Bank of Ayudhya

Bank of Ayudhya Plc (BAY)

Q1 2013F preview – Underperforming peers. We expect BAY to report a lower profit in 1Q13F than peers due to weak loan growth and slipping NIM. We forecast a 20% YoY and 10% rise in net profit to Bt4.1bn. Key takeaways from the 1Q13 preview guidance were: 1) flat loans QoQ on the back of high repayment of SME loans; 2) 3-4 bps QoQ slip in NIM due to falling loan yield on lower mix of high-yield SME loans; 3) a strong >20% YoY growth in non-interest income with YoY double-digit growth in fee income, despite softer loan-related fees; 4) cost to income ratio at ~49%, slightly higher than the full-year guidance of 48%; and 5) normalized provision expense in line with full-year guidance of 130 bps against total loans. 
Downside risk to our 2013F loan growth. Despite strong growth in auto loans (+4% in 2M13) and moderate growth in corporate loans (+1% in 2M13), BAY’s 1Q13 loan growth was flat due to repayment of working capital loans from large SMEs and seasonal QoQ contraction of credit card loans related to mutual fund transactions. This gives downside risk to our 13% 2013F loan growth. However, management claims this is a normal pattern, attributable to seasonality, and expects loan growth to gain momentum toward the end of the year. BAY will increase its focus on corporate and small & micro SMEs in 2013.
Small NPL sale in 2Q13. BAY is planning to sell Bt2bn NPLs in 2Q13, equivalent to 8% of total NPLs and 0.3% of total loans. This is expected to be final chunk of NPLs to be sold.
Maintain Buy. We maintain Buy on BAY with an unchanged target price of Bt40 (1.9x 2013F BVPS), underpinned by its 2013F strong ROE improvement driven by easing credit cost and cost to income ratio. There is upside risk from speculation on an M&A upon GE’s sale of its 25.3% holding in BAY.