LIC Housing Finance (LICHF) reported Q3FY17 net profit of R5.0 bn (+20% y-o-y), 6% below our estimates.
LIC Housing Finance (LICHF) reported Q3FY17 net profit of R5.0 bn (+20% y-o-y), 6% below our estimates. The miss was largely on account of higher-than expected operating expenses (+16% y-o-y) and increased provisions. Loan book growth was 15% y-o-y, in line with the trend witnessed over past 4-5 quarters. Growth continues to be driven by the non-retail portfolio. The individual home loan book grew modestly by 9.2% y-o-y, now comprising 86% of the overall loan book. We believe the share of retail home loans will settle at ~85% of the total loan book.
Despite the recent cut in lending rates, we believe LICHF will continue reporting incremental spreads of 1.9-2%, driven by lower cost of funds on refinancing of NCDs. Being an AAA-rated entity, LICHF is able to borrow 5-year money at ~7.5%, offsetting the pressure on loan yields.
We believe LICHF should sustain ~1.8- 2% incremental spreads over next few quarters.
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Maintain buy with a TP of R693. Loan growth of 15% y-o-y (+3% q-o-q) was in line with our estimate. However, retail home loan book growth remained modest at 9.2% y-o-y; Growth was driven by LAP (+88% y-o-y) and builder loans (+45% y-o-y).
While LAP grew doubled y-o-y to R127 billion, the sequential increase was just 7%. While disbursements grew 15% y-o-y, individual disbursements grew only 6% y-o-y. We await details on the break-up of disbursements in home loans and LAP.