Srisawad Power 1979
Srisawad Power 1979 Company Update
Buy (16E TP Bt47.00) Close Bt35.50
Financial
Earnings upgrade/Earnings downgrade/Overview unchanged
September 15, 2015
Growth continues to outshine financial peers
Price Performance (%)
Source: SET Smart
FY15
FY16
Consensus EPS (Bt)
1.178
1.616
KT ZMICO vs. consensus Share data
0.2%
‐5.9%
Reuters / Bloomberg
SAWAD.BK/SAWAD TB
Paid‐up Shares (m)
1,020.00
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
36.00/1,005.00
Foreign limit / actual (%)
49.00/18.90
52 week High / Low (Bt)
42.89/18.14
Avg. daily T/O (shares 000) NVDR (%)
7,307.00 1.26
Estimated free float (%)
43.34
Beta
1.16
URL
www.meebaanmeerod.com
CGR
‐
Prapharas Nonthapiboon Analyst, no 17836 [email protected]
Remaining among leading growth play stocks We switch our rating for SAWAD to BUY from Outperform given an appealing return vs. our new 2016E target price of Bt47/share. We still like SAWAD for being among the top growth stocks in the financial sector with its outperforming earnings growth and ROE vs. financial peers. Latest 2015 business guidance still highlights promising growth SAWAD has updated its new business guidance for 2015E and long‐term strategies, which still highlight the firm’s ongoing solid profitability outlook over the long run. SAWAD now expects its top and bottom lines to grow in the range of 40‐50% for 2015E, up from its original targets of 20‐30% growth over the next 3‐5 years, reflecting its recent more aggressive branch expansion plan. New businesses see gradual progress Apart from focusing on its core business, SAWAD continues to explore new business opportunities to strengthen L‐T profitability. We view that the distressed asset management business is likely to show a higher contribution vs. other potential new businesses (e.g. debt collection, insurance broker, nano‐finance and seeking other new revenue streams). Revise up net profit estimates for 15‐16E by 7‐8% We raised our net profit forecasts for SAWAD by 8% for 2015E and 7% for 2016E mainly to reflect 1) the latest operating results; 2) the firm’s latest business guidance (especially in regard to larger‐than‐expected branch expansion and the potential for a lower‐than‐expected provision); and 3) the inclusion of contributions from some of its new businesses. Financials and Valuation 2013
2014
2015E
2016E
2017E
PPOP (Btm)
707
Net profit (Btmn)
575
1,043
1,412
1,876
2,430
855
1,199
1,552
EPS (Bt)
1,996
0.77
0.85
1.18
1.52
1.96
EPS growth (%)
‐33%
11%
38%
29%
29%
BV (Bt)
1.51
3.43
4.54
5.53
6.80
FY Ended 31 Dec
Dividend (Bt)
0.60
0.02
0.53
0.68
0.88
FY Ended 31 Dec
2013
2014
2015E
2016E
2017E
PER (x)
46.27
41.54
30.20
23.34
18.14
PBV (x)
23.55
10.34
7.82
6.42
5.22
1.69
0.06
1.49
1.93
2.48
66%
37%
30%
30%
32%
Dividend yield (%) ROE (%)
66 (0) 2695‐5872
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 7
Latest 2015 business guidance still highlights promising growth SAWAD has updated its new business guidance for 2015E and long‐term strategies, which still highlight the firm’s ongoing solid profitability outlook over the long run and reaffirm our view of SAWAD as a top growth play stock. SAWAD now expects its top and bottom lines to grow in the range of 40‐50% for 2015E, up from its original targets of 20‐30% growth over the next 3‐5 years. The new growth guidance for 2015E is mainly to reflect the firm’s recent more aggressive moves regarding its branch expansion plan, which aims for a total of 1,600 branches at end‐2015 (+~580 branches) and 2,000 branches at end‐2016 (+400 branches), up from the original targets of 200‐300 new branches per year for 2015‐16E, vs. 1,022 branches at end‐ 2014 and 1,308 branches at end‐2Q15. The cost of opening each new branch has declined to ~Bt0.25‐0.28mn from ~Bt0.3mn, while the breakeven period for each branch remains around one year. The firm is still focusing on its core business, i.e., collateralized auto title lending, while also starting to explore and diversify to new businesses, e.g., distressed asset management (NPL purchases), the debt collection business, seeking other new revenue sources. It aims to maintain its L‐T ROE at around 30%. Since last year, SAWAD has also employed more stringent control in its lending process (lowering the loan to value criteria) and NPL control process given higher economic risks. This reduced the firm’s provisioning burden as well as the NPL ratio to 3.6% in 2Q15 from 4.1% in 2014. It now expects its NPL ratio to be in the range of 3‐4% vs. the original estimate of 4‐5%. New businesses see gradual progress and should see more contribution from 2017E onwards Apart from focusing on its core business, which still provides favorable room for growth, SAWAD continues to explore new business opportunities to strengthen L‐T profitability. We view that the distressed asset management business is likely to show a higher contribution vs. other potential new businesses (e.g., debt collection, insurance broker, nano‐finance and seeking other new revenue streams). The progress on its potential new businesses can be divided into three main areas as follows: 1. Distressed asset management business: In terms of the purchase of distressed assets, the firm already bought NPLs with a cost of ~Bt200mn in 1Q15. It aims for a return of around 40‐50% within the next three years starting from 2H16E onwards for this deal. The firm initially plans for NPL purchases of around Bt1bn per year. We see this business generating a higher contribution vs. other new businesses from 2017E onwards. 2. Debt collection business: SAWAD is already doing debt collection service for four automakers and SME Bank (with a loan size of ~Bt5‐7bn) and it just signed a new contract with a large bank in 2Q15 and likely another bank in 2H15E. Revenue will be recorded based on the success rate (roughly 40%) of its debt collection. 3. Other new businesses: SAWAD is also exploring other new revenue streams (e.g., insurance broker business, finding partners to lease branch space for obtaining rental income i.e., with Boonterm top‐up machines, and etc). 4. Nano‐finance business: After doing a feasibility study, SAWAD has now decided to phase out this business as the firm sees the risk‐return as unfeasible at current. Although we see good potential for its new businesses in terms of helping to expand and diversify its revenue base in the longer term, we do not expect a significant contribution in the next couple of years. Note that SAWAD targets to boost the revenue contribution from new businesses to around 10‐15% of its total revenue over the next five years, which we see as quite a challenging target. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 7
Revise up net profit estimates for 15‐16E by 7‐8% We raised our net profit (NP) forecasts for SAWAD by 8% for 2015E and 7% for 2016E mainly to reflect 1) the latest operating results; 2) the firm’s latest business guidance (especially in regard to larger‐than‐expected branch expansion and the potential for a lower‐than‐expected provision); and 3) the inclusion of contributions from some of its new businesses (the debt collection and distressed asset management businesses). Note that we now include the contribution from the debt collection and distressed asset management businesses in our earnings forecasts. We expect the contributions from these businesses (especially driven by the distressed asset management business) to contribute around 4‐6% of SAWAD’s operating profit in 2017‐2018E, respectively. Note that for the distressed asset management business, we assume NPL purchases of ~Bt800mn in 2016E and Bt1.0bn/year in 2017‐18E. Note also that we removed the nano‐finance lending that we included in our previous forecasts from our latest revision to fine‐tune with the firm’s latest indication for this business. The main revisions behind our earnings upgrade are stronger‐than‐expected growth in loans and fee income following the larger‐than‐expected branch expansion plan as well as the potential for a lower‐than‐expected provision on the firm’s more stringent process with regard to lending criteria and NPL control. Following our NP upgrade coupled with the rolling over of the target price to 16E, we come up with the new 16E target price at Bt47/share, up from the 15E target price of Bt41/share previously. Our new target price was derived from the Gordon growth model and based on long‐term sustainable ROE of 30% and an L‐T growth rate of 14% and for an implied target PER of 31x. Figure 1: Key changes in our earnings revision 2015E Net Profit (Btmn) Change in net profit vs. previous forecasts (%) Change in net profit (% YoY) Loan growth (%) Loan spread (%) Net interest margin (NIM) Provision for loan loss (Btmn) Provision for loan loss (% to loans) Non‐interest income growth (%) Cost to income ratio Source: KT ZMICO Research
New 1,199 8% 40% 47% 23.8% 25.0% 213 1.9% 31% 49.8%
2016E Previous 1,106
28% 24.4% 25.9% 260 2.6% 25% 49.3%
New 1,552 7% 29% 41% 23.9% 24.1% 324 2.0% 24% 51.6%
Previous 1,445
30% 23.8% 25.8% 352 2.7% 20% 47.1%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 7
Figure 2: SAWAD's P/BV band and sensitivity of market prices based on P/BV at different standard deviation levels (X) +3.0 S.D.
12.0
Implied PBV (x) market price
+2.5 S.D.
11.0 10.0
+2.0 S.D. +1 5 S D
9.0
+1.0 S.D.
8.0
+0.5 S.D.
Avg.
7.0
-0.5 S.D. -1 S.D.
6.0 5.0 4.0
-1.5 S.D.
3.0
Sep-15
Aug-15
Jul-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
Dec-14
Oct-14
Sep-14
Jul-14
Jun-14
May-14
Aug-14
-2 S.D.
2.0
2015E
Source: Bloomberg, KT ZMICO Research
Upside/ Downside to current price
(Bt)
(%)
+3.0SD
11.6
53
49
+2.5SD
10.8
49
38
+2.0SD
10.0
45
28
+1.5SD
9.2
42
18
+1.0SD
8.4
38
8
+0.5SD
7.6
35
-2
Average
6.8
31
-13
-0.5SD
6.0
27
-23
-1.0SD
5.2
24
-33
-1.5SD
4.4
20
-43
-2.0SD
3.6
17
-53
Figure 3: SAWAD's PER band and sensitivity of market prices based on PER at different standard deviation levels (X)
2015E
50
52
47
+1 .5S.D.
+2.5SD
41.5
49
37
+1.0S.D. +0.5 S.D. Avg.
+2.0SD
38.6
45
28
+1.5SD
35.6
42
18
-0.5 S.D.
+1.0SD
32.7
38
8
-1 S.D.
+0.5SD
29.8
35
-1
Average
26.8
32
-11
-0.5SD
23.9
28
-21
-1.0SD
21.0
25
-30
-1.5SD
18.1
21
-40
-2.0SD
15.1
18
-50
20
Source: Bloomberg, KT ZMICO Research
Sep-15
Aug-15
Jul-15
May-15
Apr-15
Mar-15
Feb-15
Jun-14
May-14
10
Jan-15
-1 .5 S.D. -2 S.D.
15
Dec-14
25
(%)
44.4
Oct-14
30
(Bt) +3.0SD
Sep-14
35
Upside/ Downside to current price
+2.5 S.D. +2.0 S.D.
Aug-14
40
+3.0 S.D.
Jul-14
45
Implied PER (x) market price
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 7
Statement of Comprehensive Income (Btmn) 2013
2014
Total Interest Income
1,446
1,955
2,708
3,882
5,310
Total Interest Expenses
230
219
258
396
608
Net Interest Income
1,216
1,736
2,450
3,486
4,703
Total Non‐Interest Income
491
735
960
1,193
1,462
Operating Income
1,707
2,471
3,410
4,679
6,164
Fee and service expenses
122
126
144
162
181
Administrative expenses
727
1,095
1,554
2,254
3,054
Year‐end 31 Dec
2015E
2016E
2017E
Total Operating Expenses
849
1,220
1,699
2,416
3,235
Operating Profit
858
1,251
1,712
2,264
2,929
Provision expenses
132
189
213
324
434
Extraordinary Items
‐
‐
‐
‐
‐
Income Tax expense
151
207
300
388
499
Net Profit
575
855
1,199
1,552
1,996
Pre Provisioning Operating Profit (PPOP)
707
1,043
1,412
1,876
2,430
EPS (Bt)
0.77
0.85
1.18
1.52
1.96
2013
2014
Cash
100
348
296
311
326
Deposits with banks/Loans to related parties
21
21
27
35
46
Net Investment
‐
40
204
943
1,661
Gross Loans
5,722
7,816
11,504
16,218
21,706
Less: Loan Loss Reserves Net Loans Foreclosed properties Premises and Equipment, Net Other Assets Total Assets
(183) 5,539 95 145 147 6,046
(273) 7,543 208 245 186 8,592
(365) 11,139 222 367 348 12,604
(519) 15,699 233 451 382 18,055
(725) 20,981 245 472 408 24,140
Liabilities & Equity S‐T borrowings from financial institutions Other Borrowings Other Liabilities Total Liabilities
4,565 100 251 4,916
3,764 1,000 395 5,160
2,153 5,400 423 7,976
3,918 8,050 447 12,415
6,430 10,300 472 17,202
Paid‐up Capital Premium on Share Capital Retained Earning
750 ‐ 289
1,000 1,422 874
1,020 1,422 2,005
1,020 1,422 2,972
1,020 1,422 4,225
Other Equity Items
91
136
181
226
271
Minority Interest
‐
‐
‐
‐
‐
Total Shareholders' Equity
1,131
3,432
4,628
5,640
6,938
Total Liabilities and Shareholders Equity Source: KTZMICO Research
6,046
8,592
12,604
18,055
24,140
Statement of Financial Position (Btmn) As at 31 Dec
2015E
2016E
2017E
Assets
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 7
Valuation and Ratio Analysis 2013
Year‐end 31 Dec
2014
2015E
2016E
2017E
Per/Share Data (Bt) EPS
0.77
0.85
1.18
1.52
1.96
DPS
0.60
0.02
0.53
0.68
0.88
BVPS
1.51
3.43
4.54
5.53
6.80
P/E
46.27
41.54
30.20
23.34
18.14
P/BV
23.55
10.34
7.82
6.42
5.22
Dividend yield (%)
1.69
0.06
1.49
1.93
2.48
28.6%
Multiplier (X)
Growth YoY (%) Net Profit
42.1%
48.5%
40.3%
29.4%
EPS
‐32.6%
11.4%
37.5%
29.4%
28.6%
Net Interest Income
36.2%
42.8%
41.1%
42.3%
34.9%
Non Interest Income Net Fee and Service income Operating Income
65.5%
60.9%
37.1%
28.8%
26.1%
348.2%
69.1%
33.8%
21.0%
17.1%
46.0%
44.8%
38.0%
37.2%
31.7%
Operating Expenses
31.2%
43.7%
39.2%
42.2%
33.9%
Operating Profit
64.4%
45.8%
36.9%
32.3%
29.4%
PPOP
76.4%
47.6%
35.3%
32.9%
29.5%
Loans
43.7%
36.6%
47.2%
41.0%
33.8%
NPLs
35.5%
52.8%
25.1%
44.2%
37.3%
Financial Ratio Gross NPLs (Btmn) Gross NPLs/Loans Loan Loss Reserve/NPLs Loan Loss Reserve/Loans Provision expenses (Reversal)/Total loans Equity/Asset Loan to borrowing ratio Debt to Equity ratio ROA ROE Cost to Income Non Interest Income/Total Income Net Interest Margin (NIM) Tax rate
2013 2014 2015E 2016E 2017E 211 323 404 582 799 3.7% 4.1% 3.5% 3.6% 3.7% 86.5% 84.6% 90.3% 89.1% 90.7% 3.2% 3.5% 3.2% 3.2% 3.3% 2.3% 2.4% 1.9% 2.0% 2.0% 18.7% 39.9% 36.7% 31.2% 28.7% 122.7% 164.1% 152.3% 135.5% 129.7% 4.35 1.50 1.72 2.20 2.48 10.9% 11.7% 11.3% 10.1% 9.5% 66.1% 37.5% 29.8% 30.2% 31.7% 49.7% 49.4% 49.8% 51.6% 52.5% 28.8% 29.7% 28.2% 25.5% 23.7% 24.02% 25.50% 24.98% 24.10% 23.16% 20.8% 19.5% 20.0% 20.0% 20.0%
Key Assumptions
2013
2014
2015E
Loan Growth ‐ Net
43.7%
36.6%
47.2%
41.0%
33.8%
Cost to Income
49.7%
49.4%
49.8%
51.6%
52.5%
24.0%
25.5%
25.0%
24.1%
23.2%
Net Interest Margin Provision expenses (Reversal) (Btmn) Provision expenses (Reversal)/Total loans Source: KTZMICO Research
2016E
2017E
132 189 213 324 434 2.3%
2.4%
1.9%
2.0%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 7
2.0%
Note: KT ZMICO is a partnership between KTB and ZMICO An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO KT ZMICO is a financial advisor for GPSC, U, LOXLEY, CEN, SUTHA, ZMICO, MAKRO, CPALL, PLE, SAFARI, PACE KT ZMICO is a co‐underwriter of ASEFA
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 7 of 7
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KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
Buy (16E TP Bt47.00) Close Bt35.50
Financial
Earnings upgrade/Earnings downgrade/Overview unchanged
September 15, 2015
Growth continues to outshine financial peers
Price Performance (%)
Source: SET Smart
FY15
FY16
Consensus EPS (Bt)
1.178
1.616
KT ZMICO vs. consensus Share data
0.2%
‐5.9%
Reuters / Bloomberg
SAWAD.BK/SAWAD TB
Paid‐up Shares (m)
1,020.00
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
36.00/1,005.00
Foreign limit / actual (%)
49.00/18.90
52 week High / Low (Bt)
42.89/18.14
Avg. daily T/O (shares 000) NVDR (%)
7,307.00 1.26
Estimated free float (%)
43.34
Beta
1.16
URL
www.meebaanmeerod.com
CGR
‐
Prapharas Nonthapiboon Analyst, no 17836 [email protected]
Remaining among leading growth play stocks We switch our rating for SAWAD to BUY from Outperform given an appealing return vs. our new 2016E target price of Bt47/share. We still like SAWAD for being among the top growth stocks in the financial sector with its outperforming earnings growth and ROE vs. financial peers. Latest 2015 business guidance still highlights promising growth SAWAD has updated its new business guidance for 2015E and long‐term strategies, which still highlight the firm’s ongoing solid profitability outlook over the long run. SAWAD now expects its top and bottom lines to grow in the range of 40‐50% for 2015E, up from its original targets of 20‐30% growth over the next 3‐5 years, reflecting its recent more aggressive branch expansion plan. New businesses see gradual progress Apart from focusing on its core business, SAWAD continues to explore new business opportunities to strengthen L‐T profitability. We view that the distressed asset management business is likely to show a higher contribution vs. other potential new businesses (e.g. debt collection, insurance broker, nano‐finance and seeking other new revenue streams). Revise up net profit estimates for 15‐16E by 7‐8% We raised our net profit forecasts for SAWAD by 8% for 2015E and 7% for 2016E mainly to reflect 1) the latest operating results; 2) the firm’s latest business guidance (especially in regard to larger‐than‐expected branch expansion and the potential for a lower‐than‐expected provision); and 3) the inclusion of contributions from some of its new businesses. Financials and Valuation 2013
2014
2015E
2016E
2017E
PPOP (Btm)
707
Net profit (Btmn)
575
1,043
1,412
1,876
2,430
855
1,199
1,552
EPS (Bt)
1,996
0.77
0.85
1.18
1.52
1.96
EPS growth (%)
‐33%
11%
38%
29%
29%
BV (Bt)
1.51
3.43
4.54
5.53
6.80
FY Ended 31 Dec
Dividend (Bt)
0.60
0.02
0.53
0.68
0.88
FY Ended 31 Dec
2013
2014
2015E
2016E
2017E
PER (x)
46.27
41.54
30.20
23.34
18.14
PBV (x)
23.55
10.34
7.82
6.42
5.22
1.69
0.06
1.49
1.93
2.48
66%
37%
30%
30%
32%
Dividend yield (%) ROE (%)
66 (0) 2695‐5872
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 7
Latest 2015 business guidance still highlights promising growth SAWAD has updated its new business guidance for 2015E and long‐term strategies, which still highlight the firm’s ongoing solid profitability outlook over the long run and reaffirm our view of SAWAD as a top growth play stock. SAWAD now expects its top and bottom lines to grow in the range of 40‐50% for 2015E, up from its original targets of 20‐30% growth over the next 3‐5 years. The new growth guidance for 2015E is mainly to reflect the firm’s recent more aggressive moves regarding its branch expansion plan, which aims for a total of 1,600 branches at end‐2015 (+~580 branches) and 2,000 branches at end‐2016 (+400 branches), up from the original targets of 200‐300 new branches per year for 2015‐16E, vs. 1,022 branches at end‐ 2014 and 1,308 branches at end‐2Q15. The cost of opening each new branch has declined to ~Bt0.25‐0.28mn from ~Bt0.3mn, while the breakeven period for each branch remains around one year. The firm is still focusing on its core business, i.e., collateralized auto title lending, while also starting to explore and diversify to new businesses, e.g., distressed asset management (NPL purchases), the debt collection business, seeking other new revenue sources. It aims to maintain its L‐T ROE at around 30%. Since last year, SAWAD has also employed more stringent control in its lending process (lowering the loan to value criteria) and NPL control process given higher economic risks. This reduced the firm’s provisioning burden as well as the NPL ratio to 3.6% in 2Q15 from 4.1% in 2014. It now expects its NPL ratio to be in the range of 3‐4% vs. the original estimate of 4‐5%. New businesses see gradual progress and should see more contribution from 2017E onwards Apart from focusing on its core business, which still provides favorable room for growth, SAWAD continues to explore new business opportunities to strengthen L‐T profitability. We view that the distressed asset management business is likely to show a higher contribution vs. other potential new businesses (e.g., debt collection, insurance broker, nano‐finance and seeking other new revenue streams). The progress on its potential new businesses can be divided into three main areas as follows: 1. Distressed asset management business: In terms of the purchase of distressed assets, the firm already bought NPLs with a cost of ~Bt200mn in 1Q15. It aims for a return of around 40‐50% within the next three years starting from 2H16E onwards for this deal. The firm initially plans for NPL purchases of around Bt1bn per year. We see this business generating a higher contribution vs. other new businesses from 2017E onwards. 2. Debt collection business: SAWAD is already doing debt collection service for four automakers and SME Bank (with a loan size of ~Bt5‐7bn) and it just signed a new contract with a large bank in 2Q15 and likely another bank in 2H15E. Revenue will be recorded based on the success rate (roughly 40%) of its debt collection. 3. Other new businesses: SAWAD is also exploring other new revenue streams (e.g., insurance broker business, finding partners to lease branch space for obtaining rental income i.e., with Boonterm top‐up machines, and etc). 4. Nano‐finance business: After doing a feasibility study, SAWAD has now decided to phase out this business as the firm sees the risk‐return as unfeasible at current. Although we see good potential for its new businesses in terms of helping to expand and diversify its revenue base in the longer term, we do not expect a significant contribution in the next couple of years. Note that SAWAD targets to boost the revenue contribution from new businesses to around 10‐15% of its total revenue over the next five years, which we see as quite a challenging target. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 7
Revise up net profit estimates for 15‐16E by 7‐8% We raised our net profit (NP) forecasts for SAWAD by 8% for 2015E and 7% for 2016E mainly to reflect 1) the latest operating results; 2) the firm’s latest business guidance (especially in regard to larger‐than‐expected branch expansion and the potential for a lower‐than‐expected provision); and 3) the inclusion of contributions from some of its new businesses (the debt collection and distressed asset management businesses). Note that we now include the contribution from the debt collection and distressed asset management businesses in our earnings forecasts. We expect the contributions from these businesses (especially driven by the distressed asset management business) to contribute around 4‐6% of SAWAD’s operating profit in 2017‐2018E, respectively. Note that for the distressed asset management business, we assume NPL purchases of ~Bt800mn in 2016E and Bt1.0bn/year in 2017‐18E. Note also that we removed the nano‐finance lending that we included in our previous forecasts from our latest revision to fine‐tune with the firm’s latest indication for this business. The main revisions behind our earnings upgrade are stronger‐than‐expected growth in loans and fee income following the larger‐than‐expected branch expansion plan as well as the potential for a lower‐than‐expected provision on the firm’s more stringent process with regard to lending criteria and NPL control. Following our NP upgrade coupled with the rolling over of the target price to 16E, we come up with the new 16E target price at Bt47/share, up from the 15E target price of Bt41/share previously. Our new target price was derived from the Gordon growth model and based on long‐term sustainable ROE of 30% and an L‐T growth rate of 14% and for an implied target PER of 31x. Figure 1: Key changes in our earnings revision 2015E Net Profit (Btmn) Change in net profit vs. previous forecasts (%) Change in net profit (% YoY) Loan growth (%) Loan spread (%) Net interest margin (NIM) Provision for loan loss (Btmn) Provision for loan loss (% to loans) Non‐interest income growth (%) Cost to income ratio Source: KT ZMICO Research
New 1,199 8% 40% 47% 23.8% 25.0% 213 1.9% 31% 49.8%
2016E Previous 1,106
28% 24.4% 25.9% 260 2.6% 25% 49.3%
New 1,552 7% 29% 41% 23.9% 24.1% 324 2.0% 24% 51.6%
Previous 1,445
30% 23.8% 25.8% 352 2.7% 20% 47.1%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 7
Figure 2: SAWAD's P/BV band and sensitivity of market prices based on P/BV at different standard deviation levels (X) +3.0 S.D.
12.0
Implied PBV (x) market price
+2.5 S.D.
11.0 10.0
+2.0 S.D. +1 5 S D
9.0
+1.0 S.D.
8.0
+0.5 S.D.
Avg.
7.0
-0.5 S.D. -1 S.D.
6.0 5.0 4.0
-1.5 S.D.
3.0
Sep-15
Aug-15
Jul-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
Dec-14
Oct-14
Sep-14
Jul-14
Jun-14
May-14
Aug-14
-2 S.D.
2.0
2015E
Source: Bloomberg, KT ZMICO Research
Upside/ Downside to current price
(Bt)
(%)
+3.0SD
11.6
53
49
+2.5SD
10.8
49
38
+2.0SD
10.0
45
28
+1.5SD
9.2
42
18
+1.0SD
8.4
38
8
+0.5SD
7.6
35
-2
Average
6.8
31
-13
-0.5SD
6.0
27
-23
-1.0SD
5.2
24
-33
-1.5SD
4.4
20
-43
-2.0SD
3.6
17
-53
Figure 3: SAWAD's PER band and sensitivity of market prices based on PER at different standard deviation levels (X)
2015E
50
52
47
+1 .5S.D.
+2.5SD
41.5
49
37
+1.0S.D. +0.5 S.D. Avg.
+2.0SD
38.6
45
28
+1.5SD
35.6
42
18
-0.5 S.D.
+1.0SD
32.7
38
8
-1 S.D.
+0.5SD
29.8
35
-1
Average
26.8
32
-11
-0.5SD
23.9
28
-21
-1.0SD
21.0
25
-30
-1.5SD
18.1
21
-40
-2.0SD
15.1
18
-50
20
Source: Bloomberg, KT ZMICO Research
Sep-15
Aug-15
Jul-15
May-15
Apr-15
Mar-15
Feb-15
Jun-14
May-14
10
Jan-15
-1 .5 S.D. -2 S.D.
15
Dec-14
25
(%)
44.4
Oct-14
30
(Bt) +3.0SD
Sep-14
35
Upside/ Downside to current price
+2.5 S.D. +2.0 S.D.
Aug-14
40
+3.0 S.D.
Jul-14
45
Implied PER (x) market price
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 7
Statement of Comprehensive Income (Btmn) 2013
2014
Total Interest Income
1,446
1,955
2,708
3,882
5,310
Total Interest Expenses
230
219
258
396
608
Net Interest Income
1,216
1,736
2,450
3,486
4,703
Total Non‐Interest Income
491
735
960
1,193
1,462
Operating Income
1,707
2,471
3,410
4,679
6,164
Fee and service expenses
122
126
144
162
181
Administrative expenses
727
1,095
1,554
2,254
3,054
Year‐end 31 Dec
2015E
2016E
2017E
Total Operating Expenses
849
1,220
1,699
2,416
3,235
Operating Profit
858
1,251
1,712
2,264
2,929
Provision expenses
132
189
213
324
434
Extraordinary Items
‐
‐
‐
‐
‐
Income Tax expense
151
207
300
388
499
Net Profit
575
855
1,199
1,552
1,996
Pre Provisioning Operating Profit (PPOP)
707
1,043
1,412
1,876
2,430
EPS (Bt)
0.77
0.85
1.18
1.52
1.96
2013
2014
Cash
100
348
296
311
326
Deposits with banks/Loans to related parties
21
21
27
35
46
Net Investment
‐
40
204
943
1,661
Gross Loans
5,722
7,816
11,504
16,218
21,706
Less: Loan Loss Reserves Net Loans Foreclosed properties Premises and Equipment, Net Other Assets Total Assets
(183) 5,539 95 145 147 6,046
(273) 7,543 208 245 186 8,592
(365) 11,139 222 367 348 12,604
(519) 15,699 233 451 382 18,055
(725) 20,981 245 472 408 24,140
Liabilities & Equity S‐T borrowings from financial institutions Other Borrowings Other Liabilities Total Liabilities
4,565 100 251 4,916
3,764 1,000 395 5,160
2,153 5,400 423 7,976
3,918 8,050 447 12,415
6,430 10,300 472 17,202
Paid‐up Capital Premium on Share Capital Retained Earning
750 ‐ 289
1,000 1,422 874
1,020 1,422 2,005
1,020 1,422 2,972
1,020 1,422 4,225
Other Equity Items
91
136
181
226
271
Minority Interest
‐
‐
‐
‐
‐
Total Shareholders' Equity
1,131
3,432
4,628
5,640
6,938
Total Liabilities and Shareholders Equity Source: KTZMICO Research
6,046
8,592
12,604
18,055
24,140
Statement of Financial Position (Btmn) As at 31 Dec
2015E
2016E
2017E
Assets
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 7
Valuation and Ratio Analysis 2013
Year‐end 31 Dec
2014
2015E
2016E
2017E
Per/Share Data (Bt) EPS
0.77
0.85
1.18
1.52
1.96
DPS
0.60
0.02
0.53
0.68
0.88
BVPS
1.51
3.43
4.54
5.53
6.80
P/E
46.27
41.54
30.20
23.34
18.14
P/BV
23.55
10.34
7.82
6.42
5.22
Dividend yield (%)
1.69
0.06
1.49
1.93
2.48
28.6%
Multiplier (X)
Growth YoY (%) Net Profit
42.1%
48.5%
40.3%
29.4%
EPS
‐32.6%
11.4%
37.5%
29.4%
28.6%
Net Interest Income
36.2%
42.8%
41.1%
42.3%
34.9%
Non Interest Income Net Fee and Service income Operating Income
65.5%
60.9%
37.1%
28.8%
26.1%
348.2%
69.1%
33.8%
21.0%
17.1%
46.0%
44.8%
38.0%
37.2%
31.7%
Operating Expenses
31.2%
43.7%
39.2%
42.2%
33.9%
Operating Profit
64.4%
45.8%
36.9%
32.3%
29.4%
PPOP
76.4%
47.6%
35.3%
32.9%
29.5%
Loans
43.7%
36.6%
47.2%
41.0%
33.8%
NPLs
35.5%
52.8%
25.1%
44.2%
37.3%
Financial Ratio Gross NPLs (Btmn) Gross NPLs/Loans Loan Loss Reserve/NPLs Loan Loss Reserve/Loans Provision expenses (Reversal)/Total loans Equity/Asset Loan to borrowing ratio Debt to Equity ratio ROA ROE Cost to Income Non Interest Income/Total Income Net Interest Margin (NIM) Tax rate
2013 2014 2015E 2016E 2017E 211 323 404 582 799 3.7% 4.1% 3.5% 3.6% 3.7% 86.5% 84.6% 90.3% 89.1% 90.7% 3.2% 3.5% 3.2% 3.2% 3.3% 2.3% 2.4% 1.9% 2.0% 2.0% 18.7% 39.9% 36.7% 31.2% 28.7% 122.7% 164.1% 152.3% 135.5% 129.7% 4.35 1.50 1.72 2.20 2.48 10.9% 11.7% 11.3% 10.1% 9.5% 66.1% 37.5% 29.8% 30.2% 31.7% 49.7% 49.4% 49.8% 51.6% 52.5% 28.8% 29.7% 28.2% 25.5% 23.7% 24.02% 25.50% 24.98% 24.10% 23.16% 20.8% 19.5% 20.0% 20.0% 20.0%
Key Assumptions
2013
2014
2015E
Loan Growth ‐ Net
43.7%
36.6%
47.2%
41.0%
33.8%
Cost to Income
49.7%
49.4%
49.8%
51.6%
52.5%
24.0%
25.5%
25.0%
24.1%
23.2%
Net Interest Margin Provision expenses (Reversal) (Btmn) Provision expenses (Reversal)/Total loans Source: KTZMICO Research
2016E
2017E
132 189 213 324 434 2.3%
2.4%
1.9%
2.0%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 7
2.0%
Note: KT ZMICO is a partnership between KTB and ZMICO An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO KT ZMICO is a financial advisor for GPSC, U, LOXLEY, CEN, SUTHA, ZMICO, MAKRO, CPALL, PLE, SAFARI, PACE KT ZMICO is a co‐underwriter of ASEFA
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 7 of 7
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th
th
th
KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
