Bank of Ayudhya

Bank of Ayudhya Plc (BAY) 

Profit in line with our number:  BAY posted a 2Q12 profit of Bt3.7bn, up by 8% QoQ and 24% YoY. The result was in line with our estimate and the consensus. Pre-provisioning operating profit (PPOP) grew by 10% YoY and 5% QoQ to Bt7.5bn. 1H12 earnings represent 49% of our FY12 forecast. 
Results highlights: Lending expanded by 2.2% QoQ and 13% YoY—in line with our estimate. The retail portfolio increased 4.6% QoQ, driven by HP and credit card & personal loans. Net interest margin (NIM) was 4.31%, up 12 bps QoQ (but down 20 bps YoY, due mainly to the BOT’s blanket 0.47% levy on deposits, debentures and B/Es).
BAY reported 2Q12 fee income of Bt3.6bn, up by 19% YoY and 11% QoQ. Likewise, OPEX rose by 14% YoY and 9% QoQ to Bt7.6bn. The cost/income ratio increased slightly to 50.6% in 2Q12 from 49.6% in the first-quarter. BAY’s 2Q12 loan loss provisions dipped 4% YoY but rose 10% QoQ to Bt3bn, as expected. The NPLs/gross loans ratio declined further to 2.9% at end-June from 3.6% at end-March, while the loan loss coverage ratio jumped to 129% at end-June from 114% at end-March.
Outlook: We expect BAY to sustain good numbers into 3Q12 and beyond, driven by retail lending. Our NIM assumptions are 4.3% for FY12 and 4.2% for FY13.
What’s changed? Our FY12 profit forecast stands unchanged at Bt14.6bn, up 58% YoY.
Recommendation: We have a BUY rating on BAY, premised on: 1) a robust retail growth profile with scope for upside, 2) improving asset quality with NPL sales, 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 Bt33.50, pegged to a PBV of 1.78x.