- Withstanding a Hit from Gold – Maintain a BUY (1-year total return of 22%)
CAL's previous 2013E assumed a gold price of c.USD1300/oz and a 6% impairment rate, which translated to an impairment charge of LKR356mn on SAMP's 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). CAL's 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
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