Bangkok Bank

Bangkok Bank Plc (BBL)

Investment thesis
Yesterday, we hosted our annual BBL luncheon with institutional investors. President, Chartsiri Sophonpanich, and other executives spoke about the bank’s key successes and its FY14 outlook. The feedback from the luncheon was broadly positive. BBL’s prospects are solid—its loan portfolio will sustain growth, driven by business with corporates and export-oriented SMEs (including cross-border trading) and offshore lending and services. Moreover, it has the lowest loans/deposits ratio (90%) and the highest loan loss coverage ratio (214%) among Thai banks. When the political turmoil eases, we believe BBL has the most scope in the sector for corporate and SME lending upside. Our BUY rating stands.
Targets 5-7% loan growth for FY14
Management has set a modest FY14 lending growth target range of 5-7% (we expect 6%), following 9.2% expansion in FY13. BBL anticipates growth across all lending categories. SME, which represents 28% of the aggregate portfolio, is targeted to increase by 6-8%, while the objectives for corporate (45% of total loans) and international (16% of the portfolio) lending are 4-6% and 5%, respectively. Retail growth (12% of the portfolio) is targeted at 8-10%. BBL expects 2014 GDP growth of 3%, assuming only limited political violence.
The advent of the AEC in 2015 will presage greater regional consumer and infrastructure spending. BBL has the most offshore branches of any Thai bank and has the greatest expertise in offshore banking and cross-border M&As.
FY14 fee income expansion objective of 10%
The bank has a 10% fee revenue growth target for FY14 (it was 11% YoY in FY13, driven by mutual fund and bancassurance sales commissions and trade finance). International business (global market services), greater cross-selling of financial products and increased loan-related fee income will expand fee revenue further this year.
NIM guidance for 2.3-2.4%
Assuming only subdued price competition and no further cut to the BOT’s policy interest rate, BBL expects an FY14 NIM of 2.3-2.4%; it posted 2.4% for last year. The bank has set an FY14 credit cost (loan loss provision/loans) in the range of 45-50 bps. The implication is that BBL will set FY14 loan loss provisions of Bt8bn-8.5bn (against Bt8.6bn last year). Its YE14 NPLs/loans ratio policy ceiling is 2.2%, flat YoY.
Cost/Income ratio should be steady
BBL anticipates a cost/income ratio of 43-44% for FY14 following a ratio of 44% in FY13, supported by continuing loan growth, a sustained NIM, fee income expansion (more cross-selling, both in Thailand and abroad) and good OPEX management. Management guides that FY14 OPEX will rise by 7-8% (against a 2% increase last year).