Bangkok Bank

Bangkok Bank Plc (BBL) 

Investment thesis

We have cut our FY14 BBL loan growth projection from 3% to 2%, as the pace of the post-coup economic recovery has so far been slower than we had earlier anticipated. But our FY15 loan growth assumption of 5% and our FY15 earnings forecast of Bt45bn stand unchanged. Note that BBL has both the highest loan loss coverage ratio of 198% and the highest CAR of 18% in the sector. The stock trades at an inexpensive YE15 PBV of 1.1x against a regional mean of 1.5x. BUY!

4Q14 loans grew 1-2% QoQ and will expand more strongly in FY15

BBL said it will post 1-2% QoQ loan growth for 4Q14, led by retail and SME business (a big corporate loan repayment was made during the quarter). As such, the bank has cut its FY14 lending growth guidance to 1-2% (we have cut our FY14 lending growth assumption to 2% from 3% formerly), following 9.2% expansion in FY13. BBL expects an FY14 NIM of 2.3%; it posted 2.4% for FY13. The bank guides that its 4Q14 NIM will be down 10 bps QoQ, as deposit growth rose faster than lending. Note that its YE14 LDR could be posted at 86-87%, down from 91% in 3Q14. Business will improve in tandem with a new govt stimulus package and ground-breaking on state infrastructure projects in 2015.

NPLs will be posted flat QoQ for YE14

The bank expects a YE14 NPLs/loans ratio of 2.4%, unchanged from the end-Sept number, due to successful troubled debt restructuring for a corporate client. Note that about 62% of BBL’s loan portfolio comprises corporate clients, who as a group entail less risk than SME or retail borrowers. Our model assumes LLPs of Bt8.8bn in FY14 and Bt8.5bn in FY15. We expect the bank to set 4Q14 LLPs of Bt1bn, down by 39% YoY and 68% QoQ.

Lighter OPEX will make for a 4Q14 cost/income ratio of 44-45%

BBL guides for a 4Q14 cost/income ratio of 44-45% (close to the 3Q14 number), in line with its FY14 cost/income ratio target range of 44-45%. Management indicated that 4Q14 OPEX will post a small QoQ rise, while fee income will report a modest QoQ increase. We assume a 4Q14 cost/income ratio of 45.6%, slightly above the bank’s guidance range.

YoY earnings growth for 4Q14—lighter LLPs and higher fee income

The bank looks set to deliver 4Q14 earnings of Bt10bn, up by 5% QoQ and 31% YoY, led by lighter loan loss provisioning and higher fee income. Our model indicates 4Q14 OPEX of Bt11bn, flat QoQ. Likewise, we estimate a 4Q14 pre-provision operating profit of Bt12.5bn, up 9% YoY, supported by rising fee income and continuing loan growth.