Nomura

We maintain our ?buy? rating on the Development Credit Bank (DCB) with a price target of R60 after the company reported an 11th consecutive quarter of over 50% y-o-y earnings growth, helped by stronger NIMs, steady asset quality and improved operating leverage.

The stock currently trades at 1x our FY14f price-to-adjusted book value (P/ABV) and 7.9x our FY14f EPS. At our target prices, DCB would trade at 1.4x our FY14f P/ABV of R42.6 and 10.9x FY14f EPS of R5.5 for an ROA of 114 bps.

Profit after tax (PAT) of R34.1 crore was 18.6% higher than expected, driven by an NII beat of 8.9%. The bank also added five new branches during the quarter, taking FY13 additions to 10 new branches (12% increase y-o-y). The bank witnessed strong loan growth of 24.6% y-o-y, driven by 46% y-o-y increase in retail advances (primarily mortgage and loan against property) and 31% y-o-y increase in corporate loans. SME loans fell 1% sequentially, while agri-loans registered a sharp 30.7% increase q-o-q. The mix of home loans as a percentage of total loans increased to 36% for March 2013 from 12% as of March 2010.

DCB?s Casa deposits increased 12% y-o-y but Casa per branch was flat at R24.2 crore compared to March 2012. Casa ratio dropped 170 bps q-o-q to 27.2% on pick-up in term deposits to fund the robust q-o-q expansion in loan book. We expect this ratio to pick up again in FY14f with addition of 10 new branches in FY13 (including three tier-1 branches).

NIMs improved 14 bps q-o-q on the back of a similar improvement in Q3, benefiting from the recent capital raising. Retail deposit proportion also dropped sharply q-o-q from 83% to 77% during the quarter, implying 80% of R800-crore movement in overall deposits to have come from addition in bulk deposits at possibly cheaper cost. We expect NIMs to remain in the 3.3-3.4% range for FY14f.

Non-interest income seems to have stabilised for the bank at around R30 crore. Asset quality continues to improve with GNPLs declining 8% q-o-q. The GNPL decrease was helped by a sharp decrease in GNPLs from personal loan category. GNPLs in personal loans has almost halved from R120 crore in FY12-end to R62 crore in FY13-end (R92.6 crore in Q3FY13).