COMMERCIAL BANK PLC [COMB] INTERIM RESULTS 13 AUGUST 2015

Equity holders profit rose 19% YoY to LKR2,646.1 mn. In a relatively challenging environment with excess liquidity and pressure on margins COMB managed to recorded 19.4% YoY growth in bottom-line to LKR2,646.1 mn which was broadly in-line with our forecast. 6.6% NII growth, 4.1% fee and commission income growth, 28.1% YoY reduction in impairments and better cost management enabled net profit growth during the quarter.

Net interest income up 7% YoY to LKR7,588.9 mn. COMB’s NII rose 6.6% YoY to LKR7,588.9 mn during 2Q15 largely due to 3.2% YoY increase in interest income to LKR16,238.1 mn backed by 16.9% YoY (2.5% QoQ) loan base expansion to LKR511.6 mn. Despite 16.7% YoY (3.7% QoQ) deposit base growth, bank only saw 0.3% YoY increase in interest cost largely due to timely re-pricing of its liabilities and improving CASA mix (70 bps improvement to 49.1% during 2Q15). In a challenging environment with excess liquidity and competition in the industry, COMB had to reduce interest rates in order to capture the volumes. This saw banks NIMs drop 40 bps YoY to 3.7% but managed to hold it steady on a QoQ basis.

Impact of one off super gain tax. As per the interim budget 2015, an additional one-off tax of 25% has been imposed on the profits of the groups which have earned in excess of LKR2,000 Mn for the year of assessment 2013/2014. The estimated tax liability, based on the current understanding for the COMB Group on its Group taxable income would amount to c.LKR2,610.0 mn.

Forecast 2015E net profit (excluding one off super gain tax) up 12% to LKR12,529.0 mn. COMB's net interest margin is expected to be intact at around 4.0%, whilst continuing to benefit from the wider reach facilitated by the current 261 branches and its brand name. Loan growth expected to pick up, healthy asset quality, healthy capitalization, lower cost/income ratio, higher corporate client base, highest CASA mix and improving performance in Bangladeshi operations COMB’s outlook is positive. However given the one off tax impact 2015E earnings would be reduced by LKR2,610 mn to LKR9,919.0 mn.

Share is trading on 12.0X forecast 2015E net profit. The voting share is trading on 12.0X forecast 2015E net profit and 10.2X forecast 2016E net profit whilst trading on 1.9X PBV. Non- voting share is attractive at 9.7X forecast 2015E net earnings and 8.2X 2016E net earnings, 1.5X PBV. Maintain Trading BUY.
Please refer the link for more details- https://drive.google.com/file/d/0B6oYIOgoj7LDQmxjR2FGaUlCeU0/view?usp=sharing