Earnings Review Q2 FY 16

65, Braybrooke Place, Colombo 2, Sri Lanka

research@bartleetreligare.com, +94 11 5220200

21 December 2015

BRS Research

Peoples Leasing and Finance PLC (PLC : LKR 22.80)

Too much negativity priced in : BUY

Head of Research - Nikita Tissera

Asst Manager - Vajirapanie Bandaranayake

PLC reported a higher than expected EPS of LKR 0.78 (BRS estimate : LKR 0.58) for the quarter on
lower impairment. PLC disbursed ~6bn per month during the quarter and we expect the growth to
slow down in our forecast period. We have cut gross loan disbursements to LKR 5bn from the current LKR 6bn (-17%) for FY 2017E and 2018E on the back of (1) rising rate scenario and (2) expected
slow down in macro economy. We do not expect a significant wave of incremental leasing business
from the LCBs, triggered by the budget directive for LCBs to stop leasing. We also don't expect the
direction to reduce the Loan to Value (LTV) ratio to 70% to have a material impact on PLC, as the
company has been historically lending within similar risk parameters. PLC MPS has fallen 10% since
our last review and we upgrade the stock to BUY on the back of price weakness and fall in risk free
rates since our last update.
Year Ending 31 March
Net interest income (LKR mn)
Net interest margin %

2013

2014

2015

2016E

2017E

2018E

7,177

8,657

10,244

10,529

11,429

12,456

7.8%

8.4%

9.2%

9.2%

9.0%

8.9%

3,110

3,464

4,101

4,679

5,096

5,655

EPS (LKR)

1.98

2.19

2.60

2.96

3.23

3.58

ROA %

3.2%

3.2%

3.5%

3.8%

3.8%

3.8%

ROE %

17.6%

18.3%

19.6%

20.0%

19.3%

19.0%

Net asset value per share (LKR)

Recurring net profit (LKR mn)

Trading Snapshot
Market cap (LKR mn)

36,021

Market cap (USD mn)

247

Outstanding shares (mn)

1,580

Free float (%)

18.4%

52-week High/Low (LKR)

28.00/20.40

YTD ASPI return (%)

-5.7%

YTD Stock return (%)

-6.9%

Beta

1.0

Valuation Summary
CMP (LKR)

22.80

Intrinsic value (LKR)

25.16

DPS (LKR)

1.25

11.60

12.67

14.14

15.93

17.92

20.28

DPS (LKR)

1.25

1.25

1.25

1.25

1.25

1.25

Dividend yield (%)

9.5%

8.7%

5.7%

5.5%

5.5%

5.5%

Cost to income ratio %

47.4%

49.4%

44.3%

46.6%

46.0%

46.8%

Valuation method

P/E (x)

6.6 x

6.5 x

8.5 x

7.7 x

7.1 x

6.4 x

Total return %

P/BV (x)

1.1 x

1.1 x

1.6 x

1.4 x

1.3 x

1.1 x

TP based on total return (LKR)

26.41
Residual Income
15.8%

Rating

Buy

Source: Company data and BRS Equity Research

Pressure on NIMs to continue

PLC reported a bottom line of LKR 1.2bn (+13.7% YoY) for the quarter, aided 350bps YoY drop in
average interest on IBL (interest bearing liabilities) and fall in impairment costs. We expect NIMs to
come under pressure in our forecast period, as post war loans granted at high rates are now nearing
maturity. We expect PLC to post a PAT of LKR 4.7bn (+14.1% YoY) for FY 2016E. BRS ROE projection
for FY 2016E is 20% and 19.3% and 19% for FY 2017E and 2018E respectively. We estimate the incremental tax expense from the budget proposals (increase in VAT, NBT and corporate tax) to be close
to LKR 450mn (LKR 0.28 per share) for FY 2017E.
Asset quality to improve despite slow loan growth
We expect PLCs loan growth to slow down during the forecast period due to (1) rising rate scenario
and (2) expected macro economy slow down. On a conservative note, we have trimmed PLC monthly
disbursements to LKR 5bn (from LKR 6bn) for FY 2017E and FY 2018E. Directive on cessation of bank
leasing credit might not have a material impact to PLC in our view, as banks cater to credit worthy
retail customers, a client base that is different to PLCs sub prime customer base. Further, in our view
there is a high possibility of this directive being revised in banks favour. Reduction of LTV ratio to
70% too would not have a significant volume impact, as PLC has been historically lending within
similar risk parameters. We expect asset quality to improve and future impairment levels to decline
due to increased credit discipline and reduction in repossession losses with the recent hike in vehicle
prices.

PLC Price Vs ASPI Movement

ASPI

PLC

PLC

ASPI
8,000

30.00

7,500

25.00

7,000

20.00

6,500

15.00

6,000

10.00

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

EPS
LKR
4.00
3.50
3.00
2.50
2.00
1.50
1.00

Valuation: TP LKR 26.40 on total return: BUY

The Residual Income based target price is LKR 25.16, with a total return of LKR 26.40 (including cash
DPS of LRK 1.25). PLC is currently trading at 1.4x PBV and 7.7x PER based on FY 2016E forecasts. With
the price drop of 10% to LKR 22.80, we upgrade our recommendation to BUY.

For analyst certification and other important disclosures, please refer to the Disclosure and
Disclaimer section at the end of this report.

0.50
2013

2014

2015

2016E

Page 1

2017E

2018E

Company Information Note

65, Braybrooke Place, Colombo 2, Sri Lanka
research@bartleetreligare.com, +94 11 5220200

21 December 2015

Peoples Leasing and Finance PLC

Year Ending 31 March

2013

2014

2015

2016E

2017E

2018E

Summary Information

Company profile

BRS EPS (LKR)

1.98

2.19

2.60

2.96

3.23

3.58

BRS EPS growth (%)

-9.9%

11.0%

18.4%

14.1%

8.9%

11.0%

PLC is the largest registered finance company in the

country with an asset base of LKR 102bn. PLC accounts
for an island-wide distribution network with 92 fully
fledged branches and 102 window offices.

P/E (x) based on BRS EPS

6.4 x

NIM and Cost to Income ratios

Cost to
income %

NIM %

55.0%

10.0%

6.6 x

6.5 x

8.5 x

7.7 x

7.1 x

10.2 x

9.0 x

12.6 x

na

na

1.80

2.19

2.60

NAV per share (LKR)

11.60

12.67

14.14

15.93

17.92

20.28

Tangible NAV per share LKR

11.37

12.29

13.74

15.51

17.48

19.80

P/BV (x)

1.1 x

1.1 x

1.6 x

1.4 x

1.3 x

1.1 x

P/TBV (x)

1.2 x

1.2 x

1.6 x

1.5 x

1.3 x

1.2 x

Sector P/BV (x)

1.8 x

1.4 x

1.6 x

na

na

na

DPS LKR

1.25

1.25

1.25

1.25

1.25

1.25

Sector P/E (x)

Reported EPS LKR as per annual report

Dividend yield (%)

50.0%

7.0%

45.0%

4.0%

Mkt price
Weighted average shares (mn)
Average mkt cap (LKR'mn)

na

9.5%

8.7%

5.7%

5.5%

5.5%

5.5%

13.10

14.30

22.10

22.80

22.80

22.80

1,560

1,580

1,580

1,580

1,580

1,580

20,436

22,592

34,915

36,021

36,021

36,021

Income Statement (LKR'mn)

Cost to income

NIM

40.0%

1.0%
2013

2014

2015

2016E

2017E

2018E

ROE and ROA %

ROE %

ROA %

25.0%
ROE

ROA

20.0%

Interest income

17,485

20,053

19,594

18,397

20,989

23,284

Interest expenses

(10,308)

(11,396)

(9,350)

(7,868)

(9,560)

(10,828)

Net interest income

7,177

8,657

10,244

10,529

11,429

12,456

Other operating income

3,329

4,123

3,984

4,346

5,204

6,016

10,506

12,780

14,228

14,894

16,633

18,472

Total income
Personnel cost

(1,123)

(1,522)

(1,802)

(2,093)

(2,385)

(2,759)

6.0%

Other cost

(3,857)

(4,795)

(4,495)

(4,851)

(5,259)

(5,884)

5.0%

Loan loss provisions

(699)

(1,229)

(1,671)

(669)

(733)

(677)

Value added tax on financial services

(288)

(302)

(372)

(526)

(655)

(716)

4,540

4,932

5,888

6,754

7,602

8,436

4.0%
3.0%

Profit from operations

Share of associates /(loss)
Exceptionals/non-recurrings

15.0%

2.0%
1.0%

10.0%

0.0%
2013

2014

2015

2016E

2017E

2018E

Recurring PAT LKR 'mn (2013-18E)

5,655

(1,429)

(1,468)

(1,787)

(2,075)

(2,505)

(2,781)

Net income (with non recurring)

3,110

3,464

4,101

4,679

5,096

5,655

Recurring net income

3,110

3,464

4,101

4,679

5,096

5,655

3,082

3,464

4,101

4,679

5,096

5,655

Minorities
Profit attributable to equity holders

Liquid assets

2,454

11,696

3,414

2,751

4,877

6,654

90,480

98,184

110,952

119,860

128,832

2,641

3,052

3,808

3,987

4,077

4,203

358

357

342

345

345

345

Other assets

7,233

12,833

11,413

8,927

12,814

13,397

Total Assets

153,431

Property plant & equipment

Intangible assets

11%

101,144

118,417

117,161

126,961

141,973

Total deposits

18,710

40,839

33,930

35,980

40,780

45,580

Borrowings

56,821

49,629

50,977

55,709

60,259

61,048

7,362

8,182

10,201

9,539

12,079

13,983

18,094

19,767

22,053

24,848

27,960

31,630

Other liabilities
Shareholders funds
Minorities

2013

2014

2015

2016E

2017E

28

88,458

Loans and advances

9%

18%
3,110

Tax expense

Balance sheet (LKR'mn)

11%
14%

2018E

2018E

PLC - Loan Portfolio (FY 2015)

2%

885

894

1,190

101,144

118,417

117,161

126,961

141,973

153,431

Interest earning assets

95,928

111,262

110,749

119,324

134,004

144,557

Interest bearing liabilities

75,531

90,468

84,907

91,689

101,039

106,628

Total liabilities and equity

158

Growth rates and margins

20%

Growth in interest income %

26.0%

14.7%

-2.3%

-6.1%

14.1%

10.9%

Finance lease

Growth in interest expense %

39.1%

10.6%

-18.0%

-15.8%

21.5%

13.3%

Hire purchase

Growth in net interest income %

10.9%

20.6%

18.3%

2.8%

8.6%

9.0%

Growth in personnel cost %

22.4%

35.6%

18.4%

16.2%

14.0%

15.7%

Term loans

Net interest margin %

7.8%

8.4%

9.2%

9.2%

9.0%

8.9%

Other loans

Cost to income ratio %

47.4%

49.4%

44.3%

46.6%

46.0%

46.8%

55%
23%

Source: PLC Annual Reports and BRS Equity Research

Return on assets

3.2%

3.2%

3.5%

3.8%

3.8%

3.8%

Return on equity

17.6%

18.3%

19.6%

20.0%

19.3%

19.0%

Interest income to interest bearing assets

18.9%

19.4%

17.7%

16.0%

16.6%

16.7%

Interest expenses to interest bearing liabilities

14.0%

13.7%

10.7%

8.9%

9.9%

10.4%

Growth in interest earning assets %

7.8%

16.0%

-0.5%

7.7%

12.3%

7.9%

Growth in interest bearing liabilities %

5.5%

19.8%

-6.1%

8.0%

10.2%

5.5%

Page 2

BRS Equity Research

Financial Analysis
Income Statement - People's Leasing and Finance PLC
Year ending 31 March

2013

2014

2015

2016E

2017E

2018E

17,485

20,053

19,594

18,397

20,989

23,284

26.0%

14.7%

-2.3%

-6.1%

14.1%

10.9%

(10,308)

(11,396)

(9,350)

(7,868)

(9,560)

(10,828)

39.1%

10.6%

-18.0%

-15.8%

21.5%

13.3%

All numbers in LKR' mn

Interest Income
YoY Growth %
Interest Expense
YoY Growth %
Net Interest Income

7,177

8,657

10,244

10,529

11,429

12,456

YoY growth %

10.9%

20.6%

18.3%

2.8%

8.6%

9.0%

Other income

3,329

4,123

3,984

4,346

5,204

6,016

YoY growth %

54.1%

28.7%

-8.6%

12.3%

24.3%

16.5%

Total Income

10,506

12,780

14,228

14,894

16,633

18,472

YoY growth %

20.4%

21.6%

11.3%

4.7%

11.7%

11.1%

Operating expenses

(4,980)

(6,317)

(6,297)

(6,944)

(7,644)

(8,643)

YoY growth %

34.9%

26.8%

-0.3%

10.3%

10.1%

13.1%

Cost to income ratio

47.4%

49.4%

44.3%

46.6%

46.0%

46.8%

Pre provision profits

5,526

6,463

7,931

7,949

8,989

9,828

YoY Growth %

9.8%

17.0%

22.7%

0.2%

13.1%

9.3%

Loan loss provisions

(699)

(1,229)

(1,671)

(669)

(733)

(677)

VAT on financial services

Profit before tax

(288)

(302)

(372)

(526)

(655)

(716)

4,540

4,932

5,888

6,754

7,602

8,436

6.1%

8.6%

19.4%

14.7%

12.5%

11.0%

Income tax expense

(1,429)

(1,468)

(1,787)

(2,075)

(2,505)

(2,781)

Profit after tax

3,110

3,464

4,101

4,679

5,096

5,655

YoY Growth %

YoY change %

7.8%

11.4%

18.4%

14.1%

8.9%

11.0%

Profit to equity holders

3,077

3,464

4,101

4,670

5,086

5,645

Reported EPS (Note 1)

1.80

2.19

2.60

BRS EPS (Note 2)

1.98

2.19

2.60

2.96

3.23

3.58

Source: Company Financial Reports and BRS Equity Research

Note 1 : Based on reported earnings

Note 2 : Based on recurring earnings

www.bartleetreligare.com

Page 3

BRS Equity Research

Financial Analysis
Statement of Financial Position - People's Leasing and Finance PLC
As at 31 March

2013

2014

Cash and cash equivalents

2,454

11,696

Deposits with banks and financial institutions

3,744

4,726

Derivative financial instruments

Financial investments - Held for trading

238

2015

2016E

2017E

2018E

3,414

2,751

4,877

6,654

1,831

1,980

1,750

1,750

378

503

589

589

589

88,298

90,342

97,997

110,714

119,581

128,505

159

138

187

238

279

327

Financial investments - Available for sale

1,174

1,317

2,043

2,519

2,855

3,191

Financial investments - Held to maturity

540

4,747

5,266

1,980

5,469

5,469

Investments in associates

Intangible assets

358

357

342

345

345

345

All numbers in LKR' mn

Assets

Loans and advances

Reinsurance and insurance receivable

Investment Property
Property plant and equipment
Other assets
Total Assets

2,641

3,052

3,808

3,987

4,077

4,203

1,539
101,144

1,665
118,417

1,770
117,161

1,859
126,961

2,151
141,973

2,399
153,431

Liabilites
Deposits

18,710

40,839

33,930

35,980

40,780

45,580

Borrowings

56,821

49,629

50,977

55,709

60,259

61,048

Redeemable preference shares

725

518

342

285

238

Derivative financial instruments

3,043

2,759

3,166

2,980

3,831

4,178

79,298

93,745

88,165

95,011

105,156

111,044

2,217

2,571

2,894

3,791

4,723

5,816

86

541

618

1,174

1,976

2,482
1,213

Creditors
Total financial liabilities
Insurance liabilities and reinsurance payable
Tax payable
Deferred tax payable

92

1,210

1,599

1,976

1,213

1,213

Other liabilities

82

194

1,455

40

51

56

Other liabilities

3,594

4,905

6,943

6,217

7,963

9,567

Stated capital

12,258

12,736

12,936

13,036

13,036

13,036

Reserve fund

860

1,016

1,204

1,433

1,687

1,970

4,976

6,015

7,913

10,379

13,236

16,625

18,094

19,767

22,053

24,848

27,960

31,630

885

894

1,190

126,961

141,973

153,431

Equity

Other reserves
Shareholders' Funds
Minority interest
Total Liabilities & Equity

158
101,144

118,417

117,161

Source: Company Financial Reports, Prospectus and BRS Equity Research

www.bartleetreligare.com

Page 4

BRS Equity Research

Top 20 Shareholders as of 30.06.2015

Name of the Shareholder

No. of Shares

Peoples Bank

1,184,896,862

75.00

BNYM SA/NV-Neon Liberty Lorikeet Master Fund LP

63,069,853

3.99

National Savings Bank

44,990,757

3.03

Employees Provident Fund

43,643,831

2.76

Wasatch Frontier Emerging Small Countries Fund

24,753,100

1.57

Bank of Ceylon No. 1 Account

11,453,600

0.72

Frontier Market Opportunities Master FD,L.P.

10,150,000

0.68

CF Ruffer Investment Funds: CF Ruffer Pacific Fund

10,000,000

0.65

Acadian Frontier Markets Equity Fund

8,329,273

0.64

Northern Trust Company S/A Ashmore Emerging Markets Frontier Equity Fund

8,183,492

0.63

Mr. Y.S.H.I. Silva

7,445,555

0.39

BNYM SA/NV-Frontier Market Select Fund II L.P.

7,370,008

0.35

AIA Insurance Lanka PLC A/C No. 07

5,376,721

0.31

Ceylon Investment PLC A/C # 01

4,954,891

0.31

BNYM SA/NV-NLCF Fund LP

4,916,003

0.29

Sri Lanka Insurance Corporation Ltd - General Fund

4,033,000

0.29

Union Assurance PLC/No - 01A/C

3,821,672

0.24

CB NY S/A Wasatch Frontier Emerging Small Countries CIT Fund

3,732,745

0.24

Northern Trust Global Services Ashmore Sicav Emerging Markets Frontier Equity Fund

2,383,305

0.15

Candor Growth Fund

2,358,804

0.13

Source: PLC Q2 FY 16 interim financial statement

www.bartleetreligare.com

Page 5

BRS Equity Research

DISCLAIMER
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Stock Ratings
Recommendation
Expected absolute returns (%) over 12 months
Buy
More than 10%
Hold
Between 10% and 0%
Sell
Less than 0%
Expected absolute returns are based on the share price at market close unless otherwise stated. Stock recommendations are based on absolute upside (downside)
and have a 12-month horizon. Our target price represents the fair value of the stock based upon the analysts discretion. We note that future price fluctuations could
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made regarding future performance.
Information, opinions and estimates contained in this report reflect a judgment of its original date of publication by SRL and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value
of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such
securities.
SRL may or may not seek to do business with companies covered in our research report. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of research produced by SRL. Investors should consider our research as only a single factor in making
their investment decision.

Any reference to a third party research material or any other report contained in this report represents the respective research organization's estimates and views
and does not represent the views and opinions of SRL. SRL, its officers and employees do not accept any liability or responsibility whatsoever with respect to the
accuracy or correctness of such information. Further, SRL has included such reports or made reference to such reports in good faith (bona fide).

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