Bank of Ayudhya

Bank of Ayudhya Plc (BAY) 

Earnings as expected

BAY posted a 4Q14 profit of Bt3.9bn, up by 292% YoY and 12% QoQ. The result was in line with our forecast but was 5% above the Bloomberg consensus. Pre-provisioning operating profit (PPOP) rose by 13% YoY and 5% QoQ to Bt9bn. FY14 earnings represent 100% of our projection for the year.

Results highlights

Lending increased by 3.9% QoQ and 7.3% YoY—in line with our forecast. The retail loan portfolio rose 3.2% QoQ, led by 7.7% QoQ growth in credit cards. Likewise, corporate lending expanded by 7.5% QoQ and 9.5% YoY, chiefly due to draw-downs on working capital loans. SME business increased by 0.9% QoQ and 6.9% YoY. The better 4Q14 lending made for a NIM of 4.27%, up 1 bps QoQ but down 19 bps YoY. Non-interest income (NII) jumped by 22% YoY and 9% QoQ, in tandem with rising loan growth.

Fee revenue rose by 11% YoY and 8% QoQ to Bt4.4bn. OPEX was Bt9bn, up by 9% YoY and 5% QoQ. BAY’s cost/income ratio was 49.1% in 4Q14, up slightly from 48.6% in 3Q14 (and 48.5% in 4Q13), as OPEX rose faster than fee income growth during the quarter.

Loan loss provisions for the quarter totaled Bt4.9bn, down 28% YoY and flat QoQ—a bit heavier than our assumption. BAY’s NPLs/gross loans ratio declined to 2.8% at YE14 from 3.3% at end-September, while its loan loss coverage ratio rose to 133% at YE14 from 123% three month earlier. 

Outlook

We expect 1Q15 earnings to rise slightly QoQ and YoY on the positive impact of business consolidation with BTMU Bangkok in Jan 1, 201.

What’s changed? 

Our FY15 and FY16 earnings projections stand unchanged.

Recommendation 

We have a SELL rating on BAY, due to: 1) the 15% dilution effect from the consolidation with BTMU (there could be scope for synergy-building in the future, but that won’t be immediately apparent), 2) expectations of extra expenses tied to the merger with BTMU (such as amortization and goodwill) and 3) an expensive valuation—a YE15 PBV of 2.3x, far above the sector mean of 1.4x.