Bangkok Bank

Bangkok Bank Plc (BBL)

What’s new? BBL posted net lending of Bt1.41trn for August, up by 0.9% MoM and 6% YTD, driven by the corporate and SME portfolios. Deposits rose by 3.1% MoM and 10.6% YTD. The bank’s borrowings declined by 1.5% MoM and 39.9% YTD. Thus, the end-August loans/deposits (plus borrowing) ratio was 89%, down from 91% the previous month, as deposits rose faster than loans during the month. 
Scope for lending upside: Net loan growth in August was 6.0% YTD and 14.7% YoY—far in excess of the trend necessary for BBL to achieve its FY12 target range of 6-8%. We assume lending growth of 12% for FY12. In the meantime, we expect net loan expansion to be sustained through September, driven by demand among corporate and SME clients.
3Q12 earnings will be good: Given sustained lending growth in 3Q12, a NIM of 2.7% (flat QoQ) and greater fee income, we forecast earnings expansion of 16% YoY (flat QoQ) to Bt8.8bn for the quarter. Note that the Bloomberg consensus expectation is much less bullish at only Bt8.7bn. We also anticipate that the investment up-cycle and the acceleration of government stimulus spending will facilitate stronger lending and earnings performances in 4Q12 (in any given year, BBL normally posts its strongest lending growth in the fourth-quarter). 
Action: We forecast strong bottom-line expansion of 28% for FY12 to Bt35bn and 21% for FY13 to Bt42.5bn, driven by lending and a sustained NIM. Moreover, BBL would be the most resilient play in the event of an economic downturn because it has the highest loan loss coverage ratio in the sector of 187% (the mean ratio is 115%), a big CAR of 14.8% and a low NPLs/loans ratio of 2.7%.
The stock currently trades at an inexpensive YE13 PBV of 1.3x. The regional bank PBV is 1.7x. Because of its strong earnings profile and scope for lending
growth upside next year, our BUY call stands on BBL with a YE13 target price of Bt265, pegged to a justified PBV of 1.7x.