Bank of Ayudhya

Hold; Bt22.20
Price Target : Bt23.00; BAY TB

Expect acquisition-led growth in the near term to strengthen its lead in retail business

Demand for retail loans will recover from 1Q12 onwards, ahead of corporate and SME loans

Maintain Hold and Bt23 TP

Exploring inorganic growth. The bank’s CAR is strong at 16.3% with Tier 1 ratio at 11.9% at end 3Q11, which is sufficient for more acquisitions. We see scope for inorganic growth in the near term, especially in retail business e.g. credit card and personal loans, to strengthen its lead in Thailand’s retail banking sector. We expect the bank to buy a retail loan portfolio worth Bt10-15bn, resulting in 17% personal loan growth (Bt71bn currently).

Retail loan demand to recover in 1Q12, post-floods.  Despite floods affecting c.8% of its loan portfolio - mainly those deployed in flood-hit areas of Thailand – demand for retail loans e.g. credit card and personal loans, started to pick up in Dec11 after slowing down in Oct-Nov11 because of the floods. For H/P loans, we expect car markers to resume normal operations in 2Q12, and strong pent-up demand will drive new car sales and H/P loans from there.

Maintain Hold.  BAY will benefit from populist policies and interest rate downtrend in 2012, but the good news has been priced in. We value BAY at 1.3x average FY11-12F P/BV to derive a Bt23 target price. We may upgrade BAY’s earnings and target price following more detail of its new growth plan.