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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » CDB perfomance for the last quarter.

CDB perfomance for the last quarter.

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1CDB perfomance for the last quarter. Empty CDB perfomance for the last quarter. Sat Feb 16, 2013 11:03 pm

Leon


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Hi Guys...

What do u think of CDB performance for last quarter?? EPS 3.27 for the 3Q and 7.76 for the nine months. Quite good. But I saw in their balance sheet under other liabilities they have 1.8B.(up by 1B) What could this be??
Currently I have CDB and hope they will declare a dividend within couple of months.
Thanks....



Last edited by sriranga on Sun Feb 17, 2013 5:51 am; edited 2 times in total (Reason for editing : New additions)

2CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Sun Feb 17, 2013 1:06 am

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Look CDB has issues of its own (which for some reason the smart Jafferjees don't realise!!!). One is that it keeps getting huge debenture investments from CINS. These debentures carry a high interest rate and the accrued interest is known as "Other liabilities". Also like most finance firms the bulk of their deposits mature within 1 year (I would approximate that 8B of 11B mature in 1 year). Hence the long term funding is what keeps it going. It performs better because the long term funding is guaranteed to arrive

CINS does not really care about CDB's performance because those debentures are secruitised and hence they can take back land, buildings etc. Also it has all these other payments to CINS including loans and ESOP crap. It cross-holds a stake in CINS to prevent takeovers of its long term funding source

3CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Sun Feb 17, 2013 8:28 am

Harry82

Harry82
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Citizens Development Business Finance PLC (CDB) is a leading financial institution in Sri Lanka offering a plethora of financial products including business loans, housing loans, leasing, hire purchase, trade finance, foreign currency exchange, foreign remittances, fixed deposits, savings and pawning. Our clients cover a broad spectrum of entrepreneurs representing the micro-enterprises and small and medium enterprise (SME) to high-end and corporate market segments. Our business model of rural lending and urban funding enables us to achieve our purpose of enriching people’s lives through the extension of financial solutions.

The first decade of the 21st century has witnessed remarkable transformation, establishing CDB as a formidable leading player within the financial services industry.

From 2001 to 2012 December, CDB’s total asset base has grown from mere Rs. 276Mn to Rs. 15.6Bn.


Net assets which recorded 49 Rs

A loss making entity in 2001, CDB has continuously recorded growth in profitability since 2004 and posted a net profit figure surpassing Rs.415Mn for the first nine months of the current financial year (2011/2012).


CDB today ranks as the 7th largest player in terms of total assets among 45 financial institutions registered under the Finance Companies Act with Central Bank of Sri Lanka.


CDB has always focused on superior branding, clear market segmentation and a well defined corporate positioning to achieve business excellence. CDB’s consistent success can be attributed to the adoption of a diverse portfolio of value added financial services and superior customer service couple with commitment to enterprise governance. CDB is guided by a people driven business approach “Strategies bet on people to succeed”; a salutation to the valuable human capital it possesses. Our multi channel distribution network includes 45 online connected branches. CDB steps in to the second decade of 21st century with great aspirations and ambitious vision to seize the unprecedented opportunities and possibilities presented in post-war Sri Lanka within a rapidly changing context and accelerated economic growth.

Vision
To be the Financial Power House that will foster entrepreneurial innovation and workmanship towards building up our nation’s economy to make sustained gains in living standards of Sri Lankans.
Our Purpose
Enriching people’s life through extension of financial services.
ProductsMeeting the needs of a fluctuating economy is an arduous task. CDB believes in adapting to change to meet the requirements of the people. Therefore, services offered by us are customised to suit your individual conditions. Along with all of our products, CDB offers competitive rates, flexible terms, and a courteous and efficient customer service. CDB is able to assist you in the following categories:

Finance (Leasing/ Hire Purchase)
3-Wheeler Leasing
Business Loans
Housing Loans
Pawning
Fixed Deposits
Money Exchange
Fixed Deposits – “Dhana Surekum”
Fixed Deposits – “Aee”
Finance (Leasing/Hire Purchase)
3W Leasing (Three Wheeler)
Pawning
Fixed Deposits – “Deeghayu”
Along with our products, we offer:
Competitive rates and flexible terms
Extended amount of time to settle the amount
Courteous and efficient customer service
Less documentation requirement



Last edited by Harry82 on Sun Feb 17, 2013 8:31 am; edited 1 time in total (Reason for editing : some mistake)

4CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Sun Feb 17, 2013 9:37 am

Harry82

Harry82
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
CDB share is the most undervalued share in the market, Earnings per share for the nine month is Rs 7.76. Year end earnings will be not less than Rs 13.00 per share excluding mark to market price increase of 564 000 Ceylinco insurence shares it has.
The net asset value is Rs 49. In 2011 they paid Rs 2.00 dividend per share and in 2012 they paid Rs 2.50 (including script Dividend). The voting share price was around 65.00 and nonvoting share price was around 55.00 about 6 months ago.
We can expect the voting share price to go up to 70.00 to 80.00 and non voting share price to go up around Rs 60.00 by the year end.

5CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Sun Feb 17, 2013 9:44 am

Harry82

Harry82
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Very Happy Very Happy Very Happy Smile pirat
@Leon wrote:Hi Guys...

What do u think of CDB performance for last quarter?? EPS 3.27 for the 3Q and 7.76 for the nine months. Quite good. But I saw in their balance sheet under other liabilities they have 1.8B.(up by 1B) What could this be??
Currently I have CDB and hope they will declare a dividend within couple of months.
Thanks....

6CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Sun Feb 17, 2013 10:52 am

Harry82

Harry82
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Other liabilities can be a loan or anything. They did not there total assets less liabilities is what should be considered.
Net asset is Rs 49.

Earnings per share for 9 months are Rs 7.76.
As per their announcement at the end of September 89 % of their assets are regular income earning asset.

Last trade price of Rs 42 of the voting share is a little more than 3 times per, and 30 of non voting share is 2.5 times per share.
Someone plz comment on this Twisted Evil

7CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Sun Feb 17, 2013 10:59 am

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Be honest Harry82, are you long on CDB???

Ok why do you think CINS directors resigned?? If you were a director of CDB, would you resign??? They know that CDB has issues..... they also know that CDB is now to big for them to bail out if needed.

They do not want to be a part of the mess if it happens. However they will exercise their control. The dividends on the stock are used to fund the ESOP - most likely needs to pay back a loan.

The only reason why CDB is doing well is because interest rates have come down and their leasing portfolio provides enough returns to keep investors happy. However if interest rates go up, because leasing portfolios are "fixed interest rate", leasing firms have to raise deposits at rates higher than the portfolio yield. This is the problem with leasing firms like PLC, LOLC, CFIN, TFC

The unique thing about bigger firms is that their funding sources are more diversified and they tend to prefer long term funding.


8CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Sun Feb 17, 2013 12:03 pm

Harry82

Harry82
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
RAM Ratings Lanka has reaffirmed Citizens Development Business Finance PLC’s (“CDB” or “the Company”) respective long- and short-term financial institution ratings at BBB and P2.


CDB is a medium-sized licensed finance company (“LFC”), accounting for 4.34% of the industry’s assets as at end-March 2012, up from 3.40% a year earlier. The Company’s primary activities include leasing, hire-purchase (“HP”) and personal credit facilities. In recent times, it has also ventured into pawning. CDB obtains funding through public deposits and borrowings.
The Company’s asset quality is opined to be good; its credit quality indicators have consistently been better than those of similar-rated peers, supported by its focus on three-wheeler financing which had generally exhibited a lower delinquency rate than peers’. However, despite growth in its three-wheeler portfolio, the delinquency rate for three-wheelers remained high compared to other asset classes in fiscal 2012, as new non-performing loans (“NPLs”) trickled in. Nevertheless, CDB has managed to reduce its total absolute NPLs by 22.46% in fiscal 2012, attributable to better recoveries. This together with the aggressive expansion of its loan book led the Company’s gross NPL ratio to improve 1.66% (fiscal 2011: 3.56%), before weakening slightly to 1.90% in 1Q FYE 31 March 2013 (“FY March 2013”) as new NPLs trickled in; albeit still better than most peers’. That said, our concerns hinge on CDB’s unseasoned portfolio, given its aggressive year-on-year (“y-o-y”) growth of 65.50% in fiscal 2012, which had mainly stemmed from three-wheeler financing (38% growth); this may give rise to NPLs as the portfolio seasons. Meanwhile, the NPL coverage continued to be better than peers’ at 92.27% as at end-FY Mar 2012. Looking ahead, NPLs might come in given the weakening macro-economic conditions and the possibility of an oversupply of three-wheelers that are used as taxis, given the rapid growth experienced in the past.
The Company’s performance is deemed above average, backed by its wider net interest margin (“NIM”) and return on assets (“ROA”) which compared better to similar-rated peers’. In 1Q FY March 2013, although slightly affected by rising interest rates, as deposits repriced faster than loans, CDB’s NIM at 8.03% remained better than most peers. This was supported by its focus on the higher-yielding three-wheeler financing. CDB’s performance had, however, been moderated by increased overheads as a result of aggressive branch expansion; its cost-to-income ratio1 continued to remain high, although improving slightly to 61.96% in fiscal 2012 (fiscal 2011: 67.07%). Looking ahead, performance might weaken due to the Company’s high cost profile and expected slower credit demand amid a non-conducive economic environment.
CDB’s funding base continued to be dominated by customer deposits, aided by the Company’s widening branch reach and its aggressive advertising and marketing strategies. Its loans to deposit ratio clocked in at 116.81% as at end-FY March 2012 (end-FY March 2011: 105.26%), before improving to 111.98% by 1Q FY March 2013, relatively in line with peers’. Elsewhere, CDB’s liquidity is deemed above average; its statutory liquid asset ratio remained relatively unchanged at 13.26% as at end-FY March 2012 (end-FY March 2011: 13.51%), before improving to 16.05% as at end-June 2012, comparing better to similar-rated peers’.
The Company’s capitalisation is deemed good, supported by a capital infusion in August 2011 which had resulted in its overall risk weighted capital adequacy ratio (“RWCAR”) improving to 17.05% as at end-FY March 2012 (end-FY March 2011: 12.46%), despite the expansion of its loan book. However, RWCAR dipped to 15.48% in 1Q FY Mar 2013 as CDB’s loan book grew; nevertheless capitalisation levels remained better than similar-rated peers’.

9CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Sun Feb 17, 2013 12:54 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
I was answering the original question that was asked.

I'm not trying to say that CDB is not a valuable share. It is a valuable firm that is doing incredibly well. It has developed a good loan book. It's good for a long term value investor if you get in at a cheap price.

However what I'm trying to make you do is think beyond marketing gloss.

Who is the CDB's long term funding solution? Why did the CINS directors resign? Why doesn't CINS divest its stake in CDB? Why doesn't CDB divest it's stake in CINS? What's the deal with the related party deposits and debentures?

There is a fundamental bond between CINS and CDB. Otherwise why doesn't CDB dispose its shares in CINS for 600M/= (25% of its market cap and probably a big part of its shareholder equity)

Most importantly, can CDB survive on its own - is its portfolio self financing? At what point will the leasing profits payback operational expenses?

Those are the questions I want you to answer instead of copy pasting news items.

10CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Sun Feb 17, 2013 4:50 pm

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
After long time, I saw rainmaker has bought very valid discussion this forum.

This cross holdings are very common in SL business and they try to manipulate the incentive structure and could create conflict of interest ( So called agency problem - sorry for the jargon). You could see this in may of family owned bushiness and even at high level like Hayleys ( lately they have tried to resolve this)

Going back to original question: we need to ask these questions?
Will this awkward bond create skewed incentive for CDB managers ( or Board) to perform in favour of CINS rather than CDB shareholders
Will there be major change in CDB's future performance?
Will Manager put CDB in risk if the economy moved adversely?
Can CDB maintain the momentum of profitability ?

11CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Sun Feb 17, 2013 5:03 pm

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
@salt wrote:After long time, I saw rainmaker has bought very valid discussion this forum.



I think he was a active member(AROUND 15 MONTHS BACK) in the past and now back in another ID.

12CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Sun Feb 17, 2013 6:34 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
quote "I think he was a active member(AROUND 15 MONTHS BACK) in the past and now back in another ID." Unquote

@ Redbulls - Interesting observation. Btw does current and former ID both start with the same two letters of the alphabet ?

13CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Mon Feb 18, 2013 7:34 am

Harry82

Harry82
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Rainwater and Salt are thinking in a negative attitude towards CDB.
Consider the following,

To the size of CINS, CDB is a parent.

Both companies are doing different businesses Insurance / Finance
There is no way in which CDB can take decisions in favor of CINS
As for funding all the finance companies (around 50) depend on public deposits and bank borrowings in a small way.

Maturity periods of the deposits of all the finance companies are almost same. CDB’s long term maturity deposits are high compared to most others.
All registered finance companies are being supervised by the central bank.

CDB is the 7 th largest finance company and with a deposit base of above 15 billions.
And this deposit was mobilized within 3 years after it was given finance company license.

Depositors have faith in that company.

Almost 80% of the shareholding of almost all finance companies are held by few persons or by other companies. They are the people or organizations who started these companies. Not only fiancé companies but all the companies are promoted by someone and they will have controlling power.


Why do you expect CINS to sell their shareholding in CDB?

CINS is the holding company of CDB. If they sell, some other party will become the holding company.
The number of CINS shares held by CDB is just 564,000 (2.82%) voting shares. It is a long term investment for CDB.
There are other companies holding shares in this way and no one see it is a problem. Eg VONE,DIST,CTHolding,CARS,BUKI,SHL,LOLC ……
CDB’s RAM rating is BBB/P2
And finally doing business is always risky without taking risk you can’t make money. If an investor fears to buy a CDB share at the present price range and retain it for at least 6 month. There is no share in the market that he can buy.

14CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Mon Feb 18, 2013 8:45 am

smallville

smallville
Associate Director - Equity Analytics
Associate Director - Equity Analytics
Harry,

Its not negative thinking.. These are general facts and figures.. We're happy to see the company balance sheets getting bigger but we dont give much thought to have a detailed analysis. This is what actually the veteran investors do.. They see beyond the lines of financial statements then identify the favourable or non-favourable factors.

We all agree that we should avoid investing in companies which have less growth or not in a demanding industry at all. If SL policies are not supporting, the economic outlook is gloomy, some industries will be direct hitters hence other than the companies which are in fore-front, have core-competencies, all others may face issues.

Therefore, these discussions are fruitful before investing.

We should not advertise what we have and talk about the positives but we have to be balanced Wink

@rainmaker wrote:

The only reason why CDB is doing well is because interest rates have come down and their leasing portfolio provides enough returns to keep investors happy. However if interest rates go up, because leasing portfolios are "fixed interest rate", leasing firms have to raise deposits at rates higher than the portfolio yield. This is the problem with leasing firms like PLC, LOLC, CFIN, TFC

The unique thing about bigger firms is that their funding sources are more diversified and they tend to prefer long term funding.


Good thinking..
LOLC is massive debts so even if its good for their name, unless otherwise I find out how they can replay that, I'd be damned to touch it. TFC is also risky but can be potential. Cuz we always remove the loss companies but after few years they can emerge heroes.

However, Generally as u said, all these financial companies have issues with interest rate fluctuations but PLC I'd consider as a highly potential company.. Then I think they leverage it with the new lenders, that's the usual trend. Also their profit is anyway a higher margin with leases imo.. And being the biggest company is business, doesn't PLC got advantages?.. They have the biggest business portfolios.

15CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Mon Feb 18, 2013 8:54 am

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
I was only answering the question with regards to "other liabilities" not giving a buy/sell recommendation. CINS is the parent of CDB and they are the ones who call the shots. I remember a broker said the CDB boad meetings are in CINS.

CDB will always act in the favour of CINS. Who do you think is in charge of the CDB ESOP? The crossholding is required to protect CINS.

The sad story is that of Ceylinco Savings Bank that had a specialised banking licence. If CINS was allowed to manage it, it would have become a much better firm. I believe its now owned by MBSL and a few investors.

Leasing is risky business and you need a dominant funding partner.

16CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Mon Feb 18, 2013 11:21 am

seek


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@The Alchemist wrote:quote "I think he was a active member(AROUND 15 MONTHS BACK) in the past and now back in another ID." Unquote

@ Redbulls - Interesting observation. Btw does current and former ID both start with the same two letters of the alphabet ?

Only name I can recall is rajitha but definitely rainmaker should not be rajitha.

17CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Mon Feb 18, 2013 11:47 am

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
@seek wrote:
@The Alchemist wrote:quote "I think he was a active member(AROUND 15 MONTHS BACK) in the past and now back in another ID." Unquote

@ Redbulls - Interesting observation. Btw does current and former ID both start with the same two letters of the alphabet ?

Only name I can recall is rajitha but definitely rainmaker should not be rajitha.

You are correct.

18CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Mon Feb 18, 2013 11:56 am

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
I haven't used this forum before. I just registered to get rid of that annoying pop up message.

Also I personally prefer fixed income trading to equity trading.

19CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Wed Feb 20, 2013 11:03 pm

lion


Senior Equity Analytic
Senior Equity Analytic
Hi Rain,
I wanted to attempt to answer your questions on Monday, but got some urgent work to attend. I will try to answer some of your questions, others in the forum can also help.. I mainly see that you are trying yo ask qualitative questions mixing with numbers.

Who is the CDB's long term funding solution?
As with any financial institution, the main source of funding is public deposits followed by borrowings and the equity, please refer the page 32, of the Annual report. The deposit base has grown by 52% to 11.2 Bn in 2012.
http://cse.lk/cmt/upload_report_file/981_1339070344429.pdf

Why did the CINS directors resign? Why doesn't CINS divest its stake in CDB? Why doesn't CDB divest it's stake in CINS?

I would not be able to answer these questions as I do not sit in the neither Boards, but the thing to note is both CINS.N and CDB are solid counters and there is no need to dispose such investments right now for both parties.

What's the deal with the related party deposits and debentures?
please refer the 2011 AR page 134, where the yields of the debentures are disclosed. (250 Mn 5 year unsubordinated, unsecured debenture was issued at 12.5% in 2011) considering the present yields this is can be viewed as a wise decision by CDB.
http://cse.lk/cmt/upload_report_file/981_1307704503640.pdf

The deposits from CINS is only 68 MN which is immaterial to the deposit base. Also the maximum interest rates applicable is TBILL rates plus 3%. Further the Board must approve any related party transaction above 50,000.00 as per CBSL directive.

There is a fundamental bond between CINS and CDB. Otherwise why doesn't CDB dispose its shares in CINS for 600M/= (25% of its market cap and probably a big part of its shareholder equity)

Yes there is, the company was part of the former Ceylinco Group and CINS is a shareholder from the beginning.

Most importantly, can CDB survive on its own - is its portfolio self financing?
As explained above there is not evidence that suggests that the performance of CDB is reliant on CINS.
The deposit and borrowings are the core funding sources.

At what point will the leasing profits payback operational expenses?
This question is not very clear, interest income is recognized over the life of the contract, ex four years. operating expenses are revenue nature and does not pay pack, typically returns are earned from assets employed. If the interest income is sufficient to cover the operating and other expenses the company will make profits (like in the present situation).

There can be minor issues such as resignation of reputed directors; CINS does not control CDB so why should the CINS Director be the Chairman of CDB.

20CDB perfomance for the last quarter. Empty Re: CDB perfomance for the last quarter. Thu Feb 21, 2013 5:00 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Lion I'll answer you tomorrow when I'm free.

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