NATIONS TRUST BANK [NTB]- INTERIM RESULTS 30 JULY 2015

Net earnings up 26% YoY to LKR765.1 mn. NTB reported a net earnings growth of 26% YoY to LKR765.1 mn in 2Q15 largely on account of the growth in core banking operations (NII up 8% YoY and Fees and Commission income up 12% YoY). Further, the operating margins improved to c.27% in 2Q15 from c.23% corresponding quarter on the back of increased core banking revenue. Meanwhile during 1H15 NTB managed to record a bottom-line growth of 9% YoY to LKR1,257.8 mn backed by stronger 2Q earnings.

Net interest income (NII) up 8% YoY in 2Q15. NTB’s NII edged up 8% YoY to LKR2,300.6 mn during 2Q15 mainly due to the 17% YoY reduction in interest costs to LKR1,795.2 mn. Timely re-pricing of its liabilities was the main resultant of reduction in interest cost. In subdued credit environment, NTB managed to increase the loan book by 2.8% QoQ in 2Q15. However given the excess liquidity and competition in the industry bank had to reduce interest rates in order to capture volumes. Therefore interest income saw a decline of 4% YoY during 2Q15 to LKR4,095.8 mn. NTB’s NIMs remained stagnant at 5.7% in 2Q15 and we believe bank would be able to maintain NIMs at these levels in the medium term.

Non-interest income rose 24% YoY to LKR841.4 mn. The growth in Non-Interest income was mainly due to increase in income from net fees and commission which denoted a growth of 12% YoY in 2Q15. Fee based income from cards grew by 18% whilst remittances, bancassurance and transactional fees in total grew by 11% during 1H15. Further trade related fee income has also reported a growth of 11% on the back of improved international trade volumes in 2Q.In addition, net trading income recorded a profit of LKR52.7 mn in 2Q15 from a loss of LKR61.8 mn in 2Q14 due to increase customer volumes and favorable rate movements in the proprietary trading business.

Forecast 2015E net profit (excluding one off super gain tax) maintain at LKR2,852.9 mn (up 12.5%). Given the low Interest rate environment private sector credit is expected to rise further during 2015 (c.15% growth in April 2015), thus the sector outlook remains positive. Despite the competition in the private sector commercial banking industry NTB is expected to maintain interest margin around 5.5% whilst further improving CASA, cost income and fee based income.

Share trades on 8.5X forecast 2015E recurrent earnings. The share is trading on 8.5x 2015E forecast recurring net profits and 7.2x 2016E recurrent net earnings whilst trading on 1.6x PBV. Maintain Trading Buy.