Bangkok Bank

Bangkok Bank Plc (BBL)
 

Investment thesis: BBL is well positioned to deliver sustained earnings growth through FY12 and FY13, led by: 1) lending expansion, 2) foreign loan growth (currently 17% of the total portfolio) and 3) a low cost/Income ratio, due to efficiency enhancements. The bank also has the highest loan loss coverage ratio in the sector of 199%. Furthermore, its YTD loan growth performance is significantly better than the trend necessary to achieve both our assumption and the consensus number for FY12, so there is scope for upside to lending and earnings. Our BUY rating stands.      
Stronger profit growth in 2Q12 … We forecast a 2Q12 net profit of Bt8.3bn, up by 12% YoY and 3% QoQ. The YoY bottom-line growth is due to lending expansion of 14% YoY (and 3% QoQ, so NIM should inch up QoQ), flattish loan loss provisions and a headline corporate tax rate decline to 23% from 30% in 2011. Note that term loans will comprise 60% of total new loans in 2Q12, up from 50% in 1Q12, according to management. 
…and momentum will be sustained into 3Q12: BBL’s numbers will continue to rise QoQ in 3Q12 on loan growth, a sustained NIM and greater fee-based income (mostly loan-related fees and bancassurance). Corporate lending expansion should increase further in 2H12, buoyed by the investment up-cycle and government stimulus spending. 
Note that our FY12 earnings projection is 7% higher than the consensus; the street appears to have more modest expectations for BBL’s 2H12 lending growth.
Expect FY12 earnings forecast upgrades in 2H12: Corporate and SME demand for credit is driving BBL’s loan growth. Its 5M12 net lending expanded by 17.5% YoY and 5.3% YTD. Note that lending normally strengthens HoH in the second-half of the year, due to seasonality. We currently assume 12% growth for FY12, which is somewhat lower than the ongoing expansion trend for the year. Furthermore, NIM will rise as a result of accelerated lending and improved funding cost management (BBL plans to accelerate fee income growth—loan related fees, credit cards, bancassurance sales, trade finance, etc).