Bangkok Bank

Bangkok Bank Plc (BBL)
 

Investment thesis: We have revised up our BBL FY12-13 profit forecasts by 6% and 7%, respectively, to Bt35bn and Bt42.5bn. The BOT will provide the bank with about Bt13bn in soft funding for it to in turn lend to clients affected by the flooding, boosting its loan growth in 2H12 and FY13. Furthermore, 2M12 lending was far above the trend necessary for BBL to achieve our former FY12 growth target. Thus, we have raised our loan growth targets for FY12-13 to 12% and 10%, respectively, from 7% for both years. Because of our expanded bottom-line expectations, we have raised our YE12 target price by 14.7% to Bt225, pegged to a PBV of 1.61x.
Corporate-led loan growth in 1Q12: We anticipate that BBL will report 1Q12 loan growth of 3% YTD, driven by the corporate category (manufacturing, export-oriented industries and energy). BBL’s 2M11 YTD lending expansion of 2.3% was far in excess of the trend necessary to achieve our former FY12 assumption of 7%. As noted above, we have raised our FY12 loan growth projection to 12%.
1Q12 NIM will dip slightly QoQ: Despite good lending growth, BBL guided that 1Q12 NIM will be in the range of 2.6-2.7%, down slightly QoQ because of intensifying competition for business and deposit mobilization. We expect a NIM of 2.7% for 1Q12, down from 2.8% the previous quarter. We conservatively assume an FY12 NIM of 2.7%, close to number posted for FY11. Our FY13 NIM forecast stands unchanged for the moment at 2.9%.
Normalized loan loss provisions: The bank plans to set aside loan loss provisions of Bt6.5bn (about 0.6% of gross loans) for FY12, down a sharp 46% from the Bt12bn set last year. That implies provisions of about Bt1.6bn/quarter. BBL has few concerns over NPLs at the current time—its loan loss coverage ratio remains the highest of any of the big-four banks at 199%.
Anticipate a hefty 1Q12 profit: Given good loan growth, a stable NIM, higher fee-based income and a lower headline corporate tax rate, we expect an impressive 1Q12 profit of Bt8.1bn, up by 25% YoY and 37% QoQ.
Outlook
Good lending growth in 1Q12: BBL looks set to achieve double-digit FY12 loan growth—significantly in excess of our earlier forecast of 7%. Note that 2M12 YTD lending expanded 2.3% (13.2% on an annualized basis). The drivers are corporate draw-downs (mostly in manufacturing, construction, chemicals, energy and export-oriented industries).  The SME and retail portfolios are expected to report resumed expansion for March after having been flat during 2M12. The bank anticipates 1Q12 lending growth of 3% YTD and also accepts that its public FY12 lending growth target range of 6-8% is too low.  Management views that loan growth could reach double digits this year.
Soft funding will boost lending: The BOT approved soft funding of about Bt13bn to BBL at an interest rate of 0.01% (essentially free money), to which the bank will add Bt5bn from conventional funding sources and lend on to clients affected by flooding at concessionary rates. Given good lending in 1Q12 and upcoming soft funding from the BOT, we have revised up our FY12 and FY13 loan growth projections to 12% and 10%, respectively, from 7% for both years.
Lower loan loss provisioning in 1Q12: Given a low NPLs/loans ratio of 2.7% and the highest loan loss coverage ratio in the sector of 199% at YE11, BBL is fully covered against risk. Therefore, the bank plans to set loan loss provisions of Bt1.6bn for 1Q12, down by 6% YoY and 77% QoQ. Management guides for FY12 loan loss provisions of 6.5bn, down slightly YoY. However, we maintain our FY12 LLP projection unchanged at Bt8bn.
1Q12 NIM will decline slightly: During the flooding, BBL extended help to affected clients—debt rescheduling, reductions in interest payment obligations and longer grace periods for principal repayments. Thus, its 1Q12 NIM will decline 10-15 bps QoQ to the range of 2.65-2.70%, despite good lending growth of 3% YTD for the quarter. We expect a NIM of 2.7% for 1Q12 and conservatively assume an FY12 NIM of 2.7%, about the same as for last year. At this stage, we model for an FY13 NIM of 2.9%.
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