Bangkok Bank

Bangkok Bank Plc (BBL)
 

Earnings 4% short of our figure: BBL booked a 4Q11 profit of Bt5.9bn, up 5% YoY but down 22% QoQ. The result was 4% below our estimate and the consensus because of heavy loan loss provisioning of Bt7bn for the quarter. Pre-loan loss provisioning operating profit (PPOP) declined by 5% YoY and 23% QoQ to Bt9.4bn.  FY11 earnings rose 11% YoY to Bt27.3bn.
Results highlights: Lending expanded by 5% QoQ and 17% YoY to Bt1.47trn, driven by the corporate and SME categories. Net Interest Income (NII) was Bt13.9bn, up 16% YoY and flat QoQ. 4Q11 fee income dipped by 4% YoY and 6% QoQ to Bt5.3bn. OPEX was Bt10.6bn, up 24% both YoY QoQ, due to Bt2bn in emergency aid to employees and clients affected by the flooding. Thus, the cost/income ratio jumped to 53% in 4Q11 from 41% the previous quarter. Net interest margin (NIM) slipped 7 bps QoQ but rose 13 bps YoY to 2.80% (we had expected a NIM of 2.78%).
BBL set heavy loan loss provisions of Bt7bn for 4Q11, up by 286% YoY and 318% QoQ (we had modeled for LLPs of only Bt3.5). Note that BBL earned tax credits by switching general loan loss provisions into specific LLPs related to the flooding (a tax deductible item). Thus, the bank reduced its tax obligations by Bt2.6bn in 4Q11. Its YE11 NPLs/loans ratio was 2.7% at YE11, down from 2.8% at end-Sept. The loan loss coverage ratio rose to 199% from 185% at end-Sept.
Outlook & model adjustments: We anticipate that intensifying competition for business and the BOT’s plan to levy new fees on deposits and bank-issued B/Es in 2H12 in order to service FIDF debt will dampen the profitability of all banks to some extent. As such, we have cut our BBL NIM assumptions by 20 bps for both FY12 and FY13 to 2.54% and 2.73%, respectively. Our earnings forecasts decline by 6% for FY12 to Bt31.5bn and 9% to Bt38bn for FY13.  
Recommendation: Given our pared back expectations for the future, we have cut our YE12 target price from Bt193 to Bt181, pegged to a conservative PBV of 1.3x. Our BUY rating stands, based on: 1) an undemanding PBV in comparison with any other big bank (1.1x against a sectoral mean of 1.3x in FY12) with scope for an earnings forecast upgrade, 2) a robust loan growth profile for FY12 and 3) superior resilience to a weakening economy, as BBL has the biggest loan loss cushion ratio of 199%.