Bank of Ayudhya

Bank of Ayudhya Plc (BAY)
 

Profit in line with our number:  BAY posted a 1Q12 profit of Bt3.4m, up by 618% QoQ and 22% YoY. The result was 3.9% above our estimate and 11% over the consensus, due mainly to better 1Q12 fee income growth of 17% YoY than modeled (we expected only 12%). Pre-provisioning operating profit (PPOP) grew by 10% YoY and 2% QoQ to Bt7.1bn. 1Q12 earnings represent 25% of our FY12 forecast. 
Results highlights: Lending expanded by 3.2% QoQ and 11.4% YoY—above our estimate of only 2% QoQ growth. The retail portfolio increased 7.0% QoQ, driven by the acquisition of HSBC’s Thailand retail loan portfolio and a strong recovery in HP business. Net interest margin (NIM) was 4.18%, slippage of 2 bps from the previous quarter and 36 bps from the same period last year, due mainly to the BOT’s new 0.47% levy on deposits, debentures and B/Es.
BAY’s 1Q12 loan loss provisions declined by 1% YoY and 27% QoQ to Bt2.7bn, as expected. The NPLs/gross loans ratio diminished further to 3.6% at end-March from 3.7% at YE11, while the bank’s loan loss coverage ratio rose again to 114% at end-March from 106% at YE11.
Outlook: BAY will expand its retail lending business aggressively in 2Q12 and beyond. Our NIM projections stand at 4.3% for FY12 and 4.2% for FY13.
What’s changed? We maintain our FY12 profit forecast at Bt13.8bn, up 49% YoY.
Recommendation: Our BUY rating stands on BAY, premised on: 1) a strong retail growth profile for the next couple of years, 2) improving asset quality, 3) rising efficiency and 4) a substantial CAR of 16%, enabling both organic and in-organic business expansion during FY12-13 without need for capital-raising. Our YE12 target price is Bt30.50, pegged to a PBV of 1.6x.