Bangkok Bank
Play
Still hopeful in 2015 BUY
Bangkok Bank Plc (BBL)
- 4Q14 profit to decline from lower NIM and higher operating expenses
We estimate BBL’s 4Q14 net profit at B8.75bn, falling 8.6%qoq and
13.8%yoy. Net interest income, the core business, is projected to weaken,
while NIM would plunge as a result of increasing funding cost. Non-interest
income would also decrease. Operating expenses would increase, especially
personnel and marketing expenses because of the high season. Although fee
income, mostly from fund selling and bancassurance, is projected to grow, it
would not be able to compensate for the aforementioned negative factors.
Overall, FY2014 net profit is estimated at B36.3bn, growing 1.2%yoy, still
lower than our current forecast of 10%yoy.
- 9% forecast cut likely for FY2015 after earnings report
BBL maintains a positive view towards the business in 2015, consistent with
its projection for higher GDP growth, roughly estimated close to FY2014
target, under net loan growth forecast of 3-5%yoy. A major driver is
corporate loan that would grow following GDP, while BBL will also give
attention to small SME loans for its more readiness in terms of system and
staff. Fee income growth is projected at around 10%yoy, better than 2014’s,
in line with reviving loan transactions. There is nothing to worry about the
asset quality, and provisioning for doubtful debts might be decreased from
2014 to B8-8.5bn. Nevertheless, we are likely to revise down FY2015
earnings forecast by 9%, mainly reducing the assumption of income from
other operations we have overestimated and increasing the assumption of
operating expenses we have underestimated. After the revision, FY2015 net
profit growth is still projected at 9%yoy.
2015 fair value to drop 6% from present after forecast revision
We recommend buying BBL. 2015 fair value after the forecast revision will
decrease 6% from present to B225 (GGM, based on PBV of 1.31x, and new
ROE forecast of 13.50%, versus 13.70% previously), still implying more than
21% upside.
- 4Q14 profit to decline from lower NIM and higher operating expenses
We estimate BBL’s 4Q14 net profit at B8.75bn, falling 8.6%qoq and 13.8%yoy.
Net interest income, the core business, is projected to weaken, while NIM
would plunge as a result of increasing funding cost. Non-interest income would
also decrease. Operating expenses would increase, especially personnel and
marketing expenses because of the high season. Although fee income, mostly
from fund selling and bancassurance, is projected to grow, it would not be able
to compensate for the aforementioned negative factors.
- 4Q14 net interest income is projected to decrease 2.3%qoq (still
growing 6.4%yoy though), in line with net loan growth of 2.3%qoq and
1.6%yoy, thanks to increasing disbursement of corporate loans (44% of total
loans), though mostly short-term working capital loans. Growth has still been
seen form small and medium-sized SME loans, housing loans, and loans from
overseas branches (16% of total loans). However, given very high repayment
rate in 1H14, overall net loan growth would be only 1.6%yoy, still lower than
the bank’s target of 3%yoy and our target of 5%yoy. Loan to deposit ratio at
end-2014 is projected to decrease from the previous quarter to 89.1% because
deposits would grow significantly by 4.2%qoq and 3.3%yoy as a result of BBL’s
long-term fixed deposit campaign (four-month, seven-month, and 11-month).
Moreover, the bank has also extended the campaign deadline (launched since
June 2014) to enhance its liquidity for loan granting in 2015.
- 4Q14 NIM is projected to fall 10bp to only 2.24% although average loan
yield would tabilize at around 3.96%, because funding cost would increase as
much as 12bp to a three-quarter high of 2.04% as a result of the
aforementioned aggressive campaign to attract deposits.
- 4Q14 fee income is projected to grow 5.8%qoq and 13.3%yoy, mainly
from loan-related, fund selling, and bancassurance transactions, as well as
securities brokerage fee income that rose following improving capital market.
However, overall fee income growth in FY2014 would be only 2.5%yoy, still
lower than the bank’s and our target of 10%yoy, because of pressure from
slowing loan transactions in 9M14.
- 4Q14 operating expenses are projected to rise 10.8%qoq and
11.8%yoy, mostly from increasing personnel and marketing expenses in a
high season. Accordingly, cost to income ratio would increase from 40.92% in
3Q14 to 49.10% in this quarter. FY2014 cost to income ratio is estimated at
44.13%, up from 41.49% in FY2013 and higher than our current projection of
only 41.0%.
- 4Q14 NPL is projected to stay flat from 3Q14, so NPL to total loan ratio
would drop under 2.31% because of increasing net loans in this quarter. This
would also lead to a decrease of provisioning for doubtful debts by 63.8%qoq
and 30.9%yoy. Average credit cost would be 27bp, decreasing significantly
from 76bp in the previous quarter.
- 9% forecast cut likely for FY2015 after earnings report
BBL maintains a positive view towards the business in 2015, consistent with its
projection for higher GDP growth, roughly estimated close to FY2014 target,
under net loan growth forecast of 3-5%yoy. A major driver is corporate loan
that would grow following GDP, while BBL will also give attention to small SME
loans for its more readiness in terms of system and staff. An aggressive
marketing strategy would also be launched to attract retail loans, with young
generation clients as a target group. Housing loans would also show continuous
growth, while BBL would revise its procedure to accelerate loan approval
process, for better competitiveness in the business.
- Fee income growth is projected at around 10%yoy, better than 2014’s, in line
with reviving loan transactions. There is nothing to worry about the asset
quality, and provisioning for doubtful debts might be decreased from 2014 to
B8-8.5bn. Nevertheless, we are likely to revise down FY2015 earnings forecast
by 9%, mainly reducing the assumption of income from other operations we
have overestimated and increasing the assumption of operating expenses we
have underestimated. After the revision, FY2015 net profit growth is still
projected at 9%yoy.
