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February 22, 2018

AU Small Finance Bank (AUBANK IN)


Not Rated
Smooth Transition Share Price INR 579

Management optimistic on opportunities Company Description


AU Small Finance Bank Ltd. operates primarily in
We recently met management and visited some bank branches in
semi-urban and rural areas of India. The bank offers
Mumbai. Management is now building up low-cost deposits after incurring
secured loans for revenue generating activities.
expenses to set up branches, hire staff and improve technology. The
company has also introduced new products, such as home loans, gold
loans and business banking. Its medium-term ROE target is 14-16%, up Statistics
from its current 13%. AUBANK’s stock price has been volatile since its IPO 52w high/low (INR) na/na
in Jul 2017 (INR358), rising sharply, owing huge demand for such 3m avg turnover (USDm) 3.0
specialized lender with strong track record of returns, and then Free float (%) 67.3
Banks

decreasing through August, rallying in 4QCY17, and falling sharply YTD Issued shares (m) 286
because of subdued earnings in 1HFY18. Market capitalisation INR164.4B
USD2.5B
Rapidly building up funds
Major shareholders:
In a short span of one year since the commencement of its banking
AGARWAL SANJAY K 19.6%
operations, AUBANK has scaled up its CASA deposits. This was helped by Redwood Investment Ltd. 15.7%
introducing CASA deposit facilities in 306 branches, offering higher International Finance Corp. 8.0%
interest rates and using digital channels for client on-boarding. Accounts
India

Price Performance
are opened in less than 15 minutes, thanks to the use of the Aadhar
740 150
biometric. It added 175k deposits in the last one year. CASA ratio stands 720 145
at 37.2%. AUBANK continues to focus on rural and semi-urban areas, with 700 140
680 135
over 50% of its branches in these locations.
660 130
Expanded offerings 640 125
620 120
Vehicle and SME loans continue to dominate its loans at 82%. New 600 115
products will be introduced the next few years, such as home loans, gold 580 110
560 105
loans and business banking that will help diversify risks. For now,
540 100
management will focus on western and northern India. It has tied up 520 95
Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18
with 11 mutual funds and one health insurer to distribute their products.
AU Small Finance Bank - (LHS, INR)
A tie-up with a life insurer is in the cards, according to management. AU Small Finance Bank / BSE SENSEX 30 Index - (RHS, %)

Premium valuations due to high growth -1M -3M -12M


AUBANK trades at 6.1x FY19E P/BV, based on consensus forecasts, which Absolute (%) (19) (11) na
is above its peer private bank/NBFC average of 1.8x/3.0x, respectively. Relative to index (%) (15) (12) na
Being a niche player with a strong rural and semi-urban presence, net Source: FactSet
profit has grown at a 56% CAGR over the past five years. Its 3QFY18, ROE
of 13.3% is among the best in the sector (sector avg. ROE is 10.2%).

FYE Mar (INR m) FY13A FY14A FY15A FY16A FY17A


Operating income 2,159 2,838 4,074 6,202 8,871
Pre-provision profit 1,194 1,704 2,560 3,665 5,382
Core net profit 694 725 1,395 2,116 3,051
Core EPS (INR) 17 17 32 48 11
Core EPS growth (%) (15.6) (1.5) 87.4 51.8 (77.6)
Net DPS (INR) 0 0 0 0 0
Core P/E (x) 33.8 34.3 18.3 12.1 53.9
P/BV (x) 5.3 4.2 3.3 2.5 8.3
Net dividend yield (%) 0.0 0.0 0.0 0.0 0.0
Book value (INR) 109 139 174 229 70
ROAE (%) 18.6 14.0 20.4 23.9 20.4
ROAA (%) 3.2 2.4 4.0 4.1 3.8

Vishal Modi Anuja Dighe


vishal@maybank-ke.co.in anuja@maybank-ke.co.in
(91) 22 6623 2607 (91) 22 6623 2612

THIS REPORT HAS BEEN PREPARED BY KIM ENG SECURITIES INDIA PVT LTD
SEE PAGE 23 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
AU Small Finance Bank

Value Proposition Price Drivers


 Converted to a small finance bank from NBFC in Apr 2017. Historical share price
Serves the underpenetrated middle-income segment in 740 1 145
north-western India. AUBANK has market share of 0.1%. 720 140
700 4 135
 Loan growth of 37% YoY in 3Q18, with share of high- 680 130
yielding and small-ticket retail loans in loan mix at 82%. 660 3 125
640 120
98% of loan book secured by underlying income-generating 620 115
2
assets or immovable property. 600 110
580 105
 Healthy asset quality with a gross NPL ratio of 2.8% vs 560 100
4.2%/5% for its peer SFBs UJJIVAN/EQUITAS, respectively. 540 95
 CASA ratio as 37.2% superior compared to its peer SFBs 520 90
Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18
UJJIVAN (4%) and EQUITAS (33%). AU Small Finance Bank - (LHS, INR)
Fig 1: Loan CAGR of 34% in FY13-17 AU Small Finance Bank / MSCI AC Asia ex JP - (RHS, %)
150 60%
Source: Company, FactSet, Maybank Kim Eng
50%
100 40% 1. Stock doubled from IPO price in 4 days of listing.
2. Corrected due to subdued earnings and slight climb in
30%
NPLs in 1QFY18.
50 20%
3. Improved asset quality and earnings.
10% 4. Higher interest rates induced fears of treasury losses and
0 0% margin compression.
FY13 FY14 FY15 FY16 FY17 9MFY18
AUM (INR b) Growth YoY

Source: Company

Financial Metrics Swing Factors


 Cost-income jumped to 53% in 9MFY18 due to technology Upside
and infrastructure spending. Management expects 40-42%
in long term.  Success in new launches.
 Management guidance for loan growth is in the range of  Ramp-up of CASA deposits, trimming cost of funds and
35-40% pa for FY18-20. lifting NIM.
 Incremental cost of funds fell to 7.2% in 9MFY18 from 8.2%  Cost-income ratio to improve with increasing use of
in Apr 2017. Management believes cost of funds will fall technology and digital channels for loan processing.
further with a higher share of low-cost deposits.
 Focus on high-yielding products such as vehicle, MSME and
SME loans kept NIMs healthy at 7% as of 3QFY18. Medium- Downside
term guidance is 7-8%.
 Management guided for credit cost below 0.5% over long  Failure to scale up new retail/SME loans such as home
run. and gold loans.
 ROEs of 19.5% over FY13-17. Moderated after conversion  Historically, asset quality has been benign in retail loans.
to small finance bank. Management expects 17-18% in the Higher delinquencies can hurt asset quality due to high
long run. exposure.
Fig 2: Healthy return ratios
30% 5%
25% 4%
20%
3%
15%
23.9% 2%
10% 18.6% 20.4% 20.4%
14.0% 13.3% 1%
5%
0% 0%
FY13 FY14 FY15 FY16 FY17 9MFY18*
ROE (RHS) ROA (LHS)

Source: Company

vishal@maybank-ke.co.in
February 22, 2018 2
AU Small Finance Bank

Focus on SMEs/MSMEs in rural, semi-urban areas

AUBANK targets low-mid-income individuals and businesses in rural and semi-


urban markets. Its recent conversion to a bank has allowed it to roll out products
such as cash credit and overdraft facilities for SMEs. Retail lending remains its
bread-and-butter market, aided by the use of technology platforms. About 82% of
its loan book is made up of small-ticket retail loans of short tenures. The average
size of its retail loans is just INR400k and average size of loans on its books,
INR800k. AUBANK extends loans for income-generating activities. These loans are
secured against assets such as vehicles and properties. About 98% of its
outstanding loan book is secured.

AUBANK has started overdraft and cash credit facilities for small businesses and
corporates. In FY18, it introduced gold and agriculture loans to diversify its
products. Gold loans have potential in rural and semi urban areas. NBFC,
Mannapuram Finance (MGFL IN, CMP INR105, NR), which are primarily into gold
loans had robust AUM growth of 19% CAGR for FY14-17 benefiting from strong
demand for gold loans. Management feels that it can also gradually build gold
loan book.

Fig 3: Robust loan growth in recent years

160 60%
140
50%
120
40%
100
80 30%
60
20%
40
10%
20
0 0%
FY13 FY14 FY15 FY16 FY17 9MFY18
AUM (INR b) Growth YoY
Source: Company
Fig 4: Vehicle loans form the bulk of its loans
3%

5%

10%
0%

6%
47%

29%

Vehicle MSME SME Gold + Farm NBFC Real Estate Group Business Banking

Source: Company

Vehicle loans are made to self-employed, first-time buyers and small-road


transporters for income generation. Such loans cover cars, utility vehicles (UVs),
tractors, two-wheelers, three-wheelers and multi-utility vehicles (MUVs). These
are secured by the vehicles. Their maximum tenure is five years with an average
tenure of 3-4 years. Interest rate is in the 15-19% range.

February 22, 2018 3


AU Small Finance Bank

In the MSME and SME segments, AUBANK caters to businesses such as provision
stores, dairy vendors, hotels, restaurants, traders, wholesalers, retailers and
distributors of consumer goods. Their loans are secured by immovable property.
Maximum tenure is 12 years for MSMEs and 15 for SMEs. Average tenure is 5-7
years. Interest rates are 12-19%, depending on client and collateral cover.

In the wholesale segment, AUBANK’s clientele includes non-banking finance


companies (NBFCs), real-estate developers, MSMEs and SMEs. In real estate, it
extends working-capital loans to contractors and small construction companies.
AUBANK provides capital required by NBFCs, micro finance institutes (MFIs) and
housing finance companies (HFCs). NBFC loans are secured by loan receivables. In
business banking, it takes care of the working-capital needs of all types of
businesses.

AUBANK recently started gold, consumer-durable and agriculture/SME loans. It


also offers overdraft and cash credit facilities in business banking.

Fig 5: AUBANK has diversified its products


AUM AUM IRR
Product Features Clientele
(INRm) (%) (%)
Retail Loans 110,060 82%
First-time users/buyers, small
Vehicle Loans 62,690 47% 15%-19% Income / revenue generation road transport operators, self-
employed
Business expansion; working-capital Provision stores, dairy vendors,
MSME Loans 39,200 29% 15%-19%
requirements / equipment purchase hotels, restaurants
Business expansion; working-capital Traders, wholesalers retailers,
SME loan 7,930 6% 12%-16%
requirements / equipment purchase distributors
Gold + Consumer
Durables + agriculture 240 - - -- Retail customers
loans
Wholesale Loans 24,100 18%
Capital requirements at various stages
NBFC 13,330 10% 10%-14% NBFCs, MFIs, HFCs
of business cycle
Working-capital for construction- Contractors, small construction
Real Estate Group 7,370 5% 14%-19%
related tasks. companies
Working capital for all types of
Business Banking 3,400 3% 10%-12% MSMEs and SMEs
businesses.
Source: Company
Fig 6: Average size of loans is INR800k. 78% of loans are small, at less than
INR10m
100% 2%
5% 15%
80% 7%

60% 73%

93%
40% 78%

20% 19%
8%
0%
Retail loans Wholesale loans Total Loans
Up to INR10m INR10m to INR50m Above INR50m

Source: Company

February 22, 2018 4


AU Small Finance Bank

Fig 7: Loan mix has become more diversified

100% 1% 2% 2% 3%
7% 7% 6% 5% 6% 5%
5% 6%
8% 7% 8% 10%
6% 9% 9%
80% 6% 6%
30%
28% 30% 31% 30%
60% 29%

40%
55% 51% 50% 49% 48% 47%
20%

0%
2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
Vehicle MSME SME Gold + Farm NBFC Real Estate Group Business Banking

Source: Company

Fig 8: Active loan accounts have increased rapidly since it became a bank…

350,000

320,000

290,000

260,000

230,000

200,000
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Number of active loan accounts

Source: Company

Fig 9: …so have loan disbursements

28,000

24,000

20,000

16,000

12,000

8,000

4,000
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Disbursement (INR m)

Source: Company

February 22, 2018 5


AU Small Finance Bank

Fig 10: From a low base, wholesale loans have grown strongly
Loan Book Composition (INR m) 3Q17 2Q18 3Q18 YoY (%) QoQ (%)
Retail loans
Vehicle loans 50,020 57,860 62,690 25.3% 8.3%
MSSME loans 27,260 36,080 39,200 43.8% 8.6%
SME loans 5,700 7,850 7,930 39.1% 1.0%
Gold loans + agriculture loans 0 60 240 na 300.0%
Total retail loans 82,980 101,850 110,060 32.6% 8.1%
Wholesale loans
NBFC 6,510 10,210 13,330 104.8% 30.6%
Real Estate Group 6,890 7,050 7,370 7.0% 4.5%
Business Banking 1,610 2,240 3,400 111.2% 51.8%
Total wholesale loans 15,010 19,500 24,100 60.6% 23.6%
Total loans 97,990 121,350 134,160 36.9% 10.6%
Loan Mix (%)
Retail loans
Vehicle loans 51.0% 47.7% 46.7% -4.3% -1.0%
MSSME loans 27.8% 29.7% 29.2% 1.4% -0.5%
SME loans 5.8% 6.5% 5.9% 0.1% -0.6%
Gold loans + agriculture loans 0.0% 0.0% 0.2% 0.2% 0.1%
Total retail loans 84.7% 83.9% 82.0% -2.6% -1.9%
Wholesale loans
NBFC 6.6% 8.4% 9.9% 3.3% 1.5%
Real Estate Group 7.0% 5.8% 5.5% -1.5% -0.3%
Business Banking 1.6% 1.8% 2.5% 0.9% 0.7%
Total wholesale loans 15.3% 16.1% 18.0% 2.6% 1.9%
Total loans 100.0% 100.0% 100.0%
Disbursement (INR m)
Retail loans 11,000 17,710 17,440 58.5% -1.5%
Wholesale loans 1,300 7,490 8,430 548.5% 12.6%
Total loans 12,300 25,200 25,870 110.3% 2.7%
Source: Company

Fig 11: Western states such as Rajasthan, Gujarat and Maharashtra are the top
contributors

7% Geographic retail loan mix


6%

13%
46%

13%

15%

Rajasthan Gujarat Maharashtra Madhya Pradesh Delhi Other

Source: Company

February 22, 2018 6


AU Small Finance Bank

Strong in west & north India

AUBANK caters to the middle and lower-middle class in rural and semi-urban
areas. As of Dec 2017, 149 of its 306 branches were in rural and semi-urban
areas. The majority are in Rajasthan (46%), Gujarat (13%), Maharashtra (12%) and
Madhya Pradesh (12%). AUBANK also has 113 asset-financing centres (AFCs).
These can be found serving middle and upper-middle-class individuals and
businesses in urban locations. Owing to India’s large unbanked population,
AUBANK has opportunities to expand in these states before moving out to new
ones.

Management plans to add branches in its existing 11 states to increase


penetration. Under SFB licensing terms, it is required to keep 25% of its branches
in unbanked areas. To meet this criterion, it may tie up with business
correspondents.

Fig 12: 50% of AUBANK’s branches are in semi-urban & rural areas
Semi- Total number
Metropolitan Urban Rural
Urban of branches
Rajasthan 11% 16% 58% 14% 142
Maharashtra 32% 43% 24% 0% 37
Gujarat 20% 50% 30% 0% 40
Madhya Pradesh 14% 43% 43% 0% 37
Punjab 6% 61% 33% 0% 18
Haryana 7% 79% 14% 0% 14
Other States 39% 39% 22% 0% 18
Total 16% 34% 43% 7% 306
Source: Company

Fig 13: Rajasthan has the highest number of touchpoints

19 4

2
14 5 UTTAR PRADESH

142 37

40 5

1 37

Source: Company

February 22, 2018 7


AU Small Finance Bank

Initial success in low-cost deposit collection

Its initial momentum in gathering low-cost CASA deposits was strong. From the
commencement of its banking operations, deposits have grown to form 34% of its
funding mix, as of 3QFY18. CASA now stands at 37.2% of deposits vs 33% for
Equitas Small Finance Bank (EQUITAS IN, CMP: INR144, NR) and 3.7% for Ujjivan
Small Finance Bank (UJJIVAN IN, CMP: INR356, NR). Management attributes this
to: a) its higher interest rates; b) Tablet-based account opening; and c) monthly
interest payments vs yearly for peers.

Fig 14: Deposit base has expanded rapidly

40 37.2 70%
35 60%
30 61.1%
50%
25
19.8 40%
20
37.2% 30%
15 32.6%
8.2 20%
10
5 10%

0 0%
1Q18 2Q18 3Q18
Total Deposits (INR b) (LHS) CASA Ratio (%) (RHS)

Source: Company

Large and established banks offer lower interest rates for savings deposits,
averaging 3.5% pa. AUBANK offers 6.5% pa for deposits over INR1m, 5% for
deposits up to INR100K and 6% for INR101K-1m. Even though 6.5% seems high, it
is lower than its existing average cost of funds of 8.6%. AUBANK also pays
monthly interest on deposits, another selling point. On top of that, it avoids too
many product variants and does not adopt a home-branch concept; rather, it
provides the same level of service in all its branches. Extended banking hours and
a single-page form for all banking needs are further appealing features. Along
with traditional banking products, most of its branches offer lockers for
depositing valuables like gold, jewellery and important documents. Cash
recyclers, where customers can deposit cash to their bank account, are available
in 50 locations.

Fig 15: AUBANK attracts depositors with higher yields… Fig 16: … enabling it to add savings accounts rapidly

9% 350,000 341,712
8.00%
8% 7.25% 7.25%
6.80% 6.75% 6.70% 300,000
7% 6.5% 7%
6% 6%
250,000
6%
5%
5% 200,000 175,451
4%
4% 150,000
3%
100,000
2% 53,292
1% 50,000

0% 0
UJJIVAN AUBANK EQUITAS IIB YES KMB 1Q18 2Q18 3Q18
Saving rate Term deposit rate Current accounts Savings accounts Term deposit accounts

Source: Companies Source: Company


Note: Term deposit rates mentioned are fixed deposit rates for 24 months
Savings rates mentioned are for deposits > INR1m

February 22, 2018 8


AU Small Finance Bank

AUBANK attributes strong underwriting to low NPLs

As management is focused on serving the customer segment with weak credit


history, credit assessment plays a vital role in risk management. Emphasis on
secured lending and financing for income-generating assets addresses the risk. To
make credit assessment robust, management follows multiple practices such as
in-house sourcing of loans vs. outsourcing to third party, door-to-door collection
of loans in rural areas and centralised monitoring cell. Using differentiated credit
processes and policies for each segment, it caters to the different needs of
different markets. AUBANK has a three-layered system of assessment process,
which includes visits by credit officers, relationship officers and business officers
to analyse the business and collateral quality. Localised sales teams and physical
investigation help in credit underwriting process to minimise risk.

Fig 17: Historically, AUBANK’s asset quality has been benign

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%
FY12 FY13 FY14 FY15 FY16 FY17 9MFY18

Gross NPLs (LHS) Net NPLs (LHS)

Source: Company

Up until FY17, NPL recognition was based on 120 days past due while from
June’17 it changed to 90 days past due to comply with the change in regulatory
requirement. As a result, in FY18 NPLs appears to be higher than the historical
trend. Gross NPLs were at 2.8% as of 9MFY18 and net NPLs were at 1.9%, which is
the best amongst the small finance banks.

Fig 18: On a like-to-like basis, AUBANK’s asset quality has remained stable

3.5% 40%

3.0% 35%
2.5%
30%
2.0%
25%
1.5%
20%
1.0%

0.5% 15%

0.0% 10%
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Gross NPLs (LHS) Net NPLs (LHS) Provision Coverage ratio (RHS)

Source: Company

February 22, 2018 9


AU Small Finance Bank

Fig 19: AUBANK has one of the lowest NPLs among small finance banks/NBFCs

8%

7%

6%

5%

4%

3%

2%

1%

0%
RBL

KVB
DCB

EQUITAS

MGMA
UJJIVAN

LVB
CAFL

CUB

CIFC
SUF

AUBANK

SIB

SCUF
Net NPL Gross NPL

Source: Company

Small finance bank peers, EQUITAS and UJJIVAN, are primarily focused on
microfinance lending. These banks witnessed a sharp spike in NPLs in FY17 due to
demonetisation-led slippages. However, for AUBANK NPLs were reduced to 0.6%
in FY17 from 0.9% in FY16. Lending to individuals and small businesses for
income-generating activities, a secured loan book and strong credit underwriting
policies helped it to maintain excellent asset quality.

Fig 20: AUBANK’s asset quality has always been stable among small finance
banks
6%

5%

4%

3%

2%

1%

0%
FY12 FY13 FY14 FY15 FY16 FY17 9M18

AUBANK EQUITAS UJJIVAN

Source: Companies

February 22, 2018 10


AU Small Finance Bank

Beneficiary of lower costs of funds, improved credit rating

AUBANK has access to multiple sources of funds, which reduces its dependency
on any one segment. Its cost of borrowing fell from 11.6% in FY13 to 8.6% in
3QFY18 as it benefited from conversion to a bank and improvement in credit
rating. AUBANK has ‘A+’ long term credit rating and ‘A1+’ short-term credit
rating.

After being converted from a NBFC to a bank, it now has access to new sources of
funding such as low-cost CASA deposits. Over the past three quarters, AUBANK’s
costs have fallen further as CASA ramp-up continues. Incremental cost of funds
was reduced to 7.2% in 9MFY18 from 8.2% in Apr’17. Management believes there
is room to lower the cost of funds further with increase in contribution of low-
cost deposits.

Fig 21: Improvement in credit rating helping reduce cost of funds


FY12 FY17
Rating Agency Short Term/ Loan Term Short Term/ Loan Term
CRISIL Ratings BBB+ / Positive A+ / Stable

ICRA - A+ / Stable
India Ratings - A+ /Positive
CARE Ratings BBB+ A+
Brickwork Ratings - AA / Stable
Source: Company
Fig 22: Incremental cost of funds fell after transition to SFB

70 7.90% 8.0%
60 7.8%
50
7.6%
40 7.40%
7.4%
30 7.20%
7.2%
20
10 7.0%

0 6.8%
1Q18 1H18 9M18
Incremental funds (INR b) Cost of Incremental Funds (%)

Source: Company
Fig 23: Deposits’ share in funding mix is increasing rapidly

100% 1%

80% 40% 34%


45% 50% 46%

60%
23%
12% 21%
16%
40% 21% 5% 3%
14% 6%
11%
7% 8% 4%
20% 23% 13%
4% 34%
18% 21%
8% 5% 10%
0%
2Q17 4Q17 1Q18 2Q18 3Q18

Deposits Tier II capital Term loans CPs DA / Sec NCDs Others

Source: Company

February 22, 2018 11


AU Small Finance Bank

Fig 24: Spread has increased benefiting from lower cost of funds

20% 17.9% 17.7% 17.5% 17.1% 16.5%


15.3%
16%
12.6% 12.0% 11.4%
12% 10.5% 10.1%
8.6%
8%

6.6% 6.4% 6.7%


4% 5.7% 6.1%
5.3%

0%
FY13 FY14 FY15 FY16 FY17 9MFY18

Yield on Gross AUM Cost of Borrowing Spread

Source: Company
AUBANK’s focus on the low and middle-income customer segments, and high-
yielding products has led to higher yields. A larger share of high-yielding MSME
(Micro, Small & Medium Enterprises) and SME (Small & Medium Enterprise) loans
in the loan mix, and lower cost of funds aided margin expansion. NIMs improved
steadily from 6.9% in FY13 to 11.9% in FY17. Deployment of INR22-23b in G-Sec
instruments to comply with regulatory reserve ratio norms led to margin squeeze
in 9MFY18. Banks are required to set aside 20% of the borrowings as liquid
instruments. These instruments are relatively of lower yields of 6-7.5% vs. 15-16%
for loans. Management guidance for medium-term NIMs is in the range of 7-8%.

Fig 25: NIMs impacted post conversion due to regulatory reserve


requirements
10 11%

10%
8

9%
6
8%
4
7%

2
6%

0 5%
FY13 FY14 FY15 FY16 FY17 9MFY18*

NII (INR b) (LHS) NIM (%) (RHS)

Source: Company; *Note: 9MFY18 NIM and NII are annualized

Technology and branch expansion pushes up costs initially

AUBANK has made significant investment in IT infrastructure and has adopted the
latest technologies. This has resulted in better customer experience, such as
Aadhar (biometric identity) linked TAB-based “Paperless” account opening,
interactive voice response systems in regional languages and blue-tooth printers
by field officers. 90% of savings accounts are opened using TAB-based banking. As
on 3QFY18, AUBANK launched more than 250 point-of-sales terminals. The bank
also uses data analytics for target customer profiling, and customised & tailor-
made products. AUBANK has entered into agreements with IT companies like
Accenture and Netmagic for its technology rollout. It deploys solutions like
accounting platform (Flexcube) by Oracle, and Newgen for workflow-based loan
origination & collection system and CRM solutions. These investments have
initially led to a rise in cost, which in management’s view are necessary keeping
long-term benefits of its transition in mind.

February 22, 2018 12


AU Small Finance Bank

Fig 26: Investment in branches and technology has adversely impacted C-I
ratio
60%
55%
50%
45%
40%
35%
30%
25%
20%
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Cost to Income (%)

Source: Company

Fig 27: AUBANK is well capitalised with tier-1 CAR at 20% vs 7% of regulatory
requirement
32%

26.6%
27% 24.0% 24.5%
23.0% 23.5%
22% 21.0%
19.9%

17%
24.4%
21.3% 22.3% 21.5% 22.5%
18.9% 20.0%
12%

7%
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Tier I (%) CAR (%)

Source: Company

February 22, 2018 13


AU Small Finance Bank

Return ratios impacted in short run due to investments and regulators costs

AUBANK has consistently reported high earnings with strong return ratios. PAT
jumped from INR694m in FY13 to INR3,051m in FY17. Core business performance
has been backed by robust loan growth, NIM expansion and controlled credit
cost. Loans grew by a 33% CAGR from FY12-17, while NIMs expanded 2.8ppts to
9.7%. Credit cost has remained steady at 0.9% in the past five years. AUBANK has
one of the best ROEs in the industry. Its average ROE for the past five years was
20.2% while it was 21.8% for FY17 vs the sector average of 19.7%.

During the transition from NBFC to SFB, AUBANK’s expenditure on technology and
infrastructure increased. Its cost-to-income ratio jumped to 57% in 3QFY18 from
34% in 3QFY17. As a result, in 9MFY18, return ratios fell slightly. Also, regulatory
reserve requirements have also dented margins. Management believes opex will
gradually fall and the cost-to-income ratio will be around 50% for the next three
years. In the long run, it will fall into the range of 40-42%.

AUBANK is in the early stages of growth and it has only 0.1% share of bank loans,
by value, in India. With a diversified loan portfolio and lower competition in
unserved geographies management is confident about AUBANK’s rapid growth. In
the medium term, management expects return ratios to fall and ROEs will be
around 14-16% due to higher spending on expansion/technology and regulatory
investments yielding lower returns. Long-term ROEs are expected to return to
the 17-18% range.

Fig 28: AUBANK’s returns moderated in FY18 post conversion to a bank

30% 5%

25%
4%

20%
3%
15%
23.9% 2%
10% 18.6% 20.4% 20.4%
14.0% 13.3% 1%
5%

0% 0%
FY13 FY14 FY15 FY16 FY17 9MFY18*

ROE (RHS) ROA (LHS)

Source: Company; *Note: 9MFY18 ROE and ROA is annualized


Fig 29: Earnings grew at a 56% CAGR from FY13-17

3,500 100%

3,000 80%
2,500
60%
2,000
40%
1,500
20%
1,000

500 0%

0 -20%
FY13 FY14 FY15 FY16 FY17 9MFY18

PAT (INR m) (LHS) YoY growth (%) (RHS)

Source: Company

February 22, 2018 14


AU Small Finance Bank

AUBANK differentiates from SFB peers

AUBANK has strong presence in the underpenetrated and credit-starved western


and northern states of India, and it caters to the unserved customer segments.
UJJIVAN and EQUITAS are listed SFB peers. However, these SFBs are primarily
focused on microfinance lending whereas AUBANK is into asset-backed lending
wherein underlying income generating asset (e.g. commercial vehicle) or
immovable property is kept as collateral. Geographically EQUITAS is present in
the southern states of India while UJJIVAN has a strong presence in the southern
and northern states. Because of difference in product offerings, customer profile
and geographic operations, AUBANK cannot be strictly compared to these listed
SFBs.

New-generation private banks, and MSME and vehicle-loan-focused NBFCs would


be AUBANK’s comparable peers. According to Bloomberg consensus, AUBANK is
trading at 6.3x FY19 P/BV, which appears expensive with its comparable NBFCs
and small private banks. Comparable NBFCs, which are primarily focused on
vehicle financing, trade at an average P/BV of 3.0x for FY19 forecast based on
Bloomberg consensus. Small private banks trade at an average of 1.8x FY19E
P/BV. Given AUBANK’s high growth and prospects of improving profitability,
investors appear to have assigned a higher valuation multiple to AUBANK.

Fig 30: Comparative valuation of banks and NBFCs: P/BV vs ROE (FY19E)
7.0
P/BV FY19E
6.0 AUBANK

5.0 BAF

4.0
SUF
CIFC
3.0 RBK
CAFL
CUBK
EQUITAS UJJIVAN
2.0
DCBB
MGMA SCUF
KVB
1.0
LVB SIB ROE FY19E
0.0
6% 8% 10% 12% 14% 16% 18% 20% 22%

Source: Bloomberg, Maybank Kim Eng


Note: For stocks not under coverage, Bloomberg consensus estimates used

February 22, 2018 15


AU Small Finance Bank

Fig 31: Comparative valuation

BB TP CMP Mcap P/E P/B ROE


Company Rating
Ticker (INR) (INR) (USD M) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E

Au small Finance Bank AUBANK NR NA 576 2,537 59.3 55.6 40.1 9.7 7.2 6.1 21.8 13.8 16.5

Private /Small finance banks

City Union Bank CUBK NR NA 174 1,782 22.8 19.2 16.4 3.2 2.8 2.5 15.2 15.4 15.9

DCB Bank DCBB NR NA 165 783 20.9 20.3 16.0 1.9 2.0 1.8 9.6 10.6 11.4

Equitas EQUITAS NR NA 144 754 30.0 118.8 29.7 2.2 2.2 2.0 8.9 1.9 6.9

Lakshmi Vilas Bank LVB HOLD 140 118 467 9.4 12.7 10.2 1.2 1.2 0.8 0.1 9.4 9.2

Karur Vysya Bank KVB NR NA 111 1,246 12.0 19.4 10.6 1.4 1.3 1.2 12.6 7.9 11.4

RBL Bank RBK NR NA 472 3,037 37.5 29.9 22.7 4.1 3.0 2.7 12.2 11.9 13.0

South Indian Bank SIB NR NA 27 749 10.3 14.7 7.8 1.0 1.0 0.9 9.0 7.0 12.1

Ujjivan UJJIVAN NR NA 356 662 20.0 NA 20.3 2.4 2.4 2.2 14.1 NA 11.6

Average NR NA NA NA 20.4 33.6 16.7 2.2 2.0 1.8 10.2 8.0 11.4

NBFCs (Vehicle & SME)

Bajaj Finance BAF NR NA 1,639 14,569 48.2 36.6 27.1 9.3 5.9 4.9 21.6 20.5 20.4

Capital First CAFL BUY 925 678 1,035 28.6 20.9 15.7 3.0 2.6 2.3 11.9 13.3 15.6

Chola Finance CIFC NR NA 1,333 3,213 28.9 22.0 18.1 4.8 4.1 3.4 18.0 19.7 20.1

Magma Fincorp MGMA NR NA 161 590 187.7 16.7 13.2 1.8 1.6 1.5 0.9 10.1 12.0

Shriram City Unioun SCUF NR NA 1,970 2,004 22.5 17.6 13.5 2.5 2.3 2.1 11.8 13.8 15.8

Sundaram Finance SUF NR NA 1,635 2,801 26.6 30.6 26.4 3.8 4.3 3.9 15.2 15.1 15.6

Average NR NA NA NA 57.1 24.1 19.0 4.2 3.5 3.0 13.2 15.4 16.6
Source: Companies, Bloomberg, Maybank Kim Eng; *Prices as of 20th February 2018

Fig 32: Stock price performance

750 INR/share

700

650

600

550

500

450

400
10-Jul-17

19-Jul-17

28-Jul-17

04-Nov-17

13-Nov-17

22-Nov-17

28-Dec-17
08-Oct-17

17-Oct-17

26-Oct-17

01-Dec-17

10-Dec-17

19-Dec-17

06-Jan-18

15-Jan-18

24-Jan-18
06-Aug-17

15-Aug-17

24-Aug-17

02-Feb-18

11-Feb-18

20-Feb-18
02-Sep-17

11-Sep-17

20-Sep-17

29-Sep-17

Source: Bloomberg

February 22, 2018 16


AU Small Finance Bank

About AUBANK

AUBANK started as a vehicle financing NBFC in Rajasthan in 1996. After receiving


the small finance bank (SFB) licence in Oct’15, it successfully converted into a
bank and commenced its business as a bank from Apr’17. AUBANK primarily offers
small-ticket loans to small business owners and vehicle operators. These loans
have relatively better yields (PSL). Retail focused secured loan portfolio, strong
underwriting processes, lower credit cost, robust recovery and collection system
and an experienced team are key strengths of AUBANK.

AUBANK has reported robust performance in all key parameters with loan growth
at 30% CAGR over FY13-17, healthy NIMs at 7% as on 3QFY18, benign asset quality
with net NPLs at 1.9% for 3QFY18. It has diversified product portfolio. Within
retail segment, AUBANK offers vehicle loans and secured business loans to MSME
and SMEs whereas in wholesale loans it extends loans to NBFCs, SMEs and MSMEs,
micro-finance institutions (MFIs) and real estate developers. Since becoming a
bank it has widened its product suite to include current accounts, saving
accounts, term deposits, locker services, online banking and electronic fund
transfer. It is rapidly building a granular retail deposit franchise. Its CASA ratio
was at 37% with a total deposit base of INR37.2b as on 3QFY18.

With increasing share of low cost deposits in funding mix, cost of funds fell to
8.6% in 3QFY18 from 10% in FY17. This helped spread to increase to 6.7% and
kept NIMs healthy at 7% despite reduction in loan yields. With robust AUM growth
and healthy NIMs, return ratios have always been high with average ROEs at
19.4% over FY13-9MFY18.

Geographically AUBANK is present in 10 northern and western states with strong


presence in home market –Rajasthan. More than 20 years of experience in rural
and semi-urban markets and a deep understanding of local characteristics have
enabled AUBANK to understand customer needs and penetrate deeper by using a
cost-efficient and technology-driven hub-spoke model.

Strong presence in underpenetrated states, customer-centric approach, adoption


of latest infrastructure and technology, expansion using cost-efficient and
technology-driven hub-spoke model will help drive rapid growth as per
management.

February 22, 2018 17


AU Small Finance Bank

Branch visit: infrastructure comparable to modern private banks

We visited branches to get a sense of the ambience and facilitates available for
customers. We found the branches have a modern design. Bank accounts
primarily are opened using Aadhar linked tabs with no documentation. These
tablets have biometric sensor. Branches are divided into e-lobby, reception with
welcome desk, branch manager’s cabin, locker room, and asset origination and
collection section. Asset centres look after loan processing and disbursement.
ATMs and cash recyclers are provided in the e-lobby. The look and feel is
comparable to modern private sector banks. According to management, most
urban branches offer full services and are located in densely populated
catchment areas. Incrementally, expansion in braches may be limited as growth
will shift to garnering business from the existing branches.

Fig 33: Branches are located in densely populated locations.. Fig 34:.. so footfalls are high

Source: Maybank Kim Eng Source: Maybank Kim Eng

Fig 35: Branches have modern designs.. Fig 36:.. which improves customer experience

Source: Maybank Kim Eng


Source: Maybank Kim Eng
Fig 37: In e-lobby, ATMs and cheque deposit boxes are Fig 38: Branches are spacious
provided

Source: Maybank Kim Eng Source: Maybank Kim Eng

February 22, 2018 18


AU Small Finance Bank

Fig 39: Asset centre looks after loan processing and Fig 40: AUBANK also provides lockers to its customers
disbursement

Source: Maybank Kim Eng


Source: Maybank Kim Eng

Fig 41: ATMs are equipped with finger print sensor Fig 42: Aadhar linked TAB-based ‘paperless’ account opening

Source: Maybank Kim Eng Source: Maybank Kim Eng

February 22, 2018 19


AU Small Finance Bank

FYE 31 Mar FY13A FY14A FY15A FY16A FY17A


Key Metrics
Core P/E (x) 33.8 34.3 18.3 12.1 53.9
Core FD P/E (x) na na na na na
P/BV (x) 5.3 4.2 3.3 2.5 8.3
P/NTA (x) 146.9 154.9 144.2 111.7 60.0
Net dividend yield (%) 0.0 0.0 0.0 0.0 0.0

INCOME STATEMENT (INR m)


Interest income 4,118.9 5,691.6 6,872.7 10,119.0 13,822.4
Interest expense (1,971.8) (2,875.6) (2,819.7) (3,952.5) (5,003.3)
Net interest income 2,147.0 2,816.0 4,053.0 6,166.4 8,819.0
Net insurance income 0.0 0.0 0.0 0.0 0.0
Net fees and commission 0.0 0.0 0.0 0.0 0.0
Other income 12.0 21.6 21.3 35.9 52.0
Total non-interest income 12.0 21.6 21.3 35.9 52.0
Operating income 2,159.0 2,837.6 4,074.3 6,202.3 8,871.0
Staff costs (526.8) (696.8) (945.2) (1,577.3) (1,927.8)
Other operating expenses (437.7) (437.2) (569.6) (960.5) (1,561.6)
Operating expenses (964.6) (1,133.9) (1,514.8) (2,537.7) (3,489.4)
Pre-provision profit 1,194.5 1,703.7 2,559.6 3,664.6 5,381.7
Loan impairment allowances (204.4) (633.1) (496.3) (436.0) (649.9)
Other allowances 36.7 26.0 9.8 (2.1) (1.9)
Associates & JV income 0.0 0.0 0.0 0.0 0.0
Pretax profit 1,026.7 1,096.5 2,073.1 3,226.5 9,898.5
Income tax (333.1) (371.1) (678.6) (1,110.3) (1,678.8)
Minorities 0.0 0.0 0.0 0.0 0.0
Discontinued operations 0.0 0.0 0.0 0.0 0.0
Reported net profit 693.6 725.4 1,394.5 2,116.2 8,219.8
Core net profit 693.6 725.4 1,394.5 2,116.2 3,051.2

BALANCE SHEET (INR m)


Cash & deposits with banks 3,760.2 2,033.6 2,029.2 1,234.3 6,245.0
Sec. under resale agreements 0.0 0.0 0.0 0.0 0.0
Derivatives financial assets 0.0 0.0 0.0 0.0 0.0
Dealing securities 0.0 0.0 0.0 0.0 0.0
Available-for-sale securities 0.0 0.0 0.0 0.0 0.0
Investment securities 0.0 0.0 0.0 0.0 0.0
Loans & advances 19,003.0 25,660.3 35,487.8 58,125.0 65,949.9
Central bank deposits 0.0 0.0 0.0 0.0 0.0
Investment in associates/JVs 7,386.9 1,135.6 1,398.4 2,315.6 21,503.1
Insurance assets 0.0 0.0 0.0 0.0 0.0
Fixed assets 159.5 160.5 176.9 228.5 2,744.2
Intangible assets 8.1 8.1 12.9 17.4 14.2
Other assets 810.4 587.8 693.9 1,019.1 1,660.2
Total assets 31,128.1 29,585.9 39,799.0 62,939.9 98,116.7
Deposits from customers 0.0 0.0 0.0 0.0 0.0
Deposits from banks & FIs 243.2 285.7 213.4 257.3 192.4
Derivatives financial instruments 0.0 0.0 0.0 0.0 0.0
Subordinated debt 1,300.0 1,750.0 1,750.0 3,550.0 3,300.0
Other securities in issue 20,102.9 15,669.3 23,772.0 34,624.3 56,007.5
Other borrowings 0.0 0.0 0.0 0.0 0.0
Insurance liabilities 0.0 0.0 0.0 0.0 0.0
Other liabilities 5,063.3 5,903.4 6,399.1 14,414.0 18,740.9
Total liabilities 26,709.5 23,608.4 32,134.5 52,845.6 78,240.7
Share capital 404.7 429.6 440.8 440.8 2,842.5
Reserves 4,013.9 5,547.9 7,223.7 9,632.8 16,971.9
Shareholders' funds 4,418.6 5,977.5 7,664.5 10,073.6 19,814.4
Preference shares 0.0 0.0 0.0 20.8 61.5
Minority interest 0.0 0.0 0.0 0.0 0.0
Total equity 4,418.6 5,977.5 7,664.5 10,094.4 19,875.9
Total liabilities & equity 31,128.1 29,585.9 39,799.0 62,939.9 98,116.7

February 22, 2018 20


AU Small Finance Bank

FYE 31 Mar FY13A FY14A FY15A FY16A FY17A


Key Ratios
Growth (%)
Net interest income 69.7 31.2 43.9 52.1 43.0
Non-interest income 49.7 80.0 (1.1) 68.0 45.0
Operating expenses 45.9 17.6 33.6 67.5 37.5
Pre-provision profit 95.1 42.6 50.2 43.2 46.9
Core net profit 86.0 4.6 92.2 51.8 44.2
Gross loans 117.2 35.5 38.1 63.4 13.8
Customer deposits na na na na na
Total assets 169.0 (5.0) 34.5 58.1 55.9

Profitability (%)
Non-int. income/Total income 0.6 0.8 0.5 0.6 0.6
Average lending yields 20.14 19.30 20.29 20.12 17.79
Average cost of funds 14.55 14.62 12.98 12.32 10.22
Net interest margin 6.86 6.91 8.09 8.94 11.35
Cost/income 44.7 40.0 37.2 40.9 39.3

Liquidity (%)
Loans/customer deposits nm nm nm nm nm

Asset quality (%)


Net NPL 0.3 0.6 0.4 0.4 1.1
Gross NPL 0.5 1.2 0.9 0.6 1.6
Gross NPF 0.0 0.0 0.0 0.0 0.0
(SP+GP)/average gross loans 1.3 2.9 1.6 0.8 1.0
Loan loss coverage 50.0 50.0 52.5 40.2 35.3

Capital adequacy (%)


CET1 na na na na na
Tier 1 capital 14.8 15.7 15.8 13.5 21.1
Risk-weighted capital 18.3 18.7 17.3 16.9 23.2

Returns (%)
ROAE 18.6 14.0 20.4 23.9 20.4
ROAA 3.2 2.4 4.0 4.1 3.8
Shareholders equity/assets 14.2 20.2 19.3 16.0 20.2
Source: Company; Maybank

February 22, 2018 21


AU Small Finance Bank

Research Offices
REGIONAL MALAYSIA HONG KONG / CHINA THAILAND
Sadiq CURRIMBHOY WONG Chew Hann, CA Head of Research Christopher WONG Maria LAPIZ Head of Institutional Research
Regional Head, Research & Economics (603) 2297 8686 wchewh@maybank-ib.com (852) 2268 0652 Dir (66) 2257 0250 | (66) 2658 6300 ext 1399
(65) 6231 5836 • Strategy christopherwong@kimeng.com.hk Maria.L@maybank-ke.co.th
sadiq@maybank-ke.com.sg • HK & China Properties • Strategy • Consumer • Materials • Ind. Estates
Desmond CH’NG, ACA • Oil & Gas • Telcos
WONG Chew Hann, CA (603) 2297 8680 Jacqueline KO, CFA
Sittichai DUANGRATTANACHAYA
desmond.chng@maybank-ib.com (852) 2268 0633 jacquelineko@kimeng.com.hk
Regional Head of Institutional Research (66) 2658 6300 ext 1393
• Banking & Finance • Consumer Staples & Durables
(603) 2297 8686 Sittichai.D@maybank-ke.co.th
wchewh@maybank-ib.com Ka Leong LO, CFA • Services Sector • Transport • Property • Telcos
LIAW Thong Jung
(603) 2297 8688 tjliaw@maybank-ib.com (852) 2268 0630 kllo@kimeng.com.hk Tanawat RUENBANTERNG
ONG Seng Yeow • Consumer Discretionary & Auto
• Oil & Gas Services- Regional (66) 2658 6300 ext 1394
Regional Head of Retail Research Tanawat.R@maybank-ke.co.th
(65) 6231 5839 Mitchell KIM • Banks & Diversified Financials
ONG Chee Ting, CA
ongsengyeow@maybank-ke.com.sg (852) 2268 0634 mitchellkim@kimeng.com.hk
(603) 2297 8678 ct.ong@maybank-ib.com Ornmongkol TANTITANATORN
• Internet & Telcos
• Plantations - Regional (66) 2658 6300 ext 1395
TAN Sin Mui
Ning MA, CFA ornmongkol.t@maybank-ke.co.th
Director of Research Mohshin AZIZ • Oil & Gas
(852) 2268 0672 ningma@kimeng.com.hk
(65) 6231 5849 (603) 2297 8692 mohshin.aziz@maybank-ib.com • Insurance Sukit UDOMSIRIKUL Head of Retail Research
sinmui@kimeng.com.hk • Aviation - Regional • Petrochem
(66) 2658 5000 ext 5090
Ricky NG, CFA Sukit.u@maybank-ke.co.th
ECONOMICS YIN Shao Yang, CPA (852) 2268 0689 rickyng@kimeng.com.hk
(603) 2297 8916 samuel.y@maybank-ib.com • Regional Renewables Ekachai TARAPORNTIP Deputy Head
Suhaimi ILIAS • Gaming – Regional • Media • HK & China Properties 66) 2658 5000 ext 1530
Chief Economist Ekachai.t@maybank-ke.co.th
Malaysia | Philippines | China TAN Chi Wei, CFA Sonija LI, CFA, FRM Surachai PRAMUALCHAROENKIT
(603) 2297 8682 (603) 2297 8690 chiwei.t@maybank-ib.com (852) 2268 0641 sonijali@kimeng.com.hk (66) 2658 5000 ext 1470
suhaimi_ilias@maybank-ib.com • Power • Telcos • Gaming Surachai.p@maybank-ke.co.th
• Auto • Conmat • Contractor • Steel
CHUA Hak Bin WONG Wei Sum, CFA Stefan CHANG, CFA
Regional Thematic Macroeconomist (603) 2297 8679 weisum@maybank-ib.com (852) 2268 0675 stefanchang@kimeng.com.hk Suttatip PEERASUB
(65) 6231 5830 • Property • Technology – Regional (66) 2658 5000 ext 1430
chuahb@maybank-ke.com.sg suttatip.p@maybank-ke.co.th
LEE Yen Ling Bonny WENG • Media • Commerce
LEE Ju Ye (603) 2297 8691 lee.yl@maybank-ib.com (852) 2268 0644 bonnyweng@kimeng.com.hk Sutthichai KUMWORACHAI
Singapore • Building Materials • Glove • Ports • Shipping • Technology – Regional (66) 2658 5000 ext 1400
(65) 6231 5844 sutthichai.k@maybank-ke.co.th
leejuye@maybank-ke.com.sg Ivan YAP Tony REN, CFA • Energy • Petrochem
(603) 2297 8612 ivan.yap@maybank-ib.com (852) 2268 0640 tonyren@kimeng.com.hk
• Healthcare & Pharmaceutical Termporn TANTIVIVAT
Dr Zamros DZULKAFLI • Automotive • Semiconductor • Technology (66) 2658 5000 ext 1520
(603) 2082 6818 termporn.t@maybank-ke.co.th
zamros.d@maybank-ib.com Kevin WONG INDIA
• Property
(603) 2082 6824 kevin.wong@maybank-ib.com Jigar SHAH Head of Research
Ramesh LANKANATHAN • REITs • Consumer Discretionary Jaroonpan WATTANAWONG
(91) 22 6623 2632 jigar@maybank-ke.co.in (66) 2658 5000 ext 1404
(603) 2297 8685
ramesh@maybank-ib.com LIEW Wei Han • Strategy • Oil & Gas • Automobile • Cement jaroonpan.w@maybank-ke.co.th
• Transportation • Small cap
(603) 2297 8676 weihan.l@maybank-ib.com
Vishal MODI
FX • Consumer Staples Sorrabhol VIRAMETEEKUL
(91) 22 6623 2607 vishal@maybank-ke.co.in Head of Digital Research
Saktiandi SUPAAT Adrian WONG • Banking & Financials (66) 2658 5000 ext 1550
Head, FX Research (603) 2297 8675 adrian.wkj@maybank-ib.com sorrabhol.V@maybank-ke.co.th
(65) 6320 1379 • Constructions • Healthcare Neerav DALAL • Food, Transportation
saktiandi@maybank.com.sg (91) 22 6623 2606 neerav@maybank-ke.co.in Wijit ARAYAPISIT
Jade TAM • Software Technology • Telcos (66) 2658 5000 ext 1450
Christopher WONG
(603) 2297 8687 jade.tam@maybank-ib.com wijit.a@maybank-ke.co.th
(65) 6320 1347 Vishal PERIWAL
• Media • Building Materials • Strategist
wongkl@maybank.com.sg
(91) 22 6623 2605 vishalperiwa@maybank-
Leslie TANG Mohd Hafiz Hassan ke.co.in VIETNAM
(65) 6320 1378 (603) 2082 6819 mohdhafiz.ha@maybank-ib.com • Infrastructure
• Small & Mid Caps LE Hong Lien, ACCA
leslietang@maybank.com.sg
INDONESIA Head of Institutional Research
TEE Sze Chiah Head of Retail Research (84 28) 44 555 888 x 8181
Fiona LIM
(603) 2082 6858 szechiah.t@maybank-ib.com Isnaputra ISKANDAR Head of Research lien.le@maybank-kimeng.com.vn
(65) 6320 1374
(62) 21 8066 8680 • Strategy • Consumer • Diversified
fionalim@maybank.com.sg
Nik Ihsan Raja Abdullah, MSTA, CFTe isnaputra.iskandar@maybank-ke.co.id
(603) 2297 8694 • Strategy • Metals & Mining • Cement THAI Quang Trung, CFA,
STRATEGY nikmohdihsan.ra@maybank-ib.com Deputy Head, Institutional Research
Rahmi MARINA (84 28) 44 555 888 x 8180
Sadiq CURRIMBHOY (62) 21 8066 8689
Global Strategist SINGAPORE rahmi.marina@maybank-ke.co.id
trung.thai@maybank-kimeng.com.vn
• Real Estate • Construction • Materials
(65) 6231 5836 Neel SINHA Head of Research • Banking & Finance
sadiq@maybank-ke.com.sg (65) 6231 5838 neelsinha@maybank-ke.com.sg LE Nguyen Nhat Chuyen
Aurellia SETIABUDI
• Strategy (62) 21 8066 8691 (84 28) 44 555 888 x 8082
Willie CHAN • SMID Caps – Regional aurellia.setiabudi@maybank-ke.co.id chuyen.le@maybank-kimeng.com.vn
Hong Kong / Regional • Oil & Gas
• Property
(852) 2268 0631 CHUA Su Tye
williechan@kimeng.com.hk (65) 6231 5842 chuasutye@maybank-ke.com.sg Janni ASMAN NGUYEN Thi Ngan Tuyen,
• REITs (62) 21 8066 8687 Head of Retail Research
FIXED INCOME janni.asman@maybank-ke.co.id (84 28) 44 555 888 x 8081
Derrick HENG, CFA • Cigarette • Healthcare • Retail tuyen.nguyen@maybank-kimeng.com.vn
Winson Phoon, ACA (65) 6231 5843 derrickheng@maybank-ke.com.sg
• Food & Beverage • Oil&Gas • Banking
(65) 6231 5831 • Property • REITs (Office) PHILIPPINES
winsonphoon@maybank-ke.com.sg TRUONG Quang Binh,
Luis HILADO Minda OLONAN Head of Research
(65) 6231 5848 luishilado@maybank-ke.com.sg Deputy Head, Retail Research
Se Tho Mun Yi (63) 2 849 8840
• Telcos (84 28) 44 555 888 x 8087
(603) 2074 7606 minda_olonan@maybank-atrke.com
binh.truong@maybank-kimeng.com.vn
munyi.st@maybank-ib.com • Strategy
John CHEONG, CFA • Rubber Plantation • Tyres & Tubes • Oil & Gas
(65) 6231 5845 johncheong@maybank-ke.com.sg Katherine TAN
• Small & Mid Caps • Healthcare • Transport (63) 2 849 8843 TRINH Thi Ngoc Diep
kat_tan@maybank-atrke.com (84 28) 44 555 888 x 8208
NG Li Hiang • Banks • Construction diep.trinh@maybank-kimeng.com.vn
(65) 6231 5840 nglihiang@maybank-ke.com.sg • Technology • Utilities • Construction
• Banks Luis HILADO
(65) 6231 5848 luishilado@maybank-ke.com.sg NGUYEN Thi Sony Tra Mi
LAI Gene Lih • Telcos (84 28) 44 555 888 x 8084
(65) 6231 5832 laigenelih@maybank-ke.com.sg mi.nguyen@maybank-kimeng.com.vn
• Technology • Port Operation • Pharmaceutical
• Food & Beverage

NGUYEN Thanh Lam


(84 28) 44 555 888 x 8086
thanhlam.nguyen@maybank-kimeng.com.vn
• Technical Analysis

February 22, 2018 22


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APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES


DISCLAIMERS
This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as
an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate
and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental
ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and
volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than
the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment
advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read
this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment
strategies discussed or recommended in this report.
The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank
Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of
this report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees
(collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this
report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice.
This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”,
“intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might”
occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us
and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking
statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or
revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence
of unanticipated events.
MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law,
from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit
business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other
investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. One or more directors,
officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report to the extent permitted by law.
This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in
whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for
the actions of third parties in this respect.
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state,
country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is for distribution only
under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain
categories of investors. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based on
geographical location of the person or entity receiving this report.
Malaysia
Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental
ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia
Securities Berhad in the equity analysis.
Singapore
This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank
KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact
Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited
investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally
liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law.
Thailand
Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of Maybank
Kim Eng Securities (Thailand) Public Company Limited. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) accepts no liability
whatsoever for the actions of third parties in this respect.
Due to different characteristics, objectives and strategies of institutional and retail investors, the research reports of MBKET Institutional and Retail Research
Department may differ in either recommendation or target price, or both. MBKET Retail Research is intended for retail investors (http://kelive.maybank-
ke.co.th) while Maybank Kim Eng Institutional Research is intended only for institutional investors based outside Thailand only.
The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the
Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand
and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the
perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the
Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. MBKET does not confirm nor certify the
accuracy of such survey result.
The disclosure of the Anti-Corruption Progress Indicators of a listed company on the Stock Exchange of Thailand, which is assessed by Thaipat Institute, is made
in order to comply with the policy and sustainable development plan for the listed companies of the Office of the Securities and Exchange Commission.
Thaipat Institute made this assessment based on the information received from the listed company, as stipulated in the form for the assessment of Anti-
corruption which refers to the Annual Registration Statement (Form 56-1), Annual Report (Form 56-2), or other relevant documents or reports of such listed
company. The assessment result is therefore made from the perspective of Thaipat Institute that is a third party. It is not an assessment of operation and is not
based on any inside information. Since this assessment is only the assessment result as of the date appearing in the assessment result, it may be changed after
that date or when there is any change to the relevant information. Nevertheless, MBKET does not confirm, verify, or certify the accuracy and completeness of
the assessment result.
US
This third-party research report is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities
Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under
Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne
by Maybank KESUSA. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it
available to you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you
under relevant legislation and regulations. All U.S. persons receiving and/or accessing this report and wishing to effect transactions in any security mentioned
within must do so with: Maybank Kim Eng Securities USA Inc. 777 Third Avenue 21st Floor New York, New York 1- (212) 688-8886 and not with, the issuer of
this report.
UK
February 22, 2018 23
AU Small Finance Bank

This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Conduct
Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial
Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any
responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as
constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.
DISCLOSURES

Legal Entities Disclosures


Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938- H) which is a Participating Organization of Bursa
Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This report is distributed in
Singapore by Maybank KERPL (Co. Reg No 198700034E) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Maybank Kim Eng Securities
(“PTMKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the Financial Services Authority (Indonesia).
Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and
Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities
and Exchange Commission. Vietnam: Maybank Kim Eng Securities Limited (License Number: 117/GP-UBCK) is licensed under the State Securities Commission of
Vietnam. Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited
(“KESI”) is a participant of the National Stock Exchange of India Limited and the Bombay Stock Exchange and is regulated by Securities and Exchange Board of
India (“SEBI”) (Reg. No. INZ000010538). KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) and as Research Analyst (Reg
No: INH000000057) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538)
is authorized and regulated by the Financial Conduct Authority.

Disclosure of Interest
Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further
act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment
banking services, advisory and other services for or relating to those companies.
Singapore: As of 22 February 2018, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.
Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the
research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected
parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.
Hong Kong: As of 22 February 2018, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.
India: As of 22 February 2018, and at the end of the month immediately preceding the date of publication of the research report, KESI, authoring analyst or
their associate / relative does not hold any financial interest or any actual or beneficial ownership in any shares or having any conflict of interest in the
subject companies except as otherwise disclosed in the research report.

In the past twelve months KESI and authoring analyst or their associate did not receive any compensation or other benefits from the subject companies or
third party in connection with the research report on any account what so ever except as otherwise disclosed in the research report.
MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market
in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or
investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the
companies covered in this report.

OTHERS
Analyst Certification of Independence
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part
of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Reminder
Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are
capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial
and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the
credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and
consult with its own professional advisers as to the risks involved in making such a purchase.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Definition of Ratings
Maybank Kim Eng Research uses the following rating system
BUY Return is expected to be above 10% in the next 12 months (excluding dividends)
HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends)
SELL Return is expected to be below -10% in the next 12 months (excluding dividends)

Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only
applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment
ratings as we do not actively follow developments in these companies.

February 22, 2018 24


AU Small Finance Bank

 Malaysia  Singapore  London  New York


Maybank Investment Bank Berhad Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Securities Maybank Kim Eng Securities USA
(A Participating Organisation of Maybank Kim Eng Research Pte Ltd (London) Ltd Inc
Bursa Malaysia Securities Berhad) 50 North Canal Road PNB House 777 Third Avenue, 21st Floor
33rd Floor, Menara Maybank, Singapore 059304 77 Queen Victoria Street New York, NY 10017, U.S.A.
100 Jalan Tun Perak, London EC4V 4AY, UK
50050 Kuala Lumpur Tel: (65) 6336 9090 Tel: (212) 688 8886
Tel: (603) 2059 1888; Tel: (44) 20 7332 0221 Fax: (212) 688 3500
Fax: (603) 2078 4194 Fax: (44) 20 7332 0302

Stockbroking Business:  Hong Kong  Indonesia  India


Level 8, Tower C, Dataran Maybank,
Kim Eng Securities (HK) Ltd PT Maybank Kim Eng Securities Kim Eng Securities India Pvt Ltd
No.1, Jalan Maarof
28/F, Lee Garden Three, Sentral Senayan III, 22nd Floor 2nd Floor, The International,
59000 Kuala Lumpur
1 Sunning Road, Causeway Bay, Jl. Asia Afrika No. 8 16, Maharishi Karve Road,
Tel: (603) 2297 8888
Hong Kong Gelora Bung Karno, Senayan Churchgate Station,
Fax: (603) 2282 5136
Jakarta 10270, Indonesia Mumbai City - 400 020, India
Tel: (852) 2268 0800
Fax: (852) 2877 0104 Tel: (62) 21 2557 1188 Tel: (91) 22 6623 2600
Fax: (62) 21 2557 1189 Fax: (91) 22 6623 2604

 Philippines  Thailand  Vietnam  Saudi Arabia


Maybank ATR Kim Eng Securities Inc. Maybank Kim Eng Securities Maybank Kim Eng Securities Limited In association with
17/F, Tower One & Exchange Plaza (Thailand) Public Company Limited 4A-15+16 Floor Vincom Center Dong Anfaal Capital
Ayala Triangle, Ayala Avenue 999/9 The Offices at Central World, Khoi, 72 Le Thanh Ton St. District 1 Villa 47, Tujjar Jeddah
Makati City, Philippines 1200 20th - 21st Floor, Ho Chi Minh City, Vietnam Prince Mohammed bin Abdulaziz
Rama 1 Road Pathumwan, Street P.O. Box 126575
Tel: (63) 2 849 8888 Bangkok 10330, Thailand Tel : (84) 844 555 888 Jeddah 21352
Fax: (63) 2 848 5738 Fax : (84) 8 38 271 030
Tel: (66) 2 658 6817 (sales) Tel: (966) 2 6068686
Tel: (66) 2 658 6801 (research) Fax: (966) 26068787

 South Asia Sales Trading  North Asia Sales Trading


Kevin Foy Andrew Lee
Regional Head Sales Trading andrewlee@kimeng.com.hk
kevinfoy@maybank-ke.com.sg Tel: (852) 2268 0283
Tel: (65) 6636-3620 US Toll Free: 1 877 837 7635
US Toll Free: 1-866-406-7447

Malaysia Thailand
Joann Lim Tanasak Krishnasreni
joann.lim@maybank-ib.com Tanasak.K@maybank-ke.co.th
Tel: (603) 2717 5166 Tel: (66)2 658 6820

Indonesia London
Harianto Liong Mark Howe
harianto.liong@maybank-ke.co.id mhowe@maybank-ke.co.uk
Tel: (62) 21 2557 1177 Tel: (44) 207-332-0221

New York India


James Lynch Sanjay Makhija
jlynch@maybank-keusa.com sanjaymakhija@maybank-ke.co.in
Tel: (212) 688 8886 Tel: (91)-22-6623-2629

Vietnam Philippines
Patrick Mitchell Keith Roy
patrick.mitchell@maybank-kimeng.com.vn keith_roy@maybank-atrke.com
Tel: (84)-8-44-555-888 x8080 Tel: (63) 2 848-5288
www.maybank-ke.com | www.maybank-keresearch.com

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