For the FY2011E the profits are forecasted considering corporate tax revisions (35% to 20%) and the expected credit growth in the low interest economy. The earnings would approximate to LKR2, 622.8 mn in FY2011, LKR 3,114.5 mn in FY2012. Having hit a low of LKR117.5 in August 2010, NDB’s share price has given a 21% negative YTD return. And based on the projected net profits, NDB is currently trading at a PER of 8.64x for FY11E and 7.28x for FY12E. Referring to an analysis of a historic 52 week price movement, we derived a price movement of +/-19.19 on a mean of LKR163.40; hence the flux is approximately +/-12%. Furthermore, if it is assumed that the same upside price movement is seen pushing the price to LKR157.2 (from a current level of LKR138.00), the forward PE multiples would be 8.5X for FY11E and 7.37X for FY12E.
Furthermore when adjusting NDB’s returns to its risk (deviation of the share price), sharp ratio of the counter is at 0.27 whilst the Banking Finance and Insurance sector is at 1.46. NDB’s return volatility is much higher at 27% as opposed to the sector’s deviation of 21% over the past 52 week trading period. Hence, SAMP shows a marginal volatility in its return compared with the sector. In the light of the above information and analysis, we recommend “buy” on mid to long term.
Courtesy - Asia Wealth Management