Bangkok Bank
October net lending up by 0.3% MoM and 12.5% YTD BUY (maintained) Target Price: Bt221.00 Price (21/11/11): Bt138.00
Bangkok Bank Plc (BBL)
What’s new? BBL reported net lending expansion of 0.3% MoM and 12.5% YTD to Bt1.28trn, as of
end-October. The bank posted loan growth, despite the heavy flooding during the month, led by the corporate portfolio. However, the end-Oct loans/deposits ratio dipped to 89% from 91%% at end-Sept because Oct deposits rose 3.1% MoM, while net lending inched up a much slower 0.3% MoM.
Analysis: 10M11 net loan expansion of 12.5% YTD is substantially above-trend of BBL’s FY11 target range of 6-8%. We conservatively assume aggregate portfolio growth of 11% in FY11 and 7% in FY12 (our FY12 assumption is based on management guidance). We anticipate that BBL’s 4Q11 lending will contract slightly QoQ, dampened by the flooding. We remain optimistic about the outlook for FY12, which is buoyed by both private investment expansion and government spending.
BBL should deliver a good result for 4Q11, supported by a sustained NIM, well-managed OPEX and gains on investments. The Bloomberg consensus forecasts a 4Q11 profit of Bt7.4bn, up 30% YoY but down 3% QoQ.
Action: We believe BBL will prove to be the most resilient in the sector because it has the highest loan loss coverage ratio of 185% (the Bank sector mean is 99%) with a low NPLs/loans ratio of 2.8%, while its lending is dominated by corporate business, which is statistically much less risky than the retail and SME categories. Thus, we do not expect the bank to set bigger loan loss provisions, as we don’t anticipate a significant rise in NPLs (caused by flooding in 4Q11). Besides, BBL will be a major beneficiary of the private sector investment up-cycle and should also get a boost from government stimulus spending next year. Its capital adequacy ratio was solid at 16.1% at end-September 2011 and it has the biggest single-client lending limit of any Thai financial institution.
Currently, BBL trades at a very cheap YE12 PBV of 0.95x (against a long-term average PBV of 1.2x). In comparison, the local bank mean is 1.35x and the regional peer average is 1.5x. We recommend the stock as a safe long-term investment.
