People’s Leasing Company, the market leader in the growing leasing industry, will go public with an IPO on 3rd November 2011. At the offer price of Rs. 18, we believe PLC, a subsidiary of the State-owned People’s Bank, offers compelling investment value. In addition to the access to captive leasing portfolios of the parent, PLC is also able to operate on a significantly lower cost model with their ability to piggyback on the parent’s branch network.
With a leasing portfolio of 25% of the specialised leasing companies’ asset base, PLC’s disbursements dwarf even the Licensed Commercial Banks’ leasing segments.
Our target price of Rs. 22 is based on relative multiples (earnings and book) considering PLC’s competitive positioning.
CT Smith Stockbrokers
Although being offered at a slight discount on near term earnings, given the large issue size (the second largest IPO in the history of CSE) and recent underperformance of IPOs, we do not expect the share to provide strong capital gains immediately upon listing.
Nonetheless given the relative importance of PLCL to the Sri Lankan economy, the issue may attract strong value oriented foreign and GoSL strategic institutional investor interest. Thus the issue is likely to be oversubscribed owing to its strong growth story and due to PLCL’s significance in the leasing sector and economy. Given relatively attractive ROEs, together with a strong balance sheet, we believe the share should find favour among medium term investors.
Recommend to subscribe for medium term gains.
Led by a forecast 81% increase in vehicle numbers, the leasing and hire purchase industry is likely to grow c.6x by 2018.
Dominating the leasing and HP sector at nearly twice the size of its closest peer, PLC’s group assets are likely to grow c.3x by 2014, resulting in a recurring earnings Cagr of 44% FY2012-14E, including a c.54% growth in recurring earnings by FY12.
Given our 2012 forecasts, to be comparable to peers PLC should trade at c. Rs.25 per share (2x FY12E book-value and 10.8x FY12E earnings), up 40% from the IPO price
With the strong growth potential and fair valuations the issue price of Rs. 18 depicts an attractive offer. The economic stability in the country coupled with increase in per capita income has facilitated the group to record an impressive growth in its top and bottom lines.
Further, PB’s back up and strong credit profile has poised the company to gain an advantage over its rivals. Thus we forecast PLC to post a net earnings of Rs. 4,130.3 m (recurring profits of Rs. 2,849.5 m) in FY12E and Rs. 3,876.6 m in FY13E. Further, the share is fairly valued at a PER of 6.9x on FY12E earnings (10.0x on recurring earnings) and 7.4x on FY13E earnings.
The company’s impressive forecasts, translate into attractive valuations compared to the listed industry rivals. Moreover, the company is in a strong credit position with strong growth in revenue streams and profits. Thus the IPO offers good value at the issue price of Rs. 18 and given the strong investor appetite. We recommend SUBSCRIBE.
With the expected accelerated growth in Leasing & HP sector, PLCL being the industry leader has significant future growth prospects. In this report profits are forecasted using conservative assumptions. With the anticipated growth strategies the profitability of the company can improve further. Based on our forecast recurrent earnings are expected to grow 21% and 25% during FY11/12 and FY12/13.
Based on FY11/12 forecasted earnings the share is issued at a PE of 7.6x (based on recurring earnings) and at a PBV of 1.5x. When compared to the Banking & Finance sector PE of 13.5x and PBV of 2.1x, the PLCL share is attractively valued at the issue price.
Considering the future prospects of PLCL and the share being valued at a discount to the sector, we recommend investors to SUBSCRIBE for this share issue with a medium to long term stance.
Considering a justified P/E of 11.8X and a PBV of 2.2X, we value the share at Rs. 24. Due to the current weak sentiment in the stock market, we recommend the stock to investors with a medium-long term investment time horizon. BUY
Asia Wealth Management
We forecast a net profit of Rs. 3.9 b for FY11/12 achieving a growth of 50% YoY and yet a 4% decline in FY12/13 (due to reversal of LKR1.6bn provisions being included in FY11/12 profits) delivering a net profit of Rs. 3.7 b. In terms of earnings to price multiple; the ordinary share is attractively valued at 9.3x (based on normalised profits adjusted for the Rs. 1.6 b reversal of reserves) and 7.8x on FY11/12E and FY12/13E earnings respectively (based on the issue price of Rs. 18).
Further, on a Dividend discount (DDM) based valuation, we arrived at an intrinsic value of Rs. 23.47 per share. Although we do not expect a significant shift in cost of equity as the firm wishes to gradually shift towards its optimal capital structure, the changing macro economic conditions would affect the terminal growth rate. Hence we have assumed a cost of equity variation of 11.50%- 13.50% and a long run growth rate variation of 4%-2% resulting in a price variation of Rs. 19.39 – Rs. 29.73. Furthermore, based on a Residual Income Valuation Methodology we arrived at an intrinsic value of Rs. 27.
Based on the above mentioned valuation methods, the ordinary share would generate good value at its offer price of Rs. 18. Hence, the investor appetite for PLC would remain strong. Therefore, strong upside could be expected in the short to medium to long term. SUBSCRIBE.
With the management expecting its current growth in loan disbursements to continue backed by positive macro economic outlook, we expect PLC to report Rs. 4,125.82 m (including the one-off gain from provision reversal) in FY12E (up 58.4% YoY), net earnings of Rs. 3,818.33 m in FY13E (down 7.5% YoY) and net profits of Rs. 4,379.30 m in FY14E. In terms of earnings to price multiple; the share is valued at 9.1X FY12E earnings, 7.4X FY13E net profits and 6.4X FY14E net profits compared to the Bank, Finance & Insurance sector 4Q Trailing PER of 16.0X and market PER of 14.5X.
Based on above valuations coupled with strong expectations in loan book growth and strong backing from the parent, we expect PLC’s growth momentum to continue in the long term. The prevalent lack of liquidity in the market has led most of the recent IPOs to perform below expectations.
This was made worse with several entities, announcing IPOs, having had private offerings at considerable discounts to the IPO price prior to the public offering. This has transformed investors mind set from being bullish with IPOs to now being very cautious. However, PLC being the second largest IPO, next to DIAL, is well supported with attractive valuations and no overhanging Pre-IPO private placements. Thus, we rate it a SUBSCRIBE.