Srisawad Power 1979

Srisawad Power 1979 Plc (SAWAD)

 

Investment thesis

We have raised our FY15 loan growth forecasts to 40% from 25% formerly. This reflects faster business expansion than was earlier estimated. However, extensive branch expansion triggers us to raise our FY15 OPEX projection 17% to Bt1.56bn, which almost offsets the decent impact from better loan growth mentioned. We have thus maintained our FY15 earnings forecast of Bt1.26bn. There is scope for upside to our model from: 1) stronger lending growth than assumed (from inorganic growth), 2) better fee income growth from new business in debt collection services and Nanofinance, and 3) lower loan-loss provisioning (LLP) than we modeled. Our BUY rating stands.

FY15 loan growth target raised to 40%, driven by branch expansion

We have revised up our FY15 loan growth projection to 40% to Bt11bn from the former 25% and our FY16 loan growth to 35% from 28%. The revision comes after management estimates that its net lending will reach Bt10bn (up 28% YTD) in September 2015 from Bt7.8bn at YE14. The drivers will come from fast expansion of its branch network from 1,022 at YE14 to the present 1,461. Management targets 1,600 total branches at YE15 and 2,000 at YE16. We, therefore, have raised our OPEX projections 17% in FY15 to Bt1.56bn and 40% in FY16 to Bt2.1bn. The rising OPEX will mostly offset the good impact from the loan growth revisions. We, thus, have maintained our FY15 and FY16 earnings forecasts.

Nanofinance and debt collection services to bolster growth in 2H15

After being granted a Nanofinance license from the Ministry of Finance in May, SAWAD management set its lending budget at Bt500m for this project, initially commenced in 3Q15. Besides that, the firm has further diversified its business into distressed asset management and debt collection services through its subsidiary (SWP). Management sets budget of Bt1bn for this new project. Note that SWP bought NPL totaling Bt200m during 2Q15-3Q15 at the discount rate of more than 20% from face value. We exclude both projects from our model.

Expect 3Q15 profit growth of 45%, spurred by solid loan growth

We forecast that SAWAD will deliver 3Q15 profit of Bt325m, up 45% YoY and 12% QoQ. The growth will be driven by good loan growth of 5% QoQ and 32% YTD to Bt10.3bn. The ambitious growth of branches could allow SAWAD to boost its lending and the efficiency of its debt collections. We also expect its 3Q15 NIM to be 24.7%, up slightly from the 24.4% last quarter from well managed funding costs and strong loan growth. We forecast that its 3Q15 LLP will be Bt55m, up 25% YoY in line with strong loan growth during 9M15. We feel comfortable with its asset quality management. Because SAWAD has a stringent lending policy on LTV at 45-50% of collateral value, the firm can have flexible processes to manage its NPL with less loss, we believe. We expect its 3Q15 NPL ratio to stay 5.3%, with no change QoQ.