Bank of Ayudhya

Bank of Ayudhya Plc (BAY)

- 4Q13 profit disappointing. Debt provision rises, but from extraordinary income
BAY posted 4Q13 net profit at B3.14bn, 23% lower than expected, falling 17.2%qoq
and 16.4%yoy. Debt provision expense in the quarter rose as much as 40.0%qoq and
61.8%yoy – higher than projected. 4Q13 credit cost shifted to 199bp, versus 142bp in
3Q13. Overall, FY2013 credit cost stood at 182bp, up from a policy level of 140bp. On
the other hand, end-2013 NPL (gross) to total loan dropped slightly to 1.68%, lower
than the target of 2.5%, mostly from selling of B1.90bn NPL. However, with a concern
toward increasing NPL from repossessed car leasing, BAY made addition debt provision
in this quarter using money from an extraordinary income, which is interest income of
B523m from debt restructuring. Accordingly, NPL coverage ratio in 4Q13 decreased to
128% from 139.4% at end-3Q13. Excluding the item, normalized profit in 4Q13 still
increased slightly by 2.4%qoq and 8.9%yoy. 1) Net interest income grew
7.6%qoq and 17.4%yoy – exceeding projection, in line with the better-thanexpected
net loan growth of 6.0%qoq and 13.6%yoy. NIM in 4Q13 increased 20bp to
4.36%, thanks to decreasing funding cost and increasing loan yield. Nevertheless,
excluding the aforementioned extraordinary item, the loan yield contracted 5bp
because most of them are corporate loans (+13.5%qoq) which gave low yield in this
quarter (short-term loans and investment loans). SME and retail loans showed good
growth as a result of the seasonal effect, except car leasing loans that shrank. 2) Fee
income in 4Q13 enlarged 2.9%qoq and 9.5%yoy - as projected, mainly from
increasing fee income from bancassurance and credit card. 3) Other operating
income grew 27.4%qoq (still decreasing 8.5%yoy though) – more than
expected, thanks to extraordinary items – a profit from selling of investment in
Vayupak fund (net after tax) of 172 million units and profit from property foreclosed
sale in this quarter.
- Cut 2014-2015 forecast. Debt provision increases, loan decelerates
We revise down our earnings forecast for FY2014-2015 by 10.1% and 12.9%,
respectively, in order to reflect BAY’s business strategy as declared at the recent
analyst meeting. However, we have still not included the acquisition of BTMU Thailand
in our forecast as the entire business transfer would finish in late 2014 and thus be
insignificant for the forecast.
We also raise the debt provision forecast to reflect the economic slowdown that might
influence the bank to keep a policy of high debt provision, with credit cost of as high as
160bp. NIM is also cut to reflect the interest rate downtrend in 1H14. FY2014 net loan
growth is projected to slow down from 2013 to 9%yoy, while fee income growth is
expected at around 12%yoy. After the revision, FY2014-2015 net profit would grow
only 9.0%yoy and 6.9%yoy, respectively.
- Downgrade to SELL. Low free float makes BAY less attractive
We downgrade our recommendation for BAY from “hold to receive dividend” to “sell”.
Under the new earnings and long-term ROE forecasts, 2014 fair value at 1.26x PBV
(GGM) is B27.50, with long-term ROE forecast of 12.5%, implying 15% upside from
the current share price. Moreover, after the tender offering, BAY’s free float decreased
to only 3%, making the stock less attractive for investment.