcharge tax of 25% (LKR 4.3Bn) through the retained earnings while no adjustment made in terms of the turnover levy of 2.5% (Social Security Contribution), assuming it can be passed on to the customers. Considering the gradual rise in risk free rate and thereby the increase in expected return, we have ascertained the fair value of COMB.N to reach LKR 115.0 (previous TP – LKR 125.0) in 2022E for a total return of 55.0% at the current market price, and the share is trading well below its current book value of LKR 139.0 with a PBV of 0.6x. COMB.X is valued at LKR 95.0 by 2022E assigning a 15% discount to the voting share.” First Capital said.



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Business

Seven factors of concern at upcoming Monetary Policy Review

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by Sanath Nanayakkare

The Central Bank of Sri Lanka (CBSL) is scheduled to announce its latest monetary policy review on 20th January 2022, with all eyes on dwindling foreign reserves and foreign currency exchange in the country.

In this context, First Capital Research has named 7 factors of concern that could be taken into account at the upcoming monetary policy review. They are as follows.

* Foreign Reserves USD 3.1 billion – Dec 2021

* Inflation CCPI 12.1% – Dec 2021

* GDP Growth -1.5% – 3Q2021

* Private Credit LKR 60.5 billion – Nov 2021

* 03M T-Bill rate 8.38% as at 12.01.22

Liquidity and CBSL Holdings LKR -364.0 billion and LKR 1.42 trillion

Balance of Trade (BOT) and Balance of Payment (BOP) USD -6.5 billion and USD -3.3 billion for Jan-Oct 21

First Capital Research’s Policy Rate Forecast – Jan 2022-Apr 2022 notes that they believe the CBSL may highly consider tightening the monetary policy rates in this policy review but given the concerns over economic growth, there is a probability of 40% for CBSL to maintain its policy stance at current levels.

“With high frequent indicators improving in line with expectations, we have eliminated any probability of a rate cut. We expect a continued increase in probability for a rate hike in order to prevent overheating of the economy amidst the given fiscal and monetary stimulus,” they said.

As per First Capital’s view, CBSL either can choose to hike policy rates by 50bps or 100bps or hold policy rates steady, while a rate cut is off the table due to the high debt repayment and the high domestic borrowing requirement.

First Capital believes that there is a 60% probability for a rate hike due to the remedial actions required in achieving external stability.

However, there is also a 40% probability to maintain the policy rates at its current level in order to further improve the high frequency indicators.30%, they noted.

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Sri Lanka’s dash brand enters international markets

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Multichemi International Ltd, which manufactures and distributes a wide range of products under dash, one of Sri Lanka’s leading detergent and household care brands, has begun exporting its products to several international markets in Asia and Oceania, with plans also to enter Africa. The dash brand includes a wide range of products in car care, household care, home fragrances and laundry care sectors. Multichemi International Ltd, which has been awarded ISO 9001:2015 certification, is a Sri Lankan pioneer in environment-friendly cleaning products, having launched the country’s first biodegradable, safe cleaning products over 28 years ago.

Amila Wijesinghe, General Manager of the Company said,”Having conquered the domestic market, we are now ready to capture the international market. We are confident that our products which are of high quality will receive a good demand overseas as well. The feedback we have received so far from our overseas customers is extremely encouraging. We are dedicated to taking our products to the international market, to bring in foreign currency to the country and help uplift the economy”,

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Janaka Abeysinghe appointed SLT CEO

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Sri Lanka Telecom PLC has announced the appointment of Janaka Abeysinghe as its Chief Executive Officer (CEO) with effect from February 1, 2022.

The incumbent CEO Kiththi Perera will be overseas on leave for a period of two years to pursue higher studies, according to a stock market filing by the company.

Abeysinghe joined SLT in 1991. In his present role, he leads the enterprise and wholesale business of SLT that provides integrated voice and data solutions to enterprises, government institutions, domestic telco operators and global wholesale carriers.

In his career at SLT spanning 29 years, he has held a number of senior positions, including general manager Enterprise and International Sales and has extensive experience in the areas of Enterprise Digital Services, Enterprise Communications Solutions, Data Communications, Business Development, Domestic and International Switching Operations and Global Wholesale Voice & Data Business.

He holds a Master’s Degree in Electrical and Computer Engineering from the University of Kansas, USA and a BSc degree in Electronics and Telecommunications Engineering with a First Class Honours from the University of Moratuwa.

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