Bangkok Bank

Bangkok Bank Plc (BBL)

1H14 was not favorable for the core business because of seasonal
effect, but a recovery is foreseen in 2H14 from proceeding mega
infrastructure investments, which would benefit BBL share price
that is still laggard.

- 2Q14 profit better than expected. Strong core businesses, high dividend income
BBL's 2Q14 net profit was reported at B9.02bn, growing 0.7%qoq but
contracting 11.9%yoy (9.5% beyond expectation). Operating expense
increased by 16.5%qoq and 35.2%yoy (much higher than projected)
because of branch expansion and investment on operation improvement.
However, it was negated as net interest income, dividend income and profit
from sales of investments and non-performing assets were better than
expected. Therefore, cost to income ratio increased to 45.21%. 2Q14 net
interest income climbed by 6.4%qoq and 7.3%yoy (far beyond
expectation). Overall 2Q14 net loan increased by 1.1%qoq and 5.9%yoy,
mainly from SME loan, housing loan and international business financing.
Overall, 1H14 net loan increased by 0.7% from end-2013, still much lower
than full-year target of 5%yoy. Furthermore, 2Q14 NIM increased by 14bp
to 2.31%; funding cost made the two-year lowest at 1.99% due to low
policy interest rate and deposit base. In terms of asset quality, NPL stayed
unchanged qoq, so end-2Q14 coverage ratio (LLR/NPL) increased to
217.2%, the highest among commercial banks under our coverage.
- Maintain forecast. Growth season in 2H14
We believe the projected economic rebound in 2H14 would boost corporate
and SME loans (high season) and increase the current lower-than-expected
fee income. However, 2H14 earnings would be affected by lower NIM;
funding cost would gradually increase as a result of a competition in the
deposit market amidst the economic recovery.
- Laggard among peers and market
We derive FY2014 fair value (GGM, 1.31x PBV, 13.70% long-term ROE) at
B220. BBL's share price possesses only 1.2x PBV, currently laggard among
peers and the market. We recommend BUY.