HATTON NATIONAL BANK [HNB.N: LKR131.0, HNB.X: LKR91.0]Excerpts of the attached:
Earnings Talk :
Hatton National Bank [HNB.N: LKR131.0, HNB.X: LKR91.0] recorded a 32.1% YoY & 11.4% QoQ growth in its net earnings broadly in line with our expectations. Net Interest Income (NII) witnessed a strong 36.5% YoY increase as the Net Interest Margin (NIM) improved 11 bps YoY to 4.87%, whilst spreads also widened. Net loan growth was limited to 3.1% QoQ amidst regulatory cap whilst deposits expanded at a slower pace at 1.5% QoQ. With the slowdown in expansions, operating expenditure was contained with a 3.8% QoQ growth fueling earnings growth. Provision charges escalated 66.2% QoQ to LKR381.9 amidst higher specific provisions in a bid to increase its provision cover.
Analyst Talk :
We maintain our forecast for HNB at LKR6.4 bn (up 4.5% YoY) for 2012E, where we expect HNB to post earnings of LKR7.6 bn in 2013E (up 18.1% YoY) with the loan book growth expected to register c.23% 2013E.
In terms of PER; the Voting share is valued at 8.1X 2012E net earnings and 6.9X 2013E net earnings. The counter currently trades at a PBV of 1.2X 2012E book value. The Non – Voting share of the counter is valued at 5.6X 2012E earnings & 4.8X 2013E earnings, whilst it trades at a PBV of 0.9X 2012E book value.
Hence, the Voting share of the counter currently trades in par with its closest peer COMB. Given the attractive medium term earnings growth prospects we believe Voting Share could generate attractive gains in the Medium Term. The Non – Voting share currently trading at a deep discount to both the market and the sector is likely to bottom out around 6X PER and re – rate it towards 7X PER based on a historical analysis. The Share offers an attractive DY at 8.6% 2012E.