Bank of Ayudhya
August lending up 0.5% MoM BUY (maintained) Target Price: Bt43.00 Price (21/09/12): Bt35.50
Bank of Ayudhya Plc (BAY)
What’s new? BAY posted August net lending of Bt654bn, up by 0.5% MoM and 5.2% YTD, driven by the retail and SME portfolios. Deposits rose by 3.0% MoM and 20.6% YTD. The bank’s borrowings declined by 2.4% MoM and 32.4% YTD. Thus, the end-August loans/deposits (plus borrowing) ratio was 88%, down from 89% a month earlier, as deposits rose faster than loans.
Lending growth target of 11% is achievable: Net loan growth in August was 5.2% YTD and 10.7% YoY—in line with BAY’s FY12 target of 11%, driven by the HP, personal loan and SME portfolios. Note that the fourth-quarter is normally is the bank’s best lending period. We anticipate that BAY will comfortably achieve its FY12 lending expansion target of 11%.
3Q12 earnings will be good: Given sustained loan growth in 3Q12, a NIM of 4.3% (flat QoQ) and greater fee income, we forecast that earnings will jump 26.4% YoY (and 2.7% QoQ) to Bt3.8bn for the quarter, essentially the same as the Bloomberg consensus expectation of Bt3.79bn. We also anticipate that the investment up-cycle and the tax rebate scheme for first-time car buyer will facilitate stronger lending and earnings performances in 4Q12.
Action: In previous cases where banks have been taken over by new owners in recent years, acquisition targets have been bought at big premiums to their valuations (ahead of rumors starting to circulate). But those banks’ multiples were all significantly lower than the prevailing sector mean at the time of the acquisition. In contrast, BAY trades at a YE12 PBV of 1.9x, based on our model, already a significant premium to the Thai Bank sector average of 1.7x and almost level with the regional banking mean of 1.9x. As such the scope for short-term speculative gains is limited.
Given BAYs recent share price surge, we would advise speculative players to switch to TCAP (a retail-driven bank), which trades at a cheaper PBV of 1.1x. TCAP has scope for upside from stronger lending expansion than the market currently forecasts. Note that its 8M12 net loan growth was 10% YTD against an FY12 target range of 10-12%.
