SAWAD Expects 2019 Profit to Reach a New High, Hyping to Enter SET 50!

Srisawad Corporation Public Company Limited (SAWAD) has been categorized as “Growth Stock” by various security companies after the anticipation of its 2019 profit to make a new high, emphasizing the possibility of lending business expansion in relevant with BFIT’s capital base along with the increase of branches to 3,286 branches in 2019. There is a possibility of SAWAD being included in SET 50 which will be announced later this month as well.

 

KGI Securities has made an in-depth analysis on Srisawad Corporation Public Company Limited (SAWAD) as follows:

SAWAD‘s attempt to maintain its high-yield lending business (higher yield than peers) has caused the company to deal with more regulatory issues than others. Increasing its stake in BFIT to 100% will make the intercompany transactions between SAWAD and BFIT more transparent.

Regarding BFIT’s recapitalization plan (RO – 1:1.5 at THB18/share, totaling 330 million shares), minority shareholders discarded the right offering (RO), so SAWAD used its oversubscription right, which resulted in its equity stake in BFIT rising to 78% and that triggered a mandatory tender offer.

In this case, SAWAD injected THB5.9 million to take BFIT’s new share issue and injected another THB2.2 billion for the tender offer on the remaining shares. After the capital increase, BFIT will unlock its capital restriction with Tier I capital at around 49-50%, up from 15% as of December 2018, which will enable BFIT to grow more lending that was transferred from SAWAD over the past two years. However, SAWAD revealed that all proceeds injected into BFIT will come from borrowing from banks. Note the combined capital injection in BFIT since 2016 is around THB 10 billion.

Additionally, SAWAD is maintaining its loan referral policy with BFIT. Currently, BFIT is the main channel for SAWAD to charge a loan yield above 28%. In doing so, SAWAD and BFIT set up intercompany transactions and around 60% of the lending contracts that originated with Sawad-2014 (SAWAD’s subsidiary) are referred/transferred to BFIT, while BFIT is required to pay loan referral fees and debt collection fees to SAWAD. After taking a 100% stake in BFIT, SAWAD is considering reviewing its loan referral contract and intercompany transactions. Although SAWAD holds a 100% stake in BFIT, KGI think the loan referral contracts will continue as BFIT is positioned to be the main channel to raise retail deposits.

SAWAD guided that the numerous holidays in 2Q19 and interest income being required to book as EIR on a daily basis will impact loan volume and loans in 2Q19. Furthermore, BFIT’s capital constraint limits the ability to transfer loans to it for yield enhancement. KGI, therefore, expects 2Q19 earnings to be around THB830 million (+11% YoY), or EPS of THB0.6.

As the share prices of non-banks have been very volatile over the past six months, moving up-and-down 12-19% on a monthly basis with positive and negative newsflow due to changes and earnings and asset disappointment , KGI rates non-banks as trading stocks. Among non-banks, SAWAD is the least attractive investment choice given its complex business platform, lower ROE, and EPS growth due to share dilution from stock dividend and PP. Therefore, KGI assigns PE of only 18.5x (vs. 22.5x for MTC) given its ROE of 23% (vs. 33% for MTC).

KGI has also provided the mitigate risks which might occur to SAWARD in terms of changing in LLP and changing in regulations on finance companies.

 

According to the consensus target price of SAWAD, there is still a small upside for investors to play. The consensus target price is at THB54.51 which there are 15 analysts recommend “BUY” and 10 analysts recommend “HOLD”.