May 2007 Financial News

CCMB Releases First Quarter Results

May 15, 2007

Results for the First Quarter Ended March 31, 2007
All figures quoted in Jamaican Dollars unless otherwise stated

Capital & Credit Merchant Bank Limited (CCMB) reported Earnings Per Share (EPS) of 24 cents for the First Quarter ended March 31, 2007. While this figure was down an outstanding 55.56 per cent or 30 cents on the comparative quarter for fiscal 2006, it represented a significant increase of 200 per cent or 16 cents on the previous quarter (Q406). Additionally, Q106 EPS was inflated as significant gains were realized from the sale of international bonds.

For the First Quarter of fiscal 2007, Net Interest Income fell a considerable 35.36 per cent or $93.343 million from $263.986 million in the first quarter of 2006 to $170.643 million. This was due largely in part to Interest on Investments, which was down 13.90 per cent or $156.633 million to $970.138 million. Interest on Loans amounted to $162.266 million, up a substantial 53.46 per cent or $56.530 million as the Group has placed greater emphasis on expansion of its retail and corporate loan portfolio to drive loan income growth. Interest Expense fell a marginal 0.70 per cent or $6.760 million to $961.761 million.

Other Revenue stood at $231.633 million for the first quarter of 2007 compared to $397.340 million for the same period in 2006. This figure was down 41.70 per cent or $165.707 million, as its major contributor Net gains on securities trading fell $129.811 million or 39.87 per cent to $195.758 million. Additionally, Revenue in the first quarter of 2006 was premised on securities trading which provided windfall gains of $325.569 million. In addition, Commission and fee income fell 12.77 per cent or $3.774 million to $25.780 million; Foreign Exchange trading and translation was down a substantial 89.83 per cent or $28.601 million to $3.238 million; and Other Income dropped by 70.12 per cent or $6.523 million to $2.780 million. However, Dividend Income rose an exceptional 279.26 per cent or $3.002 million to $4.077 million.

Q107 on Q106, Non Interest Expenses was down 11.10 per cent or $25.553 million from $230.152 million to $204.599 million. This was mainly as a result of the reduction in Staff Costs which totaled $120.563 million for Q107, a decrease of $22.959 million or 16 per cent on the corresponding figure for 2006. Also seeing significant decreases were Bank Charges, falling 35.76 per cent or $3.257 million to $5.852 million; Marketing & corporate affairs, down 23.88 per cent or $3.196 million to $10.186 million; and Other Operating Expenses which fell $4.929 million or 23.35 per cent to $16.179 million. Conversely, increases were seen in Professional fees, which rose an outstanding 186.76 per cent or $7.902 million to $12.133 million; Regulatory cost, which saw an increase of 27.53 per cent or $0.802 million to $3.715 million; and Information technology costs, which increased a considerable 48.56 per cent or $2.073 million to $6.342 million. The large increase in technology costs was due to the Group completing the implementation of its new core banking technology at the commencement of the second quarter of 2007.

Profit Before Taxation ended the First Quarter at $197.677 million, down 54.15 per cent or $233.497 million from the $431.174 million reported in the same period for fiscal 2006. The Effective Tax Rate for Q107 was 22.10 per cent compared to a Tax Rate of 19.68 per cent for Q106. While Profit After Taxation fell $192.324 million or 55.53 per cent to end the quarter at $153.995 million, this figure rose a significant 36.35 per cent or $41.050 million over the preceding quarter (Q406).

As previously stated, CCMB and its subsidiaries completed the implementation of its new core banking technology at the commencement of Q207. Significant efficiencies and cost savings are expected in the coming quarters due to this new technology. Additionally, the Group’s alliance in the United States investment brokerage is anticipated to provide a wide range of new products and services to its expanding retail base. The Group anticipates that these initiatives will bear fruit particularly to the second half of the year by providing expansion to the Net Interest Income as well as broadening and deepening the creation of non proprietary income.

Currently, CCMB is trading at a price of TT$1.01 and at our current forecast of TT$0.14 for fiscal 2007, this share is trading at a price to earnings multiple of 7.21 times. In Jamaica, this share last closed at $9.00. Furthermore, using a multiple of 8 times and the forecasted EPS of TT$0.14, this share has an expected return of approximately 11 per cent on the current price or a target price of TT$1.12. Given these results and the business outlook for 2007, we recommend a BUY on this share.

Nancy Chen
WISE Equity Research Team