Bangkok Bank

Enter business peak in 4Q14 BUY

Bangkok Bank Plc (BBL)

- 3Q14 profit surprising, thanks to higher fee income and lower expense

BBL reported 3Q14 net profit at B9.57bn, growing 6.0%qoq and 6.9%yoy –

better than expected, due to recognition of profit from sales of investment,

mostly in bonds and available-for-sale bonds, that was B2.47bn larger than

projected. Proprietary portfolio, on the other hand, contracted significantly

by B25.6bn in this quarter because of decreasing bond yield. BBL has

brought the profit from sales of investment to make bad debt provision of

around B3.31bn, higher than projected and above the average policy rate of

B8.50bn a year. Average credit cost was 76bp, versus 53bp in 2Q14. In

addition, net interest income and fee income rose, while operating expense

decreased. NIM improved slightly to 2.34% due to continuously decreasing

funding cost. In terms of asset quality, NPL increased slightly in this

quarter, but mainly because of the receivables’ personal problems not

because of the economic situations.

- Business peak in 4Q14

The economy is anticipated to rebound in 2H14, boosting corporate loans

and SME loans (high season) and reviving fee income which is currently far

below the target. We have a positive outlook for the business in 2015 owing

to government infrastructure mega projects. In addition, BBL is the only one

Thai commercial bank that won the license to operate in Myanmar. Although

the banks that win the licenses are allowed to lend only in foreign

currencies, the license would help expand BBL's operation further in Asia.

Myanmar has drawn interest from foreign corporations, particularly Thai, to

invest in Myanmar at the beginning of the AEC liberalization.

- Share price undergoing correction. Accumulate

Fair value (GGM, 1.31x PBV, 13.70% ROE) is B220 in 2014 and B238.93 in

2015. The current share price is still laggard the big banks’ average and the

market, with PBV of only 1.1x.