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Sri Lanka Equity Forum » Stock Market Talk » Union Bank of Colombo PLC - A bank in a staggering growth path

Union Bank of Colombo PLC - A bank in a staggering growth path

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EquityChamp

EquityChamp
Moderator
Union Bank was the last bank to list on the CSE and is the youngest brother of the commercial banking sector in Sri Lanka. The bank started operations with few branches but now peruse an ambitious growth plan. The initial step was to enhance the presence in Western Province and as the second step to rapidly evolving throw-out the entire country.

The bank had a total number of 64 branches in operation as at 31st December  2015 predominantly within Western Province. The group recorded a total interest income of Rs5bn for the year ended 31st December 15 with a YoY growth of 12%. Total PAT attributable to equity holders of the parent amounted to Rs223mn compared to Rs31mn in FY 2014.

The infusion of capital by global investment giant TPG into the bank has added the much needed financial resources for its future expansion. Accordingly the bank is seen embarking into a rapid expansion. The expansion program has driving the group's gross income in a remarkably higher rate. However the rapid expansion would result in a rapid increase in fixed cost base as well such as personal costs, overheads and depreciation. This will prevent from the bank achieving a higher margin for profitability until such time the fixed cost base is stabilize. From this point onwards the bank can plan for improving the revenue from a branch on average basis where margins will start climbing.

The below is the estimates for the bank for the next three years.
 20152016 (F)2017 (F)2018 (F)
Branch network64128164200
Total gross income (Rs mn)    6,056     9,581   14,102   17,625
PAT (Rs mn)254       366        593        858
PAT attributable to equity holders (Rs mn)223       300        487        703
EPS (Rs)0.20      0.28       0.45       0.64
Equity Rs mn)  16,386   16,255   16,742   17,445
ROE 1.8%2.9%4.1%
The branch network will be triple by the year 2018 where the gross revenue is expected to reach Rs17.6bn. However given the expected rapid rise in fixed cost structure will prevent the bank from achieving a higher ROE till the end of FY2018. However the growth in revenue and profits to drive the EPS at a remarkable compounded growth rate close to 50% annually.

Although the current PE level @ CMP seems to be more expensive the stock has immense future value if you are choosing UBC as a long term investment in which case your future returns will going to be huge.

Note: Q1 16 PAT is heavily boosted by trading profit. Due to unpredictability of this gain I assume net trading gains of Rs300mn, Rs330mn and Rs363mn respectively for FY 2016, 2017 and 2018. However depending on actual gain/or loss the NPAT figure can vary considerably since PAT from core business areas are still marginal.
      
Thanks

Shiva911


Equity Analytic
Equity Analytic
cheers cheers cheers

EquityChamp

EquityChamp
Moderator
1st  half 2016 is very attractive and think they will achieve my forecast for the year by q3 16. They seems to be really aggressive. I need to upgrade my forecast.

MarketWch

MarketWch
Manager - Equity Analytics
Manager - Equity Analytics
@EquityChamp wrote:1st  half 2016 is very attractive and think they will achieve my forecast for the year by q3 16. They seems to be really aggressive. I need to upgrade my forecast.
AGREED  cheers cheers cheers cheers cheers

MarketWch

MarketWch
Manager - Equity Analytics
Manager - Equity Analytics
http://www.cse.lk/cmt/upload_report_file/1047_1469616118351.pdf

Interim Financial Statements as at 30-06-2016
2016 Q2
Net profit For the six months ended
274,594,000
EPS 0.22
Retained earnings- 92,433,000
nav 14.95
    

MarketWch

MarketWch
Manager - Equity Analytics
Manager - Equity Analytics

TARGET


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Good job EC. Hats off.

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