Bank of Ayudhya

Bank of Ayudhya Plc (BAY)

BAY posted net profit in 2Q12 at B3.69bn or the growth of 7.8%QoQ and 24.4%YoY
as expected, making a new quarterly high like other commercial banks due to
following contributions. 1) Net interest income has grown by 7.2%QoQ as
expected. NIM has increased by 15bp to 4.22% (while we had projected at
4.18%) due mainly to benefit from consolidation of interest income from HSBC
credit card loan portfolio in its financial statement for the first full quarter (in 1Q12
BAY consolidated only loan from HSBC at the end of the quarter but not the
interest income). Meanwhile, net loan in this quarter has thrived only by 1.8%QoQ
because the bank had sold NPL by B4.2bn. Excluding the NPL sale, net loan still
grew by 2.4%QoQ. Overall, net loan in 1H12 has grown as large as 5.2% from end-
2011, still lower than net loan growth target for FY2012 we have projected at
14%YoY. However, this is not worrying because loan of BAY usually grows in the
second half (2H) of a year which is a high season, while loan growth in 2Q12 has
been good in every loan type (except for corporate loan, which is a normal
situation of BAY in 1H), especially car leasing and credit card loans. 2) Fee
income has escalated by 13.5%QoQ, better than expected despite not being a
high season, mainly because increasing income from Bancassurance and credit
card businesses. However, operating expense has risen by 9.1%QoQ in this quarter
mainly from the rebranding and higher employee expense after the company has
changed to use an employee’s performance base standard, while there would be
an expense on the write-off of acquired intangible assets from HSBC at around
B80-90m in this quarter (totaling 15-year write-off, which will gradually decrease
in the rest of the year). Accordingly, cost to income ratio still stabilized at a high
level of 49.35%. Nevertheless, the abovementioned positive factors would help
offset all the negative factors, so we still see the growth of profit in this quarter.
Overall, net profit in 1H12 has hiked to B7.12bn, growing significantly by
23.3%YoY and accounting for 49% of our FY2012’s net profit forecast.
Accelerated growth foreseen in 2H12. Profit outlook brightens on
high season
At the analyst meeting today, the bank will give information about its new business
target in 2012. Especially, net loan growth target is projected to be raised
significantly from the previous projection of 11%YoY, which will be close to our
forecast of 14%YoY, while fee income growth target is projected to be raised from
the previous projection of 12%yoy (in 1H12 the fee income has already grown by
14.9%YoY), which will be in line with our forecast for FY2012 at 21%YoY. For
earnings in 2H12, brighter outlook is foreseen compared with 1H12 as it is a high
season for loan and fee income, which would help boost profit growth to 66.5%YoY
in 2012 and 12%YoY further in 2013.
Buy on weakness to reduce risks of profit-taking after earnings declaration
We reiterate our BUY recommendation for BAY. New fair value in 2012, at 1.90x
PBV, is B35, from B27.18 (based on long-term ROE of 16%), implying 14% upside
from the current share price. Moreover, the share price since the beginning of the
year until now has exhibited the highest rise among peers at 46% (top
outperformer), so profit-taking is foreseen after 2Q12’s earnings report. We
recommend buying on price weakness to reduce investment risk.