Bank of Ayudhya

Bank of Ayudhya Plc (BAY)
Maintain Buy. We maintain Buy on BAY with an unchanged target price of Bt35
(1.7x 2013F BVPS), underpinned by its 2013F strong ROE improvement driven by
easing credit cost and cost to income ratio. The potential departure of GE has kept
BAY slightly undervalued.

Commitment still on, despite departure of GE. Although GE is in the process of
selling its remaining 25.3% stake in BAY to a new strategic partner, BAY’s new CEO
(formerly the CFO), Mrs. Janice Rae Van Ekeren, confirms that the management
team still has a strong commitment to the three-year target to get into the top
three in terms of ROE, with ROE of 15-18% by 2013, plus the goal of a 50:50 mix
between retail and corporate & SME loans. GE has equipped BAY with a strong
retail banking platform, efficient risk management and innovative IT system and it
recently put GE’s Australian credit card system in place.

2013 target confirms easing credit cost and cost to income ratio. BAY’s 2013
target confirms lower credit cost and cost to income ratio, paving the road to a
better ROE. For 2013, BAY plans to slow loan growth down to 11% from ~15% in
2012F, keep NIM stable at 4.3%, growth fee income by 15-16%, normalize credit
cost to 1.3% from 1.4% for 2012 and cut cost to income ratio to 48-49% from 50-
51% in 2012 after completing the branch revamp in 2012. To facilitate loan growth,
BAY will begin “retail” SMEs (i.e. mom and pop shops) and the under-banked
market.

Last chunk of NPLs sold. BAY completed the sale of Bt2.8bn NPLs on Friday,
which will bring the amount of NPLs by 12% and the NPL ratio down to 2.6% from
2.97% at 3Q12. The bank says this will be the last NPL sale, as it has finished
cleaning out the 1997 legacy NPLs. Completing the balance sheet clean-up will
allow it to bring credit cost to a normal level in 2013.

4Q12F preview. We forecast 4Q12 net profit to increase 678% YoY and be stable
QoQ at Bt3.7bn. BAY is expected to end 2012 with ~15% loan growth, stronger than
our original forecast of 12%. This translates to accelerating QoQ loan growth to 5%
in 4Q12 from 3.5% for 3Q12, driven by the return to positive growth for corporate
loans and continued strong auto loans. Fee income is expected to beat its 16% fullyear
target, suggesting QoQ sustainable fee income. Provisions are on the way to
meeting the full-year target at 1.4% of total loans, translating to a QoQ slight
increase in provisions. Cost to income ratio is expected to seasonally increase QoQ.