Bank of Ayudhya

Bank of Ayudhya Plc (BAY) 

 

Earnings beat our forecast by 6.6% 

BAY posted a 3Q15 profit of Bt4.85bn, up 38% YoY and 12% QoQ. The result was 6.6% over our forecast and 9.2% above the Bloomberg consensus. This was because of better fee income growth than modeled. We expected BAY to post fee income of Bt5.1bn but the bank brought in fee income of Bt5.5bn in 3Q15. Pre-provisioning operating profit (PPOP) climbed 23% YoY and 5% QoQ to Bt11.1bn. Earnings for 9M15 represent 80% of our FY15 earnings projection of Bt17bn.

Results highlights

Lending decreased 0.7% QoQ (but rose 27% YoY), which was consistent with our forecast. Corporate and SME loans slipped 3.4% QoQ and 2.7% QoQ, respectively, whereas retail sector business grew 3.0% QoQ. The jump in retail lending (mostly housing and personal loans) made its 3Q15 NIM inch up 7bps QoQ to 3.68% from 3.61% in the previous quarter. Net-interest income (NII) gained 15% YoY and 2% QoQ to Bt14.1bn, in tandem with the rising loan portfolio YoY.

Fee revenue advanced 33% YoY and 10% QoQ to Bt5.5bn. OPEX was Bt9.8bn, up 14% YoY and 2% QoQ. BAY’s cost/income ratio was 46.8% at the end of September, down from 47.4% in 2Q15 and from 48.6% in the same period last year.

Loan-loss provisioning (LLP) dipped 1% YoY and 7% QoQ to Bt4.8bn, in line with our model. BAY’s NPL/gross loan ratio was flat at 2.4% at end-September from last quarter, while its loan-loss-coverage ratio dipped to 139.1% from 142% three months earlier. Special mentioned loans declined a further 1.6% QoQ to Bt46.1bn in 3Q15 after falling 1.4% QoQ in 2Q15. Its NPL was Bt32.9bn, up 3.5% QoQ.

Outlook

We expect 4Q15 earnings to grow slightly QoQ on the positive impact of business consolidation with BTMU on 5 January 2015 and the trend of lower LLP setting.

What’s changed? 

We maintain our FY15 and FY16 earnings projections.

Recommendation 

We have a positive outlook on BAY’s performance during 2Q15 and 3Q15 from better asset quality management and synergy with the BTMU. We have upgraded our rating on BAY to HOLD from SELL, due to 1) the scope for upside on loan growth, 2) the potential reduction in LLP in FY16 from its high loan-loss-coverage ratio of 139%, and 3) synergy with BTMU for new opportunity investment in CLMV markets. We have rolled our BAY target price for the next 12-month horizon to Bt37.00, pegged to a justified YE16 PBV of 1.3x.