BvsB wrote:BLI Post Earning Review-SC Securities
https://drive.google.com/file/d/0B4RW2iUTUYfZQXpGS3Y5cVNPQTQ/view
Bimputh Finance PLC – 2Q16 Earnings Review
In our 2Q16 Earnings preview release we have emphasized on this counter considering the earnings prospects for the second quarter which ended in September. We picked
this counter primarily considering the lucrative micro finance lending carried out by the company. We envisaged growing micro finance lending to ensure steady revenue
streams, increasing coverage, to ensure secure revenues from new markets, lucrative business model to facilitate further loan disbursements and cheaper sources of funding to stabilize better margins and profits.
As expected, Bimputh Finance PLC (BLI.N0000), reported healthy earnings and please find below the post earnings review and our findings on the company after our conversation with the company management.
Interest Income
Interest Income expanded by 303.0% yoy in 2Q16, to reach LKR533.8mn from LKR132.4mn in 2Q15. As expected, this was primarily due to the expansion of volume growth of micro finance lending to small scale entrepreneurs. According to the company disclosure, during 1H16, the loan book grew at 68.0% to reach LKR5.2b from LKR3.1b reported as at end of FY15. The management disclosed that there was an aggressive expansion in their branch and service centre network to reach 48, out of which more than 20 branches were established after 3Q15, when the financial sector consolidation plans were temporary halted by the government.
The finance company has outperformed our projection for it’s 2Q16 Interest Income, of LKR431.5mn, by 23.7%.
Interest Expenses
Interest Expenses also showcased a higher growth to that of Interest income, of 401.0% yoy to LKR144.1mn, The primary reason behind this as per the management is, the company has increased it’s exposure to borrowings where the interest bearing borrowings increased 80.1% to reach LKR4.7b from LKR2.6b reported as at end of FY15.
Since, the loan to deposit ratio has expanded to 3.06x from 2.82x in 4Q15, due to a rapid growth in the loans and advances (which grew 68.0% within 1H16). BLI has managed to fund this gap with increased debt, which led to an increase in the interest expense.
Net Interest Income
Net Interest Income increased by 276.0% yoy primarily due to the expansion of interest income during the past quarter. Our Net Interest Income forecast of LKR288.8mn is below cf. LKR389.7mn reported during 2Q16, by the company. Company has exceeded our expectations by c. 35.0%, demonstrating a stronger than expected growth during 2Q16.
Documentation fees and other charges on loans
Documentation fees and other charges on loans saw a notable increase of 227.0% yoy to reach LKR80.7mn from LKR24.6mn reported in 2Q15. This was mainly on the back of increased coverage through branch expansions and resultant increase in loans disbursed.
Other Income
During 2Q16, Other income of BLI considerably decreased by 93.0% yoy to reach LKR256,963 cf. LKR3.8mn reported during 2Q15. As per the management, this reduction is due to the termination of several road development projects, which led to a loss in interest income from the bank guarantees allowed for the workers of the projects, in collaboration with Sampath Bank PLC.
Impairment losses on financial assets
During 2Q16, Impairment Charges for Loans and other losses showcased an increase of 73.0% to reach LKR14.6mn against LKR8.5mn recorded in 2Q15. According to the
management, this was mainly due to an increase in the general provisioning due to the high risky nature of the micro financing lending. Our estimate for the 2Q16 impairment loss was LKR10.2mn.
Non Performing Advances (NPLs)
The reducing trend in the non performing advances of the company over the recent past is noteworthy. As at end of 2Q16, BLI’s Gross NPAs stood below 0.9%.
Personal Expenses
Personal Expenses increased by 124.8% yoy to reach LKR36.8mn. This was mainly due to establishment of branches and the resulting salary and other related expenses. (48 branches & service centers were opened after January 2015.)
Administration Expenses
During the last reported quarter, administration expenses increased by 130.0% yoy to reach LKR119.3mn cf. LKR51.7mn reported during 2Q15, mainly due to branch expansions.
Financial Expenses
Financial expenses demonstrated a noteworthy increase of 1597.0% yoy to reach LKR64.9mn from LKR3.8mn recorded during 2Q15. This was primarily stemming from the interest bearing borrowings which increased 80.1% to reach LKR4.7b from LKR2.6b reported as at end of FY15,as highlighted above.
Share of Profit of associate company
A profit of LKR5.7mn was recorded as a result of the healthy performance of BLI’s associate – Sinhaputhra Finance PLC.
Profit After Tax
Profit for 2Q16 saw a healthy improvement of 304.0% yoy to reach LKR176.8mn compared to LKR43.8mn reported for 2Q15. In our 2Q16 pre earnings release, our projections for the profit after tax stood at 139.0mn, which the company has been able exceed by 27.0%, demonstrating increased profit generating potential.
Earnings Per Share
Earnings per share of the group demonstrated a satisfactory growth to reach LKR3.28 from LKR0.81 recorded as at end of 2Q15. We have forecasted a lower EPS of LKR2.6,
resulting in a variance of 26.0% compared to the actual reported EPS.
Net Asset Value
Net Asset Value increased to LKR22.25 at the end of 2Q16 from LKR16.47 reported at the end of FY2015.
Cash position
Cash and cash equivalents showcased a notable increase of 114.0% to reach LKR387.7mn, as at end of 2Q16, compared to LKR181.2mn reported as at end of FY15.
Foreign Funding
Additionally, the management disclosed that currently, the company secures USD10mn worth of foreign funding. Further, since the maximum limit of foreign funding allowed
for a Sri Lankan company stands at USD10mn, the company has requested for special approval from the Central Bank to increase the foreign funding limit above USD10mn,
and currently is waiting for a response from the Central Bank, with a hope to secure more international funding going forward.
Outlook
We believe, the company can benefit from the lucrative micro financing lending going forward, given necessary improvements to it’s credit evaluation, approval and credit
recovery processes.
Valuation
We indicated a one year price target of LKR151.0 a share in our Pre-earnings release on a relative basis. (Before the subdivision of shares of the company.) Currently, BLI.N is trading at LKR65.90 with a P/E multiple of 5.0 and a P/B multiple of 2.96x.
Home
would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc.. 
