Bangkok Bank

3Q14 profit was as expected

BBL posted 3Q14 earnings of Bt9.6bn, up by 6% QoQ and 7% YoY. The result was in line with our number (but exceeded the Bloomberg consensus by 12.6%). The bank’s 3Q14 pre-provision operating profit was Bt12.9bn, up by 4% YoY and 1% QoQ. 9M14 earnings represent 73% of our FY14 forecast.

Results highlights

Lending slipped by 1.3% QoQ, 0.6% YTD and 6% YoY to Bt1.74trn end-September 2014. Although SME, international lending and mortgage business rose, corporate loans declined because of a big-ticket repayment. Deposits were up 0.8% QoQ but slipped 0.8% YTD. BBL’s NIM fattened by 3 bps QoQ to 2.42% on lower funding costs and an LDR increase to 91% from 90% in 2Q14.Fee income was flat QoQ and YoY at Bt6.7bn, in line with our estimate. OPEX was Bt10.7bn, up 10% YoY but down 3% QoQ. BBL’s cost/income ratio declined to 45.2% in 3Q14 from 46.2% the previous quarter (and was also down from 46.3% in the same period last year).

The bank set loan loss provisions of Bt3.3bn for 3Q14, up by 91% YoY and 42% QoQ. BBL’s NPLs/loans ratio was flat QoQ at 2.3% at end-September, while the loan loss coverage ratio dipped to 198.2% from 216.0% at end-June. This was attributable to aggressive troubled debt restructuring and some bad debt-write offs during the quarter.

Outlook

We expect BBL to deliver YoY earnings growth for 4Q14, led by lending expansion and a sustained NIM. 

What’s changed? 

Our FY14 and FY15 profit forecasts stand unchanged.

Recommendation 

Given the more favorable economic outlook, we believe BBL’s FY15 performance will strengthen YoY, led by loan growth and a fatter NIM. Note that 61% of its total loan portfolio is corporate business, which will recover ahead of retail lending (Thai household debt remains stubbornly high). Furthermore, corporate clients are statistically safer risks than SME customers, so loan loss provisioning needs are lighter. 

At end-September, BBL’s NPLs/loans ratio was low at 2.3% and it had the biggest loan loss coverage ratio in the sector of 198%. The stock currently trades at a very cheap YE15 PBV of 1.1x against a regional mean of 1.5x and a Thai Bank sector average of 1.4x. Our BUY rating stands.