Bank of Ayudhya

Bank of Ayudhya  Plc (KTB) 

 

Earnings were 4.9% below our number

BAY posted a 1Q15 profit of Bt4.3bn, up 32% YoY and 10% QoQ. The result was 4.9% below our forecast. This was attributable to larger loan-loss-provision (LLP) setting during the quarter. The bank set 1Q15 provisions at Bt5.3bn against our forecast number of Bt4.8bn. Pre-provisioning operating profit (PPOP) soared 27% YoY and 13% QoQ to Bt10.5bn. Earnings for 1Q15 represent 24% of our FY15 earnings projection of Bt18bn.

Results highlights

Lending increased 21.9% QoQ, which was consistent with our forecast. Corporate lending grew a massive 78.2% QoQ via the merger with Bank of Tokyo Mitsubishi (Bangkok, BTMU), whereas SME and retail sectors dipped 3.6% QoQ and 0.1%, respectively. The jump in lending (mostly corporate) made its 1Q15 NIM slide 18 bps QoQ to 4.09% from 4.27% in the previous quarter. Net-interest income (NII) climbed 21% YoY and 12% QoQ to Bt13.9bn, in tandem with the rising loan portfolio.

Fee revenue advanced 22% YoY and 7% QoQ to Bt4.7bn. OPEX was Bt9.3bn, up 12% YoY and 4% QoQ. BAY’s cost/income ratio was 47% in 1Q15, down from 49.1% in the last quarter and 50.1% in the same period last year, due to QoQ and YoY faster growth of fee income and NII than OPEX expansions.

LLPs jumped 29% YoY and 8% QoQ to Bt5.3bn—in excess of our model. BAY’s NPL/gross loan ratio declined to 2.36% at end-March 2015 from 2.8% at YE14, while its loan-loss-coverage ratio rose to 139.2% at end-March 2015 from 133.0% three month earlier. 

Outlook

We expect 2Q15 earnings to rise slightly QoQ and YoY on the positive impact of business consolidation with BTMU in Jan 5, 2015 and the lower trend of loan-loss-provision setting.

What’s changed? 

We maintain our FY15 and FY16 earnings projections.

Recommendation 

We reiterate our SELL rating for BAY, due to 1) the dilution effect of 15% after BTMU’s consolidation in January (with only a 3% free float), 2) expectation of extra expenses on consolidation with the BTMU (such as amortization and goodwill) and 3) high YE15 PER of 17.7x and YE15 PBV of 1.6x against the sectoral PER mean of 10.5x and PBV mean of 1.4x.