KTB Securities (Thailand) (KTBST) has revised its recommendation on Srisawad Corporation Public Company Limited (SAWAD) from “Hold” to “Buy” with an upgraded target price from Bt53.00 per share to Bt66.00 per share.
KTBST stated that SAWAD’s 3Q20 earnings beat Bloomberg consensus forecast by 22% because of a reversal of provision expense and higher-than-expected other revenue. Net profit grew significantly +27% YoY, +23% QoQ to Bt1.2bn as 1) total loan increased +12% YoY, +2% QoQ, 2) other revenue rose +16% YoY, +30% QoQ, particularly from bancassurance, and 3) SAWAD booked a gain of Bt97.0mn from a reversal of provision expense (Bt165mn in 3Q19 and Bt74mn in 2Q20) given a lack of management overlay SAWAD set aside in 1H20. Loan yield, however, remained a low of 18.8% compared to 20.7% in 3Q19 and 19.8% in 2Q20 due to the moratorium loans, which accounted for 15% of total loan.
The security company upgraded 2020-21E net profit forecast to Bt4.5bn (+19%) and Bt5.0bn (+12%), respectively, as KTBST revised down estimates on 1) NPL ratio to 4.5-4.6% from 5.6-5.4% earlier, 2) credit cost to 84-135 bps from 229-216 bps (55 bps in 9M20) after 70-80% of its moratorium loans have resumed their normal payments, which resulted in provision expense decreasing, and 3) cost to income ratio to 39% from 42-43% given its stronger-than-expected cost control measure.
In 4Q20E, KTBST forecasted net profit to grow further YoY, QoQ, as total loan and loan yield are expected to improve. Provision expense, however, is expected to increase, as LLR/loan decreased to 2.8% in 3Q20, close to that in 3Q19, and NPL coverage ratio reduced significantly to 75% in 3Q20 compared to 93% in 2Q20 and 74% in 2019.
KTBST rolled forward its valuation to 2021E base, which results in its target price rising to Bt66.00 and its 2021E PBV multiples to 3.9x, which is pegged to -1 SD below its 5-yr average, from 3.5x (-1.25 SD). The security company believed SAWADs earnings to return to the path to growth and forecast EPS to grow at 17% CAGR in 2020-22E, as its total loan has experienced a strong growth despite the deteriorated economy, and a large portion of the moratorium accounts has resumed their payment routines.