"Initial Coverage - Nations Trust Bank" Research Report

Sstar Thu Jun 07, 2012 12:36 pm

By IIFL Sri Lanka
07th June 2012

Nations Trust Bank (NTB) has traditionally been a corporate and premium service bank, but is now increasing its focus on the SME and middle-income segment. NTB has a higher proportion of fee-based income than its peers, which should help cushion the impact on its bottom-line against the likely decline in loan volumes and margins in CY12ii. With a relatively higher leverage than its peers, NTB stands to generate superior RoE going forward. NTB’s asset quality has improved since 2010, in line with the improving Sri Lankan economy. Despite the current slowdown in economic growth, we expect asset quality to hold firm, as NTB has pruned its loan book. NTB’s CY12ii PPoP should increase 32% YoY to ~LKR3.1bn, with net profit increasing 18% YoY to ~LKR1.8bn. Our residual-income-based valuation yields a 12-month target price of LKR52, which is supported by a justified P/B of 1.2x. NTB currently trades at 1.1x CY12ii P/B and 0.9x CY13ii P/B. We initiate coverage with ADD.

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