Bangkok Bank

Bangkok Bank Plc (BBL) 

 

- Profit to fall sharply in 2Q15   

 

We estimate 2Q15 net profit at B8.11bn, falling 13.7%qoq and 10.1%yoy and making a record low in six quarters. Net interest income is projected to decline following decreasing loan transactions. NIM would decrease because of the two recent loan rate cuts; although the deposit rate was also reduced, it would not yet show a positive impact in this quarter, while deposits have also increased, possibly depressing NIM further. Fee income is projected to contract following slack loan transactions. Operating expenses would increase, mostly from personnel and other expenses, so cost to income ratio in 2Q15 would rise significantly to 45.48% from an unusually low level of 41.43% in 1Q15. On the other hand, income from other operations is projected to increase, mainly dividend income, while gain from government bonds trading and Fx gain would stay flat from the previous quarter. Debt provision expense would remain unchanged from 1Q15, with average credit cost of 67bp; the bank has increased its debt provision target in 2015 from B8.5-9bn to B10bn. However, since the negative factors outweigh the positive factor, net profit of BBL would shrink in this quarter. 

 

- Cut forecast. 2015 profit to weaken along with peers  

 

We revise down earnings forecast for 2015 by 9.5% and 2016 by 11.9%, mainly by reducing net loan growth and NIM forecasts and increasing debt provision expense, average credit cost, and cost to income ratio forecasts to reflect weakening business of BBL and the banking sector. Although assumption of income from other operations is increased, it is not able to offset the negative effects. Accordingly, BBL’s net profit is projected to drop 4.0%yoy in 2015 but rebound 8.9%yoy in 2016 under the hope for improving economy. 

 

- Share price already lower than 12-year average PBV  

 

We recommend buying BBL. The share price has undergone correction until it gets lower than a 12-year average PBV of 1.15x. After the forecast revision, 2015 fair value decreases from B209 to B194 (GGM, based on PBV of 1.07x (1.15x previously), under long-term ROE forecast of 11.5% (12.0% previously).