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N0000] Withstanding
a Hit from Gold Maintain a BUY (1-year total return of 22%)
Impairment losses on pawning advances (LKR mn) to varying gold prices (USD/Oz)
1,220 2% 4%
Impairment %

Current Price (LKR) 192


1300 (140) (280) (420) (560) (699) (839) (979) (1,119) (1,399)

1220 (206) (412) (618) (824) (1,030) (1,236) (1,442) (1,648) (2,060)

1100 (305) (610) (915) (1,220) (1,525) (1,830) (2,136) (2,441) (3,051)

1000 (388) (775) (1,163) (1,551) (1,938) (2,326) (2,714) (3,101) (3,877)

Target Price (LKR) 225 Date 08-July-13

(470) (941) (1,411) (1,881) (2,351) (2,822) (3,292) (3,762) (4,703)

6% 8% 10% 12% 14% 16% 20%

Market Capitalization (USD): 248mn 6mos avg. Daily T/O (USD): 335k Free Float: 85%

Impairment charge on gold loans

CAL's previous 2013E (6% CAL's base case 2013E (6% impairment at USD1330/oz) LKR 358mn impairment at USD1220/oz) LKR618mn CAL's conservative case 2013E (8% impairment at USD1100/oz) LKR 1220mn

CALs previous 2013E assumed a gold price of c.USD1300/oz and a 6% impairment rate, which translated to an impairment charge of LKR356mn on SAMPs gold loan portfolio (total impairment charge of LKR856mn). Our revised 2013 estimates, assume a conservative USD1100/oz and an 8% impairment rate, translating to an LKR1.2bn impairment charge (total impairment charge of LKR1.7bn). CALs conservative 8% impairment assumption is equivalent to the avg. delinquency rates of two India companies with high exposure to gold as of March 2013, Muthoot Finance (7.3%) and Mannapuram Finance (9.4%). The 8% is also within range of the c.10% impairment provisioning on real estate loans provided for by US commercial banks in 2009. Further, CAL assumes that borrowers have not paid any interest (c.20%) on their outstanding gold loans and we have not factored in the 10% import duty imposed on gold. The revision results in a 2013E LKR4.6bn profit (-13% YoY) and a revised target price of LKR225, down from our previous LKR254. CAL Research is maintaining a BUY on SAMP for a 1-year total return of 22%, based on our target price of LKR225 and a dividend yield of 5%. BUY

CAL Research
Level 5, Millennium House, No.46/58, Nawam Mawatha, Colombo 2 Tel: +94 11 2317746 Email:

Udeeshan Jonas

See page 4 for important disclaimer


As at 08July2013

If Gold prices

when gold prices when gold prices are were to reduce USD1220/Oz to USD1100/Oz

Est. amount of gold held by Sampath (Oz mn) Exchange rate (LKR/USD) Value of the security (LKR mn) Pawning loan portfolio as at 31Dec2012 (LKR mn) Loan to Value ratio Expected default rate on gold loans Est. default gold loans + Interest written off (LKR mn) Recoverable amount from selling off security (LKR mn) Impairment charge (LKR mn) After-tax impact to P&L (LKR mn)

317,686 127 67,176 50,569 75%

317,686 130 50,385 50,569 100% 8% 4,855 4,031 (824) (593)

317,686 130 45,429 50,569 111% 8% 4,855 3,634 (1,220) (879)

Sampath Banks total loan portfolio comprises c.24% of gold loans and falling gold prices has remained a concern. With avg. LTV of SAMPs gold loans ranging between c.75-80%, the collateral value stood close to LKR 67bn as at end-2012 vs. a pawning loan value of c.LKR 51bn. Consequent to the c.27% fall in gold prices since Dec 2012, the collateral value stands equivalent to the pawning advances. However, assuming that the customers who default on gold loans (c.8%) have not paid any interest to date (c.20% interest) SAMP may have on avg. a c.17% shortfall in recovering the value lent.


USD/Oz 1900 1800 1700 1600 1500 1400 1300 1200 1100 1000

Gold prices fell to a 3-year low of USD 1220/Oz on Friday consequent to US Federal Reserve Chairman Ben Bernanke stating that the Fed may pull back quant easing and improved US job data. As a result of the c.27% decline in gold prices YTD, CAL has taken a conservative approach and revised SAMPs total 2013E impairment charge to LKR1.7bn. Impairment due to SAMPs gold portfolio is forecast to be LKR1.2bn (from our previous LKR356mn), based on a USD1100/oz for gold and an 8% default rate. Gold prices currently stand at USD1220/oz (USD1342/oz with the recent 10% import duty on gold in SL).


FYE DEC - LKR mn Net interest income FY11 9,288 2,975 3,683 22.8 140.1 9.6 1.6 8.8 4.0% 2012 12,039 2013E 15,119 2014E 17,858

Net interest income growth

Core Profit*




Core Profit growth

Profit attributable to equity holders




Profit growth
EPS (LKR) NAVPS PER (x) P/BV (x) DPS (LKR) Dividend Yield %

32.8 167.1 6.7 1.3 12.0 5.5%

27.7 187.1 7.9 1.2 10.2 4.7%

41.1 216.6 5.3 1.0 15.2 6.9%

FY11 Net interest margin Cost-to-income Average ROE Average ROA Loan Growth 4.77% 73% 16.3% 1.67% 34.5%

FY12 4.89% 68% 21.4% 1.89% 25.5%

FY13E 4.98% 61% 16.3% 1.36% 22.7%

FY14E 4.87% 57% 21.0% 1.67% 21.7%

* Net interest income+Fee based income-Operating expenses

Research Team
Tel No: +94 11 231 7777 (General) Email:

Head of Research
Purasisi Jinadasa Tel No: +94 11 231 7786 Email: Udeeshan Jonas Tel No: +94 11 231 7746 Email: Reshan Wediwardana Tel No: +94 11 231 7777 (Ext: 7814) Email: Dushan De Silva Email: Thushani De Silva Email:

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