Bangkok Bank

Bangkok Bank Plc (BBL )

Profit beat our model by 6.9%: BBL booked 2Q12 earnings of Bt8.9bn, up by 20% YoY and 10% QoQ. The result exceeded both our estimate and the consensus by 6.9%, due mainly to a lower effective corporate tax rate than modeled. BBL paid an effective rate of only 16%; we had assumed 23%. Pre-provisioning operating profit rose 7% YoY and was flat QoQ at Bt11.3bn. 1H12 earnings represent 48.5% of our FY12 forecast.
Results highlights: Lending expanded by 2% QoQ and 13% YoY to Bt1.54trn at end-June with growth across the corporate, SME and retail portfolios. Net interest income (NII) was Bt13.9bn, up by 6% YoY and 5% QoQ. 2Q12 fee income climbed by 11% YoY and 5% QoQ to Bt6.1bn. OPEX was Bt9.8bn, up by 12% YoY and 15% QoQ. Thus, the cost/income ratio rose to 46.5% in 2Q12 from 42.7% the previous quarter.
Net interest margin expanded 11 bps QoQ (but slipped 6 bps YoY) to 2.80% (we had expected a NIM of 2.77%). BBL set normalized loan loss provisions of Bt1.7bn for the quarter, up by 8% YoY and 8% QoQ. The NPLs/loans ratio was 2.7% at end-June, up slightly from 2.6% three months earlier, while the loan loss coverage ratio dipped to 187% from 193% at end-March.
Outlook: We anticipate stronger QoQ lending growth in 3Q12, led by the corporate and SME categories. NIM should be sustained at about the 2Q12 level.
What’s changed? We maintain our FY12-13 earnings projections at Bt35bn and Bt42.5bn, respectively.  
Recommendation: Our BBL BUY rating stands, premised on: 1) the bank’s resilience to economic volatility (the largest loan loss coverage ratio in the sector of 187%), 2) efficiency enhancements, 3) scope for earnings upside from 2H12 lending and fee income growth and 4) an inexpensive valuation—a YE12 PBV of 1.4x against a sectoral mean of 1.55x.