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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » HNB - 31.12.2011

HNB - 31.12.2011

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1HNB - 31.12.2011 Empty HNB - 31.12.2011 Tue Feb 28, 2012 4:59 pm

Gaja


Associate Director - Equity Analytics
Associate Director - Equity Analytics
http://www.cse.lk/cmt/upload_report_file/373_1330419910946.pdf

2HNB - 31.12.2011 Empty Re: HNB - 31.12.2011 Tue Feb 28, 2012 5:48 pm

anubis


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Grrr, I made a huge mistake in my analysis. I deleted my previous post - working on a new one.

3HNB - 31.12.2011 Empty Re: HNB - 31.12.2011 Tue Feb 28, 2012 5:58 pm

anubis


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
For the quarter ended 31/12/2011:

Operating profit before taxes: 2,822,308
VAT: 122,777
VAT (%): 4.26

Profit before corporate tax: 2,700,616
Corporate tax: 395,178
Corporate tax (%): 14.63

This is a massive reduction in tax rates. We discussed a little about this in http://forum.srilankaequity.com/t16369-a-tax-analysis-of-several-banks but I did not expect this much of a tax benefit.

Anyhow, EPS for the quarter is the highest for the year!

EPS for the year: 16.50

P/E (voting): 150 / 16.50 = 9
P/E (non voting): 95 / 16.50 = 5.76

Non voting shares look appetizing! - yes, I hold a few Razz

Please correct me if I have made any errors.

Cheers!

PS: This is only a rough analysis, need to go through the financial statements more closely to see if there are any glitches / surprise gains.

4HNB - 31.12.2011 Empty Re: HNB - 31.12.2011 Tue Feb 28, 2012 8:54 pm

Fresher


Moderator
Moderator
@anubis wrote:For the quarter ended 31/12/2011:

Operating profit before taxes: 2,822,308
VAT: 122,777
VAT (%): 4.26

Profit before corporate tax: 2,700,616
Corporate tax: 395,178
Corporate tax (%): 14.63

This is a massive reduction in tax rates. We discussed a little about this in http://forum.srilankaequity.com/t16369-a-tax-analysis-of-several-banks but I did not expect this much of a tax benefit.

Anyhow, EPS for the quarter is the highest for the year!

EPS for the year: 16.50

P/E (voting): 150 / 16.50 = 9
P/E (non voting): 95 / 16.50 = 5.76

Non voting shares look appetizing! - yes, I hold a few Razz

Please correct me if I have made any errors.

Cheers!

PS: This is only a rough analysis, need to go through the financial statements more closely to see if there are any glitches / surprise gains.

anubis, good work. But I think P/BV will be the better option for Banks

5HNB - 31.12.2011 Empty Re: HNB - 31.12.2011 Tue Feb 28, 2012 10:43 pm

anubis


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@npp: I'm a bit puzzled about P/BV, how can I find the book value per share? I mean I can see the definition http://www.investopedia.com/terms/p/price-to-bookratio.asp#axzz1nhGiEdsY but what constitute "Intangible Assets and Liabilities"?

Can someone explain please? I want to calculate P/BV for HNB.

Cheers!

6HNB - 31.12.2011 Empty Re: HNB - 31.12.2011 Wed Feb 29, 2012 2:36 am

anubis


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
OK, I did some more analysis on HNB. Have a look at the attached file.

Points to note:

- The final quarter performance has always been high for HNB for last three years. However, the following quarter (first quarter for the next year) seems to have always reversed these big numbers. Therefore, there's no need to jump out of joy.

- If you carefully look at 2010 data, interest expenses have been shrinking faster than interest income - this means more profit for the bank. However, in 2011 we can see the exact opposite: interest expenses are growing faster than interest income - this is NOT good.

- I can't make out the reasons for the big boom in 2010 second quarter profits, it looks abnormal. Any experts?

These are the most visible points I can observe.

So, I would like to withdraw my previous comment on HNB.X being "appetizing". Instead, I would say "it looks OK" (because I don't like the trend in interest income and interest expenses).

Please correct me if I have made any errors, comments are welcome!

Cheers!

sriranga

sriranga
Co-Admin
Hatton National Bank (HNB) revealed yesterday that it has made a Rs. 6.2 billion consolidated profit after tax for the year 2011.

In a statement, HNB said the financial year 2011 presented a set of new challenges for the banking sector, different from those it witnessed during the previous two years. In 2011 the banking sector experienced an unprecedented growth in demand for credit, recording a 32% growth in loans and advances compared to 24% in 2010.

The bigger challenge for the banking sector, however, was to manage its liquidity as the deposits witnessed only a 19% growth during the year. In addition, the healthy margins enjoyed by the industry in the past came under persistent pressure with interest rates remaining close to single digit for the major part of 2011.
Despite the challenges faced, the bank recorded strong results in 2011 and Chairperson Dr. Ranee Jayamaha commented: “In 2011, we stood strong and tall for our clients, depositors and shareholders in an uncertain world. Our passion to perform and fresh thinking helped deliver business solutions that met our client-specific commercial needs across the entirety of the branch network last year, with no compromise on quality, building lasting and fulfilling relationships with customers from all walks of life.”

During the financial year 2011, the bank’s interest income recorded a growth of 9.6% due to rapid growth in loans and advances, compared to the negative growth witnessed in 2010. However growth in interest income did not keep pace with the increase in loans and advances, demonstrating a drop in yields compared to 2010.

However, interest cost in 2011 increased by 13.9% during the same period, despite deposits growing at a slower pace than advances. Hence the bank’s net interest margin narrowed in 2011. This was an industry-wide phenomenon witnessed during the financial year. Accordingly, the net interest income of the bank grew by 5.5% in 2011 compared to 2010.

The bank was successful in growing its commission income base by more than 32% during the year with trade income and card commissions leading the way. However exchange income witnessed a setback during 2011 due to relatively stable exchange rates for the most part of the year.

A significant drop of 49.9% was noted in other income due to the absence of capital gains realised in 2010 from the disposal of investments in Commercial Bank of Ceylon PLC, Distilleries Company of Sri Lanka PLC, Acuity Securities (Pvt) Ltd. and Lanka Ventures PLC and the marked to market gains recorded from equity investments in the previous year. However, the dividend income increased by Rs. 200 m as a result of higher dividend declared by DFCC.

Accordingly, the net income of the bank for 2011 stood at Rs. 21.2 billion, which is a 5.2% growth from the previous year.

During the year the bank focused on capacity building by opening 35 new customer centres, which is by far the most aggressive network expansion during the past decade.

Commenting on the expansion drive, HNB Managing Director and CEO Rajendra Theagarajah stated: “In 2011, our focus was essentially to further penetrate the rural sector, and as such we followed a concerted strategy of network penetration with a view to not only enhance our footprint across the Island but also to bring the concept of banking to the very doorsteps of every rural community. Our initiatives towards absorbing individuals even at the lowest tier of the socioeconomic group have opened vistas of opportunities to communities who have for generations lived beyond the poverty line.”

Despite the said expansion, focus on rationalisation of cost continued to be a priority during 2011 and the bank managed to maintain the increase in staff emoluments at a modest 5% while other expenses increased by 10% during the year.

However, the increased contribution towards the deposit insurance scheme introduced in late 2010 and marked to market losses of the equity portfolio included under other expenses further contributed towards increasing the cost base compared to the previous year. This, coupled with the lower growth in net income, has caused the cost to income ratio to deteriorate to 57.7% compared to 54.9% last year.

The bank continued its recovery efforts to bring the gross NPA ratio below 4% in 2011 and accordingly, the gross NPA ratio stood at 3.9% compared to 4.5% last year. However, the net NPA witnessed a marginal increase to 2.3% from 1.95% in 2010 mainly due to the 0.5% reversal of the general provision as per Central Bank guidelines as a precursor to the introduction of fair value accounting in 2012.

The industry witnessed the benefit of a lower tax regime in 2011, as the Government Budget proposals in 2010 announced significant reductions in corporate tax rates applicable for banks. Accordingly, the corporate tax charge for HNB dropped by 3.1% reflecting an effective tax rate of 28.3% compared to 33.7% in 2010.

In 2011, HNB managed to grow its pre-tax profits by 15.4% to Rs. 7.8 billion compared to the previous year, while the Group posted a pre-tax profit of Rs. 8.5 billion, recording a growth of 17%. The net profit after tax for the bank stood at Rs. 5.6 billion, recording a growth of 24.8 % in 2011 despite pressure on margins and significant reduction in investment income as explained above. The Group net profit for 2011 amounted to Rs. 6.2 billion, which represents a year-on-year growth of 27.6%.

The bank’s return on average assets stood at 1.6% compared to 1.5% in the previous year and return on average equity was maintained at 17.3% in 2011 despite the equity infusion.

In 2011, the bank’s asset base grew by a significant 20.4% funded by an infusion of capital as well as a steady growth of its deposit base. Contrary to the previous two years, the loan book of the bank grew by a staggering 25.8% to Rs. 264.3 b. The growth was supported by all segments including corporate, SME, leasing, pawning and retail aided by the bank’s customer centre network spread across the country. The network expansion during the year, especially in the previous war torn regions too contributed towards this end.

Though the bank witnessed a robust growth in deposits of 21.4%, it did not keep pace with loans and advances. The current account base for the bank showed a drop from the previous year, mainly due to the withdrawal of a large deposit which came in for a short period of time during the last week of 2010.
The savings deposit base witnessed a healthy growth during the year despite increasing interest rates towards the latter part of the year adding pressure on low cost deposits. The rupee fixed deposits during the year witnessed a sizable growth of 45% to Rs. 113.3 b in 2011. Accordingly, the Current Account and Savings Account (CASA) ratio dropped from 56% in 2010 to 49% in 2011.

The bank paid an interim dividend of Rs. 1.50 per share for 2011 in December and proposes a final dividend of Rs. 6 per share. The final dividend consists of cash dividend of Rs. 3 per share and a scrip dividend of Rs. 3 per share. The gross dividend for the year increased by 76.7% to Rs. 2,914 million on account of the total dividend payment of Rs. 7.50 per share against the total gross dividend payment for 2010.

During the year the bank raised Rs. 6.1 billion by way of a rights issue while the tier II capital base was strengthened through a subordinated debt issue of Rs. 2 billion during the year. As a result, the capital adequacy ratios remained healthy with core capital ratio at 12.76% and total capital adequacy ratio at 14.51% as at the end of December 2011.

The Group companies recorded commendable contributions during 2011, with HNB Assurance PLC, the insurance subsidiary, posting a 24% growth in gross written premium and 14% growth in post-tax profits to reach Rs. 275 million.

Sithma Development Limited, the property development subsidiary, recorded outstanding performance in 2011, posting a growth of 60% in post-tax profit, while Acuity Partners (Pvt) Ltd., the joint venture investment bank, posted commendable results despite sluggish market conditions that prevailed during most part of the year.

The Acuity Group further consolidated its position as the full service investment bank in the country through the asset management arm that was set up during the year, in collaboration with Ceylon Guardian Investments PLC.
http://www.ft.lk/2012/02/29/hnb-ups-group-net-profit-by-27-6-to-rs-6-2-b-in-2011/

http://sharemarket-srilanka.blogspot.co.uk/

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