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First Private Bank Ltd. (FPB) First Private Bank Ltd. (FPB) Company Report Non‐rated (17/18E Target Price Kyat 29,000) Close Kyat 30,000 (OTC) Banking January 19, 2017 Positioned to capitalize on growth cycle Among the gainers to enjoy sector growth Given that the financial sector in Myanmar remains in the expansion stage with a promising growth outlook, First Private Bank Ltd. (FPB), fifteenth‐ranked by assets among 24 private banks, should continue to enjoy the favorable economic and sector growth prospects. Moreover, FPB’s sound financial position, especially its efficient asset quality control and the good support from its major shareholders, should make it one of the prime gainers from the favorable growth outlook. However, the key challenges are the increasing competition in the banking system and the ongoing reform risks. 2018 target price of Kyat 29,000/share based on target P/BV of 1.1x We derive a 2018 target price for FPB at Kyat 29,000/share, for implied target P/BV of 1.1x based on the Gordon growth model (GGM). This is quite comparable to Indochina banks’ average P/BV of 1.0‐1.1x. Expect 10% net profit CAGR in FY2017‐19E The growth should be backed mainly by anticipated loan growth of 19‐20% and non‐interest income CAGR of 10% in FY17‐19, thanks to Myanmar’s sound economic growth and the supportive industry outlook. However, we still expect the bank’s loan spread and NIM to remain under pressure given the more competitive environment. Promising sector growth; key challenges are reform risks and competition We see the growth outlook for Myanmar’s banking sector continuing to outpace CLMV and regional peers. This should also be thanks to 1) the Myanmar banking sector’s low penetration rate; 2) favorable economic growth; and 3) the ongoing progress of economic and financial reforms. However, the key challenges are the increasing competition in the banking system and the financial reform given that Myanmar banks will still take several years to be compliant with international practices. Share data Catalysts & Concerns OTC Closing Price (Kyat , USD) 30,000/ 22.22 The key potential downside risks to its earnings could come from Paid‐up Shares 2,472,053 shares 1) regulatory/reform risks; 2) more intense competition in Myanmar’s (as at 15 August 2016) banking system, especially from large private banks; and 3) the asset Par (Kyat , USD) 10,000/ 7.41 quality issue, given the bank’s rapid expansion. Meanwhile, the main Market cap. (Kyat bn/ USDmn) 74 / 55 catalyst could come from Myanmar’s favorable economic growth, which should continue to outpace regional peers and help boost banking Listing date 20 January 2017 system growth. URL www.firstprivatebank.com.mm Major Shareholders (31 March 2016 ) % Holding Financials and Valuation U Nay Lin Oo 2.54% FY Ended 31 Mar FY14/15 FY15/16 FY16/17E FY17/18E FY18/19E Dr. Sein Maung 1.76% Net profit (Kyat mn) 6,573 6,412 6,873 7,534 8,597 MGS (Beverages Co.,Ltd.) 1.67% EPS (Kyat) 3,297 2,710 2,780 3,048 3,478 Daw Shwe Cynn 1.54% U Tun Wing Naing 1.49% EPS growth (%) 1% ‐18% 3% 10% 14% Others 91% BVPS (Kyat) 20,970 21,984 24,175 26,197 28,743 DPS (Kyat) 2,197 2,005 1,946 2,133 2,434 Prapharas Nonthapiboon FY Ended 31 Mar FY14/15 FY15/16 FY16/17E FY17/18E FY18/19E PER (X) 9.10 11.07 10.79 9.84 8.63 Analyst, no 17836 PBV (X) 1.43 1.36 1.24 1.15 1.04 [email protected] Dividend yield (%) 7.32 6.68 6.49 7.11 8.11 66 (0) 2695‐5872 ROE (%) 16.8% 13.7% 12.3% 12.1% 12.7% REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 21 Valuation 2018 target price of Kyat 29,000/share based on target P/BV of 1.1x We value FPB based on the Gordon growth model (GGM) where we assume long‐term sustainable ROE of 12%. Accordingly, we derive a 2017/18E target price for FPB at Kyat 29,000/share, for implied target P/BV of 1.1x. This is relatively comparable to Indochina banks’ average P/BV of around 1.0‐1.1x; see Figure 1. Note that our conservative valuation for FPB has taken into account the potential upcoming challenges and threats to Myanmar banks, especially in regard to the regulatory and reform risks as Myanmar banks need to comply with international standards in the longer term. These challenges should be the key risk to FPB’s target price and earnings. However, the main positive catalyst could come from how well the bank generates synergy after being a listed firm, especially in terms of funding cost management. In terms of the price performance for the three listed firms (FMI, MTSH and MCB), we saw a price rally for these firms in the early weeks of trading and price weakening afterward; see Figures 2‐6. Figure 1: Financial and valuation summary vs. regional peers Regional NP growth (%) PER (X) P/BV (X) Dividend yield (%) ROE (%) Banks 2016E 2017E 2016E 2017E 2016E 2017E 2016E 2017E 2016E 2017E China ‐1 2 6.5 6.3 0.8 0.8 4.5 4.6 12.9 12.1 Hong Kong ‐23 12 31.7 28.3 2.3 2.2 3.2 4.5 8.8 9.0 India ‐20 ‐15 8.2 20.2 1.5 2.1 0.9 1.7 3.4 11.9 Indonesia ‐1 18 13.3 10.9 1.6 1.4 2.2 2.5 12.5 12.8 Korea 20207.27.20.50.52.93.27.56.9 Malaysia ‐4 9 12.1 11.3 1.1 1.1 3.8 4.1 10.4 10.3 Philippines 10 10 13.8 12.8 1.4 1.3 1.6 1.5 11.0 10.7 Singapore ‐6 2 11.1 10.8 1.1 1.0 3.5 3.6 10.1 9.8 Thailand ‐0.1 5 11.5 9.9 1.2 1.1 3.8 4.0 10.7 10.9 Vietnam 8 21 18.5 15.8 1.3 1.2 3.3 3.8 7.7 8.5 BCEL LS ‐21 29 8.4 6.5 0.7 0.6 4.2 4.6 10.9 8.2 Regional Average ‐3 10 12.9 12.7 1.2 1.2 3.1 3.5 9.6 10.1 Indochina Average* ‐5 18 12.8 10.7 1.1 1.0 3.8 4.1 9.7 9.2 Myanmar NP growth (%) PER (X) P/BV (X) Dividend yield (%) ROE (%) Banks FY16/17 FY17/18 FY16/17 FY17/18 FY16/17 FY17/18 FY16/17 FY17/18 FY16/17 FY17/18 MCB** 24 20 16.7 15.0 1.4 1.4 4.2 4.7 9.5 9.7 FPB** 7 10 10.8 9.8 1.2 1.1 6.5 7.1 12.3 12.3 Source: KTZMICO Research, Bloomberg * Indochina average includes Thailand, Vietnam and Laos ** Fiscal year ended March REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 21 Figure 2: FMI, MTSH and MCB price performance relative Figure 3: YSX Index and market capitalization to YSX Index Myanmar Market cap MarketCap. 180 First Myanmar 1400 Investment Myanmar Thilawa SEZ Holdings 1,200,000 160 1300 1,000,000 140 116.67 1200 Myanmar Citizens Bank 120 1100 800,000 100 88.00 1000 600,000 80 900 56.05 400,000 60 800 200,000 40 700 43.55 600 ‐ 20 0 25‐Mar‐16 12‐May‐16 29‐Jun‐16 16‐Aug‐16 3‐Oct‐16 20‐Nov‐16 7‐Jan‐17 MYANPIX INDEX FMI MTSH MCB Mkt. Cap. (m. MMK) MYANPIX INDEX Source: YSX, KT ZMICO Research Source: YSX, KT ZMICO Research Figure 4: FMI Price performance Figure 5: MTSH Price performance FMI MTSH 45000 7500 40000 7000 6500 35000 6000 30000 5500 25000 5000 4500 20000 4000 15000 3500 10000 3000 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 17 16 16 16 16 16 16 16 17 16 16 16 16 16 16 16 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jul Jul Jul Jul Jan Jan Jun Jun ‐ Jun Jun ‐ ‐ ‐ Jun Oct Oct Oct Oct Apr Sep Sep Apr Sep Sep Dec Dec Dec Aug Aug Aug ‐ Nov Dec Dec Nov Aug Nov ‐ Nov ‐ ‐ ‐ ‐ ‐ Mar ‐ ‐ May May ‐ ‐ ‐ ‐ ‐ May ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 8 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 4 2 8 6 6 8 9 6 1 28 14 5 7 3 23 5 12 9 30 16 20 23 21 22 24 29 15 21 25 11 20 17 22 20 25 19 24 Source: YSX, KT ZMICO Research Source: YSX, KT ZMICO Research Figure 6: MCB Price performance MCB 13000 12000 11000 10000 9000 8000 7000 6000 16 16 16 16 17 16 16 16 16 16 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jan Oct Oct Sep Sep Dec Dec ‐ Nov Aug Nov ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 8 9 9 25 10 25 10 24 26 24 Source: YSX, KT ZMICO Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 21 Investment Highlights We expect First Private Bank Ltd. (FPB), ranked fifteenth by assets among private banks as of Mar‐16 as per GIZ’s latest research, to be one of the beneficiaries of the favorable growth of the Myanmar banking sector and the country’s fast‐growing economy.
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