Bangkok Bank

Bangkok Bank Plc (BBL) 

 

BBL’s 4Q15 preview indicated heavier provisioning than we anticipated - but top line growth (both loan and fee income) beat its modest targets. The preliminary guidance for 2016 points to a step down in provisions with sustainable top line growth.  

 

4Q15 preview: Provisions exceeded expectation. We forecast stagnant earnings YoY with a slight drop of 4% QoQ to Bt8.7bn, based on the following guidance.  

 

1) Provisions are expected at Bt14bn for 2015, above our forecast of Bt13bn and earlier guidance of Bt12bn. At the same time, BBL saw its NPLs increase at a slower pace in 4Q15, mainly in corporate and SME loans. We raised 2015 provisions by 8% to Bt14bn to fine tune with the latest guidance.  

 

2) Loan growth for 2015 (3.7% YTD as of November) appears to have exceeded its modest target of 2-3%, mainly driven by SME, consumer and international loans. We thus raised 2015F loan growth to 4% from 3%. 

 

3) NIM continued improving QoQ in 4Q15 on easing cost of funds, but it says is 2015 NIM is expected to be well below 2014’s, as we had anticipated.  

 

4) Non-NII growth for 2015 exceeded its target of 6-8%, mainly from mutual fund and loan-related fees. This is in line with our forecast of 10%. 

 

5) Cost to income ratio for 2015 is 44-45%, in line with the earlier guidance.    

 

2016 preliminary guidance: Easing provisions. BBL expects to step provisioning down in 2016 on the basis of fewer new NPLs. This is in line with our forecast of a slight decrease in provisions to Bt13.5bn from Bt14bn in 2015F. However, we are still concerned about asset quality and provisioning risk. The bank gave a rough guidance of 2016 loan growth at 3-4% (4% SCBS forecast), based on BoT and NESDB GDP growth forecasts of 3-4%. The bank expects 2016 NIM to be stable, in line with SCBS forecast. It expects to sustain its fee income growth at the same rate as 2015. This lines up with our fee income growth forecast of 10% for 2015F and 2016F.   

 

Maintain Buy with unchanged TP. We maintain Buy as: 1) we believe the current undemanding valuation of 0.82x PBV already discounts the 2015F down-cycle; 2) its balance sheet is strongest, giving it a plump cushion during dips; and 3) it is in a good position to get in on the 2016F investment up-cycle triggered by accelerating public investment.