Bank of Ayudhya

Bank of Ayudhya Plc (BAY) 

Earnings were 3.7% short of our forecast
BAY reported a 1Q13 profit of Bt4bn, up by 18% YoY and 8% QoQ. The result was 3.7 below our projection and 6.5% short of the Bloomberg consensus, attributable to heavier loan loss provisioning than expected. Pre-provisioning operating profit (PPOP) rose by 13% YoY and 7% QoQ to Bt8bn. 1Q13 earnings represent 22% of our FY13 forecast. 
Results highlights
Lending expanded by 0.9% QoQ and 13.4% YoY—slightly above our estimate of 13% YoY. The retail portfolio grew 3.8% QoQ, driven by HP and credit cards & personal loans. Corporate lending dipped 4.0% QoQ and SME business inched up just 0.1% QoQ. Given slow lending growth during 1Q13, NIM was steady QoQ at 4.19%. Net Interest Income (NII) rose by 13% YoY and 3% QoQ.
Fee income jumped by 25% YoY and 9% QoQ to Bt4.1bn. OPEX rose 19% YoY (but dipped 1% QoQ) to Bt8.3bn. BAY’s cost/income ratio was 50.9% in 1Q13, slightly higher than the 49.6% booked for the same period last year.
Loan loss provisions expanded by 6% QoQ and 14% YoY to Bt3.1bn (heavier than our assumption of Bt2.8bn). The NPLs/gross loans ratio was unchanged QoQ at 2.4% at end-March, while the loan loss coverage ratio inched up to 148% from 146% at YE12.
Outlook
The retail and SME categories will lead loan growth in 2Q13. As such, we expect BAY’s net interest income to rise further QoQ. Nevertheless, the FY13 NIM outlook is flattish YoY, as the bank is moving more aggressively into SME and corporate lending—the two categories pay lower yields than retail business. We currently assume an FY13 NIM of 4.25%.
What’s changed?
Our FY13 profit forecast stands unchanged at Bt18.6bn, up 27% YoY. BAY is unlikely to be in a position to pitch a positive surprise until it has a new managing shareholder in place of GE.
Recommendation
We reiterate our BUY rating, premised on: 1) lending growth from SME and corporate business in 2H13, 2) good asset quality management, which will allow the bank to cut its loan loss provisioning this year and 3) enhanced efficiency brought about by greater scale, which will bring down its cost/income ratio.