Bangkok Bank
2016 guidance: Focus on stability BUY
Bangkok Bank Plc
In its 2016 guidance, BBL seems focused on keeping an even keel in troubled weather led by external factors. Preliminary guidance for 2016 points to a step down in provisions with sustainable top line growth. We maintain our 2016F earnings growth at 4% with a positive view on its NIM and more conservative provision forecast than the bank. Maintain Buy.
2016 targets—stable mode. BBL forecasts 2016 GDP at 3-4% but sees downside risk from the global economy, exchange rate volatility and low commodity prices. The bank has set cautious 2016 financial targets: loan growth at 3-5% (vs. 5% for 2015), fee income growth at 8% (vs. 11% for 2015), sustainable NIM (vs. -15 bps in 2015), stable cost to income ratio at ~45%, and a continued slight increase in NPLs but a slight easing in provisioning. We maintain our forecast of 4% earnings growth for 2016. Note that we conservatively forecast a 32% drop in gain on investment and NPAs, which drags down 2016F earnings growth.
Easing provisions in 2016? BBL plans to step down provisions slightly in 2016 but expects a small rise in NPLs. It claims to have already classified most troubled clients as NPLs with adequate provisions. Its LLR coverage slipped to 185% at YE2015 from 204% at YE2014, though remains the sector’s highest. Amidst the economic challenges, we conservatively forecast stable provisions of Bt14.6bn (0.75% of total loans) in 2016.
Room for NIM improvement. BBL expects NIM to be stable or improve slightly in 2016. Unlike other banks, its NIM recovered substantially in 2H15 after a slip in 1H15, as its deposits were only just re-priced to lower cost in 2H15: BBL’s re-pricing of deposits appears to be later than peers. Although we see limited room for a further reduction in cost of funds in 2016, we expect its 2016 NIM to be higher than in 2015: keeping NIM at 2H15 level should not be difficult since it was higher than for the year 2015. We expect a 10 bps rise in NIM for 2016 after suffering a 15 bps squeeze in 2015.
Maintain Buy with unchanged TP. We maintain Buy with unchanged TP of Bt190 (0.95x 2016F BVPS) as: 1) we believe the current valuation of 0.81x PBV is undemanding; 2) its strongest LLR coverage gives it a plump cushion during dips; and 3) it is in a good position to get in on the accelerating public investment.
