Bangkok Bank

Bangkok Bank Plc (BBL)
Investment thesis
BBL is the obvious play for the investment up-cycle and Thai corporate expansion offshore themes because of its size (the biggest single-client lending limit of any Thai bank) and its substantial international branch network. Also it has a big CAR of 16.7% (14% Tier-1) and the highest loan loss coverage ratio in the sector of 207%, so there is virtually no risk of a cash call or extra LLPs being necessary. Given a steady growth profile and a cheap YE13 PBV of 1.5x (the regional mean is 1.9x), our rating is BUY.
Significant loan growth for 2Q13
Management said 2Q13 lending would post significant growth, driven by the SME (up 10% YoY) and corporate categories (up 2-3% YoY). The 2Q13 credit cost (loan loss provision/loans ratio) is assumed 45 bps. That implies loan loss provisions for the quarter of Bt1.7bn, basically flat QoQ. We expect FY13 loan growth of 10%, significantly more bullish than BBL’s guidance of 6-8% because its target doesn’t include finance for M&A deals or upcoming state-sponsored projects.
2Q13 NIM will prove to be the nadir of the year
The BOT cut its one-day Repurchase Rate by 0.25% on May 29, so BBL anticipates its 2Q13 NIM will decline because money market loans are typically pegged to the Repo Rate. We assume an FY13 NIM of 2.5-2.6%. Management does not expect the policy interest rate to decline any further this year.
Improved cost/income ratio
Management guides for a cost/income ratio of 42-43% for 2Q13, down from 45% in 1Q13, supported by loan growth, fee income expansion (up 10% YoY from bancassurance, FX trading, mutual funds and loan-related fees) and good OPEX management. We assume a 2Q13 cost/income ratio of 42.5%. Note that we project a FY13 cost/income ratio of 44%, close to the bank’s guidance (there is normally heavy  expense-booking in the fourth-quarter).
Expect 2Q13 profit to grow 9% YoY with (excluding extra gains)
We estimate BBL’s 2Q13 earnings at Bt9.7bn, by up 9% YoY and 8% QoQ and a new record. Additionally, the bank may possibly book a windfall gain from asset sales of Bt23bn (a 42% discount to its BV of Bt40bn) to the Thai Asset Management Corporation (TAMC) since 2001. Such a gain would constitute upside to our model. Note that KBANK and BAY announced 2Q13 windfall gains of Bt1.1bn and Bt1bn, respectively, from their respective cumulative asset sales of Bt14bn and Bt10bn to the TAMC. 
For 3Q13, we anticipate that BBL will report stronger QoQ earnings (excluding possible extra gains from cumulative asset sales to the TAMC in 2Q13), led by ongoing loan growth on high season for SME and corporate business, good OPEX management and a fatter NIM.