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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » “Larger Players remain the key attraction” LFIn CFIN PLC

“Larger Players remain the key attraction” LFIn CFIN PLC

Go down  Message [Page 1 of 1]

Harry82

Harry82
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Recommendation
“Larger Players remain the key attraction”
• 3 leading companies account for nearly 40% of market share
• Strong established brand image and wide spread distribution network secures
relatively low cost of funding & low cost-to-income ratio
• Valuations at a discount to broader market
• Accordingly we rate LB Finance, People’s Leasing & Finance and Central Finance as key
buys of the sector at current prices


Softlogic Equity Research

Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Interesting

Could u please post link for the research report

Cheers

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@Harry82 wrote:Recommendation
“Larger Players remain the key attraction”
• 3 leading companies account for nearly 40% of market share
• Strong established brand image and wide spread distribution network secures
relatively low cost of funding & low cost-to-income ratio
• Valuations at a discount to broader market
• Accordingly we rate LB Finance, People’s Leasing & Finance and Central Finance as key
buys of the sector at current prices


Softlogic Equity Research

The "Larger Players" may remain the key Recommendation for the larger players in the stock market. However, for the smaller players (retailers), there could be better options. Faster growing (better Net Interest Margin Growth), Cost to Income Ratio better than PLC and LFIN only second to CFIN, cheapest in terms of PE and PBV, Better Dividend Yield, Attractive Capital Structure etc.
Sometimes good things may come in small packages too.

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
I doubt you will find better cost to income ratios than the once mentioned above.

Small finance firms are constrained by the CB's capital requirements. The rules are very specific such that new loans are treated differently to old loans. So to expand your loan book, you need a strong capital base. More than the banking industry, the finance industry needs serious consolidation.

Harry82

Harry82
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
LFIN, is one of the largest LFC’s in Sri Lanka holding around 10% of the industry assets
(LKR51.4 bn as at 31.12.2012). Its lending portfolio has been primarily led by leasing & hire
purchase facilities and gold loans with its lease portfolio growing at a CAGR of 49% during
FY09-FY12.
Strong growth in lending amidst difficult economic conditions assist earnings to grow at 9.5%
YoY to LKR1,246.6 mn. LFIN secured a 9.5% YoY growth in earnings during 1-3QFY13 driven
primarily by strong 25.2% YoY increase in NII. The earnings growth was subdued by the 44.4%
YoY growth in operating expenses with incremental cost associated with branch expansions
coupled with hike in provision expenditure due to increased slippages amidst rising interest
rates.
Forecast net profit to record LKR1,826 mn during FY13E (up 12.4% YoY). With LFIN’s lease &
hire purchase disbursements assumed to grow at c.17% during FY14E driven by anticipated
improvement in economic conditions coupled with increased contribution from the new
branches, we forecast net earnings to grow at 22.2% YoY to LKR2.2 bn during FY14E.
Attractive Valuations. LFIN trades at a discount to broader market at PER 5.5X FY13E net
earnings and PER 4.5X FY14E net earnings. The counter currently trades at a PBV of 1.4X FY14E
book value whilst producing a DY of 4.7% FY14E. We believe the counter still holds strong
upside potential in the medium to long term given its attractive valuations and high growth
potential.


CFIN being the second largest player among the LFCs holds a market share of nearly 12% based
on its asset strength (LKR59.8 bn as of 31.12.2012). The company established in 1957 saw its
asset base growing at a CAGR of 13.3% during FY09-FY12 adopting a cautious approach in a high
growth environment as the industry assets grew at a CAGR of c.20% during the same period.
Conservative strategy pays off as CFIN records steady 15.4% YoY growth in earnings during 1-
3QFY13 outperforming the sector. CFIN’s net earnings grew at a steady 15.4% YoY to LKR2.3 bn
during 1-3QFY13 which outperformed the peer performance justified by the conservative approach
taken by the company in growing its asset base during low interest rate regime (2010-2011).
Consequently the company was able to minimize the negative impact created from asset &
liabilities mismatch following the hike in interest rates thus securing margins registering an
attractive 19% YoY growth in NII during 1-3QFY13 despite challenging conditions.
Forecast net earnings to record LKR3,131 mn during FY13E (up 17% YoY). With CFIN combatting
the adverse economic conditions better than the peers due to the relatively lower asset & liabilities
maturity mismatch leading to steady margins, we expect it to record LKR3.13 bn in FY13E (up 17%
YoY). With the higher growth in the economy expected during FY14E stimulating credit demand
(assuming a loan portfolio growth of c.22%), we forecast net earnings to touch LKR3.89 bn in FY14E
(up 24.1% YoY).
Valuations at a discount. CFIN currently trades at discount valuations at PER 6.0X FY13E recurrent
net earnings and PER 4.9X FY14E net earnings. The counter currently trades at a PBV of 0.9X FY14E
book value. We expect the counter to re-rate it upwards given its attractive valuations and steady
growth in profits.


Softlogic Equity Research

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
CFIN projections are overly aggressive
They must be having a quantity to sell out.
Looks like a sales pitch rather than an analysis

Anyway, even it is not there, PLC is the best among FIs. Their earnings has impacted with roughly about 50% decline. I think worst is over , they could start growing again slowly. Key challenge is vehicle market squeeze.

Fresher


Moderator
Moderator
@salt wrote:CFIN projections are overly aggressive
They must be having a quantity to sell out.
Looks like a sales pitch rather than an analysis

Anyway, even it is not there, PLC is the best among FIs. Their earnings has impacted with roughly about 50% decline. I think worst is over , they could start growing again slowly. Key challenge is vehicle market squeeze.


earnings show a decline since last year they had a significant reversal of provisions, which probably showed an inflated profit figure. Still the earnings is good.
Also there is one other stock which is more or less in the same range or even better than PLC Wink

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