State Bank of Mauritius Ltd

Transcription

SBM
Overview
State Bank of Mauritius Ltd (SBM) is the second domestic bank by market share. Given the saturated and
limited size of the Mauritian market, SBM expanded its business overseas and set up banks in Madagascar
and India. While non-banking business constitutes only 13% of profits after taxes, at the bank level,
Segment B constitutes 60% of attributable earnings.
Group Re-structure
SBM is undergoing a re-organisation which will result in the segregation of its operations/activities into
‘Banking’, ‘Non-Banking ’, and ‘Non-Financial’ clusters. The resulting switcheroo will not change any
business operations. SBM’s board also decided to make a 1 for 100 share split with the intent to “improve
liquidity of the Bank’s share and help unlock latent value”. However the split has killed price volatility on
Rating
HOLD
Current Price:
Rs 1.04
Performance Review and Prospects
CDS Code:
SBM.N0000
SBM has spectacularly grown Net Interest Income as well interest rate margins by jettisoning expensive
ISIN Code:
MU0040N00009
Reuters RIC:
SBML.MZ
a sturdy growth path. However, SBM has not been as successful in bridging gaps left by discontinued
Bloomberg Ticker:
SBM MP
selective high risk e-commerce business and after the Bank of Mauritius began dealing directly with para-
Google Finance Code:
MAU:SBM
Reserve Bank of India, while its African go-to-market avenues are still in a exploration phase. These are
Trading data
21-Jun-13
therefore only medium term prospects. We believe SBM’s cost-income ratio, the best among peers, has
52-wk range:
Rs 0.78 - 1.05
Market capitalisation:
Rs 26.6 bn
Weight in Semdex:
16.1%
Weight in Sem-7:
24.6%
No of Shares:
25,818M
Avg. daily value traded:
Rs 6.2M
SBM which has spent 87% of trade sessions trapped between Rs1.03 and Rs1.04.
foreign currency term deposits while aggressively increasing its domestic lending. Based on the SBM’s
highly successful balance sheet engineering endeavours, we expect the bank’s core business to remain on
statals for their foreign exchange requirements. Overseas growth for the bank in India is limited by the
bottomed out. Expenses will increase principally driven by implementation costs relating to its new
banking systems. Impairments are also set to rise given the slow GDP growth rates expected both in
Mauritius and India where “restructured” loans are increasingly deteriorating into non-performing loans.
Valuation: Downgraded to Hold
Assuming impairments on the order of 0.6% of its loans book, we place SBM’s 2013 PER at 9.0x and
improve to 8.7x in 2014. Its PEG ratio also paints a positive picture. Having stood well above 1 prior to
2012, it is projected to drop to 1.0x in 2013 then ease off to 0.8x in 2014. SBM’s FY14 PBV is forecasted to
of which foreign buys:
Rs 2.65M
stand at 1.18x which is lower than its 5Yr mean of 1.57x. Although its T1 CAR at above 17.5% is strong, we
of which foreign sells:
Rs 3.24M
expect NPL to deteriorate above 1.5%. Irrespective of its fundamentals, SBM has ensnared itself into a
single-cent band following its heteroclite 1 for 100 share split. Although SBM has the best valuation
metric among peers, the absence of a clear growth path drives us to downgrade our rating on SBM from
“Accumulate” to “Hold”.
Highlights
Avg. daily volume traded:
6,633,500
Year on Year return:
32.4%
All time high:
Rs 1.05
(15-May-13)
2009
2010
2011
2012
2013E
2014F
Loan to Deposit Ratio [%]
68.2
72.1
84.7
83.5
86.0
85.0
Selected Data
Net Interest Spread [bps]
770
655
499
606
606
588
CAMEL rating:
2+
Net Op. Income [Rs bn]
3.88
4.08
4.51
5.59
5.96
6.23
Moody's fin. strength:
C-
Profit after Tax [Rs bn]
1.87
1.89
2.23
2.97
2.94
3.07
Gross loans:
Rs 63.5 bn
Earnings per Share [Rs]
0.07
0.07
0.09
0.11
0.11
0.12
Rs 76.2 bn
0.03
0.03
0.03
0.04
0.04
0.04
Σ Deposits:
Dividend per Share [Rs]
0.42
0.51
0.58
0.70
0.79
0.88
Tier 1 capital:
Rs 12.5 bn
Att. Equity per Share [Rs]
T1 cap. adequacy ratio:
17.8%
2009
2010
2011
2012
2013E
2014F
Capital adequacy ratio:
21.7%
Cost to Income Ratio [%]
37.6
35.0
34.2
31.6
33.9
33.7
Cap. Adequacy Ratio [%]
16.9
16.7
15.3
17.2
17.8
17.6
2.0
1.9
1.4
1.1
1.6
1.5
17.2
14.5
15.0
16.5
14.5
13.6
Key Metrics
Non-Performing Loans [%]
Return on Equity [%]
2014 Growth Forecasts
Loan & advances:
8.4%
Deposits:
9.7%
Net op. income:
4.5%
Price to Earnings Ratio [x]
11.0
12.4
9.7
7.8
9.0
8.7
PE Growth Ratio [x]
3.55
4.83
1.74
1.05
1.04
0.78
EBITDA:
4.4%
Price to NAV Ratio [x]
1.90
1.78
1.46
1.29
1.31
1.18
3.4
3.0
3.6
3.9
3.8
4.0
EPS:
4.4%
Dividend Yield [%]
Jun-13
AXYS Stockbroking Ltd, Bowen Square, Dr Ferrière Street, Port-Louis | BRN C07007947
Tel (230) 213 3475 | Fax (230) 213 3478 | Email research@axys-group.com | www.axysstockbroking.com
1
SBM
Financial Performance1
by tangible assets) and manufacturing (slow exports) for SBM, our
main concern stems from its business in India. In 2008, the Reserve
Core Business
SBM spectacularly increased its Net Interest Income (NII) in recent
months: +35% in 2012 and +16% (QoQ) in Q1-13. More
impressively, SBM broadened its interest margins from 5% in 2011
to 6% in 2012 and an even wider annualised 6.1% in Q1-13. SBM
achieved this via what its management calls “balance sheet
Bank of India (RBI) loosened its rules on how banks dealt with bad
debts. This is now – with India’s GDP growing at less than 5% –
affecting Indian banks whose “restructured” loans are increasingly
deteriorating into non-performing ones. Therefore we believe
SBM’s impairments will increase substantially by 2014.
engineering”. SBM grew its loans and advanced by 28% in 2011
and 7% in 2012 through domestic credit 2 while simultaneously
ridding itself of expensive foreign currency and term deposits. The
bank’s Loan-Deposit ratio (LDR) which has surged from the low 70s
to the mid-80s, remains comfortable and leaves space for
continued organic NII growth. We believe SBM’s NII margins have
peaked and will flatten out in spite of stiff competition and a 25bps
cut in Key Repo Rate (KRR). However, due to a lukewarm economic
environment, domestic demand for credit will remain subdued. We
thus project SBM’s NII to grow by 11% in 2013 then by 4% in 2014.
Risk Assessment
SBM commands around 20% of the domestic credit market but is
not homogeneously present in all of them. SBM is less present in
financial services and manufacturing than one would expect, and
conversely has a stronger presence in transport.
Figure 2. Sectorial split of SBM's loan book with NPLs (>2%) stated next to
label at FY12 end as per SBM’s Annual Report 2012
Non-Interest Income
Net Fee and Commission Income (NFCI) remained level at just
under Rs1bn in 2012. Fees and commissions principally stemmed
from cross border transactions and card related income. In Q1-13,
NFCI fell 9% to Rs249M after SBM let go of riskier transactions of
its e-commerce business. Its 2013 NCFI is thus expected to decline
by 9% in 2013 unless the bank is able to generate fees from other
products to offset the shortfall.
Other income for SBM stems principally from foreign currency
trading followed by dividends. Combined, this revenue stream
Figure 1. Split of domestic credit including GBLs & listed banks’ market
shares
SBM’s Non-Performing Loan (NPL) ratio – which has traditionally
been low – has steadily declined from 2.8% in FY07 to 1.1% in
FY12. We believe its NPL has bottomed out and will be on the rise
in years to come both in Mauritius and especially in India. The
prolonged recession in Europe has induced tepid domestic growth
rates both in Mauritius and in India. While we remain concerned of
a higher default rate especially within construction (albeit backed
1
NB: SBM has changed its financial year end from Jun to Dec. Thus AXYS
has re-worked all historical figures and forecasts onto a calendar year basis.
st
However, SBM will close its books after 18Mths on Dec 31 2013.
2
Credit to exposure to Mauritius jumped from 68% in Jun-11 to 81% in Jun12.
Jun-13
increased by 17% in 2012, but declined by 9% in Q1-13. While
know dividends from Mauritius Telecom will be greater, SBM
whose trading income has averaged ~Rs500M between 2007-11,
plunged to Rs410M in 2012. SBM has not been able to plug-in the
gap left by the State Trading Corporation which began buying
foreign currency directly from the Central Bank (BoM). However,
given the recent sell-off in Emerging Market currencies and the
BoM’s 25bps drop in KRR, we believe the MUR will decline (as the
USD strengthens) in 2013-14 following years of stability. Fair value
gains are hence likely to offset its reduced trading income.
Subsequently, we expect SBM’s other income to improve by 7% in
2013.
2
SBM
Non-Fee/Interest Expenses
of its total loans and advances. We therefore project SBM’s EPS to
Cost containment is SBM’s forte and its 32% Cost:Income Ratio
(CIR) sets the industry benchmark. However, we believe this ratio
remain level in 2013 then grow by a slight 4% in 2014.
has also bottomed out and will increase to 34% in coming years.
Upwards pressure on costs will mainly stem from the
implementation of a new banking system will result in a broader
Financial Scorecard
cost base.
turnaround in H2-13. However, given that most of its other targets
are largely achievable we do believe that SBM’s financial scorecard
will remain mostly “green4”. However, we do take SBM’s targets
Earnings
3
While SBM’s EBITDA jumped by 27% to Rs4bn, Earnings per Share
Based on its Q1 results, we can already see that SBM is unlikely to
meet its loans and deposits growth targets unless things
with a pinch of salt as they appear to have set the bar quite low5.
(EPS) adjusted for non-recurrent items, rocketed by 33% to 11
cents thanks to lower impairments. In FY12, the majority of SBM’s
group-level revenue came from banking (87%); and at the bank
level, Segment A (mostly local) and Segment B (mostly foreign
sourced) profits are split 40-60.
Figure 4. SBM's financial scorecard. Triangle = On or greater than target.
Orange = off-target by < 5%. Red = missed target by > 5%.
Corporate Structure
Brief overview
Figure 3. SBM's split of attributable earnings
Based on the SBM’s highly successful balance sheet engineering
endeavours, we expect the bank’s core business to remain on a
sturdy growth path. However, SBM not been as successful in
Founded post-independence in 1973, SBM joined the Stock
Exchange of Mauritius (SEM) in 1995 and has since become the 2nd
largest company by market capitalisation and among the most
liquid companies. It is regarded as the bank of the people and
bridging the reduced revenue from discontinued or lost business
segments; and its overseas expansion strategy remains turbid.
enjoys 18% of the credit market share and 20% of the deposit
SBM’s growth rate in India is limited as it is focused on wholesale
looking to expand its business onto mainland.
market share. The group began expanding its business outside of
Mauritius and today operates in Madagascar and India; but is also
banking and treasury in the absence of a wide network of
branches. As the RBI limits the number of foreign bank branches
that it may open, SBM is waiting the implementation of a wholly
owned subsidiary structure in order to expand in India. As for its
expansion into Africa, SBM is presently in an exploration phase.
The bank is investigating both organic and inorganic Go-To-Market
strategies. Although the bank is moving towards increasing its
overseas business, these will only translate to higher returns in the
medium to long term.
Given the sub-optimal economic environment, both in Mauritius
Figure 5. SBM's present structure
and India, as well as continued political instability in Madagascar;
we expect SBM’s net impairment to asymptotically approach 0.6%
4
AXYS replaces the traditional green by the colour blue in its reports
It would seem that after underachieving in FY10, SBM lowered targets
which has led to consistent out-performance
5
3
where AXYS replaces the I for interest with I for impairments
Jun-13
3
SBM
Group Re-organisation
SBM is in the midst of re-structuring its business into “Banking”,
“Non-Banking Financial”, and “Non-Financial” clusters as presented
in Figure 6 below. The re-shuffling of its subsidiaries and
investments will not alter SBM’s business.
Market Performance
Shareprice
Given SBM’s strong 16% weight on the SEM’s All-Share Index, it is
highly unsurprising that its trends have been in-line with the
6
SEMTRI but also that it outperformed the index. On a Year-toDate (YTD) basis, SBM (+16%) has outperformed both the SEMTRI
(+12%) and its competitor MCB (+10%). On a Year-on-Year basis
the story is similar with its 32% standing well above MCB’s 16%
and the SEMTRI’s 11%. Although SBM was boosted by its much
improved profits, it also benefited from a speculative surge in the
wake of its unorthodox 1 for 100 share split.
Figure 6. SBM's proposed post re-structure organigram
Shareholding
The shareholding structure of SBM remains well spread out in
comparison to the majority of other listed entities. Its top 10
shareholders – mostly investment funds and governmental bodies
– constitute 58% of the total shareholding. New shareholders –
except for international financial institutions – are restricted to an
ownership up to a maximum of 3% of the bank unless granted
permission by its board of directors.
Figure 8. SBM's share price performance against benchmark and listed
peers
Tick-size change
Change in the minimum step-size for price changes was
precipitated by SBM’s out-of-the-ordinary share split. Had ticksizes been left as untouched, at current prices, SBM would have
moved in 5-cent steps, ie with a massive ±5%. In doing so, an SBM
up or down move would have also dictated the Semdex’s
movements.
SBM’s management stated that the split was done to “improve
liquidity of the Bank’s share and help unlock latent value7”. While
there exists no tangible signs of improved liquidity, the split has
st
killed price volatility. Since Mar 1 , SBM has spent 87% of trade
8
sessions penned between Rs1.03 and Rs1.04. The broader 1-cent
movement provides reduced wiggle room for investors. AXYS
compiled the probability distribution of SBM price movements
during the 16Wks before and after the split which illustrates the
drastic reduction in daily price volatilities in Figure 9 below.
Figure 7. SBM's top shareholders
6
On a total return basis
SBM Annual Report 2012, Page 14.
8
Relative size
7
Jun-13
4
SBM
Figure 10. Foreign activity market share of listed banks
With regards to the directions of the flows, they are rather less
dictated by local fundamentals but by global flows in and out the
different asset and sub-asset classes. That said, local stock picking
is primarily liquidity driven followed by company fundamentals.
Figure 9. Probability distribution function of day-to-day changes (change
is measured in tick sizes rather than ‘Rs’ or ‘%’)
Prior to its 1:100 share split, SBM would close within 1-tick of its
previous price 64% of the time; since the figure has rocketed to
96%. The draconian plunge in volatility becomes even more
evident with intra-day movements. Pre-split, SBM would close
within 1-tick 86% of the time; post-split the figured has soared to
99%. By contrast, MCB has greatly benefited from the change with
a highly increased frequency of price changes.
Foreign Participation
Foreign investment on the local market by funds invested in
African and Frontier markets have traditionally been geared
Figure 11. Net value of portfolio investments on the SEM and listed banks
A peculiar pattern observed last year was that the net outflows on
SBM closely matched the net inflows on MCB. This indicates that
foreign investors divested from SBM in favour of MCB, perhaps as
part of a portfolio re-balancing exercise, profit-taking, a fund
withdrawal, or for other reasons. We can unfortunately only
speculate on the rationale for the exit noted on SBM given its
stronger fundamental growth compared to MCB.
towards the two largest capitalisations. SBM comes second with
about 17½% and follows MCB which constitutes around 46% of all
foreign participation on the SEM; however on a YTD basis foreign
investors have been appreciable more active on SBM.
Figure 12. Extent of foreign participation on listed banks
Jun-13
5
SBM
In recent years, foreign participation on SBM has oscillated
between the low 40s to the high 40s; but soared to 70% in 2013
thanks to a cross of over 160M shares in a single day in Jun-13. Net
purchases on SBM have been neutral YTD, ie close to zero in
contrast to MCB’s net purchases in excess of Rs400M. It is
therefore safe to assume that the divestment on SBM persists, but
that fresh investment funds entering the Mauritian market are
mopping up available-for-sale SBM shares.
Valuation & Recommendations
The well regulated Mauritian banking sector has experienced a few
hiccups over the past few months following White-Dot scandal and
References
Bank of Mauritius, Monthly Statistical Bulletin, Jul 2012 –
Jun 2013.
Bank of Mauritius, Consolidated Statement of Sector-Wise
Distribution of Credit to the Private Sector, Jul 2012
– Jan 2013.
Bank of Mauritius, Maintenance of Cash Ratio by Banks, Jul
2012 – Jun 2013.
State Bank of Mauritius Ltd, Annual Report, 2007 – 2012.
more recently the combined Rs3bn default by an Indian company
to some five locally-based lenders. Nevertheless, the banks are
well capitalised and having held on to traditional banking models,
are unlikely to succumb to under the weight of such defaults.
The future growth areas for domestic banks is essentially abroad,
rather than local. SBM is thus poised to capitalise on an eventual
expansion into Africa, but not just yet. From a shorter term
perspective, we believe SBM will grow NII at constant interest
spreads because a comfortable ~85% LDR give the bank sufficient
room to bolster its core business. However, sup-optimal GDP
growth both in Mauritius and India will result in tepid demand for
loans and is likely to result in a higher default rate.
Assuming impairments on the order of 0.6% of its loans book, we
place SBM’s 2013 PER at 9.0x and improve to 8.7x in 2014. Its PEG
ratio also paints a positive picture. Having stood well above 1 prior
to 2012, it is projected to drop to 1.0x in 2013 then ease off to 0.8x
in 2014. SBM’s FY14 PBV is forecasted to stand at 1.18x which is
lower than its 5Yr mean of 1.57x. Although its T1 CAR at above
17.5% is strong, we expect NPL to deteriorate above 1.5%.
Irrespective of its fundamentals, SBM has ensnared itself into a
single-cent band following its heteroclite 1 for 100 share split.
Although SBM has the best valuation metric among peers, the
absence of a clear growth path drives us to downgrade our rating
on SBM from “Accumulate” to “Hold”.
Jun-13
6
SBM
Appendix A
Disclaimer
I. Calculations Methods
AXYS Stockbroking Ltd has issued this document without
consideration of the investment objectives, financial situation or
Bottom-line profit figures, e.g. Profits after Tax, Attributable
Earnings, and EPS among, have all been adjusted for non-recurrent
particular needs of any individual recipient. Recipients should not
exceptional items.
act or rely on any recommendation in this document without
All ‘per Share’ metrics or calculations requiring the ‘No. of Shares’
consulting their financial adviser to determine whether the
recommendation is appropriate to their investment of this
document. This document is not, and should not be construed as,
have been computed using a single constant. AXYS has used the
total number of issued shares by the company excluding treasury
shares as given by its latest annual report.
an offer to sell or the solicitation of an offer to purchase or
subscribe for any investment. This document has been based on
II. Price to Earnings Growth (PEG) Ratio
information obtained from sources believed to be reliable but
which have not been independently verified. AXYS Stockbroking
< 𝑃𝑟𝑖𝑐𝑒/𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 >
PEG Ratio =
𝐸𝑃𝑆 𝐺𝑟𝑜𝑤𝑡ℎ
PEG Ratio
0 ≤ PEG < 1
Under-valued
PEG = 1
Fair-Valued
PEG > 1
Over-valued
Ltd makes no guarantee, representation or warranty and accepts
no responsibility or liability as to its accuracy or completeness.
AXYS Stockbroking Ltd and its officers, directors and
representatives may have positions in securities mentioned in this
document, or in related investments, and may from time to time
add to or dispose of such securities or investments. AXYS
Stockbroking Ltd is a member of the Stock Exchange of Mauritius
and is licensed by the Financial Services Commission.
II. Loan to Deposit Ratio (LDR)
∑ 𝐿𝑜𝑎𝑛𝑠 & 𝐴𝑑𝑣𝑎𝑛𝑐𝑒𝑠
LDR =
∑ 𝐷𝑒𝑝𝑜𝑠𝑖𝑡𝑠
Group level figures used
Bhavik Desai
Head of Research
Melvyn Chung Kai To
III. Return on Equity (ROE)
ROE =
Authors
Trader
𝐸𝑃𝑆
𝑁𝐴𝑉𝑃𝑆
Vikash Tulsidas
Manager
IV. Market Share
Deposits Mkt Share =
∑ 𝐵𝑎𝑛𝑘 𝑆𝑒𝑔𝐴 𝐷𝑒𝑝𝑜𝑠𝑖𝑡𝑠
∑ 𝐷𝑒𝑝𝑜𝑠𝑖𝑡𝑠
∑ Deposits as given by BoM’s fortnightly ‘Maintenance of Cash
Ratio by banks’
Credit Mkt Share =
∑ 𝐵𝑎𝑛𝑘 𝑆𝑒𝑔𝐴 𝐿𝑜𝑎𝑛𝑠
∑ 𝐿𝑜𝑎𝑛𝑠
∑ Loans as given by BoM’s monthly ‘Consolidated Statement of
Sector-Wise Distribution of Credit to the Private Sector’
Jun-13
7

State Bank of Mauritius Ltd

Transcription

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