Bangkok Bank

Bangkok Bank Plc (BBL)
2Q13 profit exceeds projection. Loan and fee income surges,expense drops
BBL posted 2Q13 net profit at B10.2bn, 9.8% higher than our projection and making
a new quarterly high by growing 13.7%qoq and 15.5%yoy due to following
contributions. 1) Fee income in 2Q13 showed better-than-expected growth of
9.1%qoq and 21.1%yoy, very high compared with the bank’s target of only
10%yoy, thanking mainly to Bancassurance transactions (life insurance/insurance
business) and fund selling, while loan-related fee income has also shown impressive
growth. 2) Operating expense in 2Q13 decreased 15.6%qoq and 17.6%yoy,
better than expected, mainly from a decrease in personnel expense after an
increase in an expense on financial aids for personnel in 1Q13. Moreover, the bank
also recognized reversal of estimated loss on the impaired assets transferred to Thai
Asset Management Corporation (TAMC) at B2.58bn. As a result, cost to income ratio
dropped to 33.75% from 42.19% in 1Q13. 3) Net interest income in 2Q13 grew
0.4%qoq and stayed flat yoy – as projected. Net loan increased 4.7%qoq and
8.1%yoy in this quarter, mainly from the growth in June that has come mostly from
corporate loans, which have still not fully generated fee income for the bank. It has
confirmed that the net loan growth in 2013 would be able to reach the bank’s target
of 6-8%yoy and our forecast of 11%yoy because net loan in 1H13 has shifted 3.9%
from end-2012. Other loans, at the same time, have also shown continuously growth,
especially SMEs that have thrived remarkably since the beginning of 2013 and would
probably exceed 2013’s target at 9-11%yoy, while retail loans, especially housing,
have been able to meet the targeted growth of 10-12%yoy. NIM in 2Q13 has
weakened slightly by 2bp due to pressure from yield as the bank has focused more on
corporate loans and from such high loan growth at the end of the quarter that the
bank cannot generate income to catch up with. 4) Income from other operation
escalated 19.3%qoq and 28.5%yoy – better than expected. Although profit
from investment sale (mostly bond portfolio) has decreased, it was compensated by
higher than expected Fx gain and dividend income. However, the factor to suppress
earnings in this quarter was an increase in debt provision expense by 94%qoq and
103.1%yoy – worse than expected. However, this will not affect the bank’s net profit
because it has brought the extraordinary profit from TAMC to increase provision in
order to increase the coverage ratio. At the same time, there is nothing to worry
about debt quality as NPL to total loan ratio increased only slightly as projected.
Credit cost increased to 81bp from 44bp in 1Q13.
- Maintain forecast. To benefit from more aggressive strategy in 2013
We maintain our earnings forecast for 2013-2014. The business outlook in 2H13
would continue growing from 1H13. Despite rising concerns about the B2tr loan bill,
the bank is still confident that the infrastructure projects would proceed under the
current government’s annual budgets. Moreover, the bank attempt to improve its
weakness by boosting the fee income has also succeeded, considered as another
factor to support EPS growth in 2013-2014 to our projection of 23.8%yoy and
13.9%yoy, respectively.
- Reiterate to BUY. Share price already undergoes correction. PBV,PER still very low
We recommend BUY for BBL. The share price still has 32% upside from 2013’s fair
value of B280 (1.79x PBV, GGM). The share price has substantially undergone
correction previously, with very low PBV and PER, against the business opportunity
that has been advantageous for BBL, so this is a good chance to accumulate.