Bangkok Bank

Bangkok Bank Plc (BBL)
Investment thesis: Corporate lending is in the midst of an ongoing up-cycle as major Thai firms expand capacity, work on state infrastructure projects or establish new operations offshore. BBL stands out from its peers as the banker of choice for big companies and the greatest beneficiary of the up-cycle. We also believe that its earnings profile would prove resilient in the event of an economic slowdown.
BBL is the only Thai bank with a significant offshore operation (25-full-service branches) or much business outside of Thailand (17% of its total lending). That makes it the obvious banker for Thai firms with major operations overseas or looking to expand abroad. It also has the biggest single-client lending limit of any Thai bank, which confers two advantages. It can lend more without having to syndicate. And because it doesn’t have to syndicate as much as other banks, it has little uncollateralized debt. Furthermore, BBL has the highest NPL coverage in the sector of 181%. The stock trades at a low YE12 PBV of 1.4x against a regional mean at 1.9x. Our BUY rating stands.      
Steady profit growth in 3Q12: We forecast a 3Q12 net profit of Bt8.5bn, up 13% YoY but down 4% QoQ. The YoY bottom-line growth is due to lending expansion of 12% YoY (and 1% QoQ), flat LLPs of Bt1.6bn/quarter, despite a slightly higher cost/income ratio of 42-43% (which, however, was down from 46.5% in 2Q12). Note that term loans comprise 60% of total new loans approved during 9M12, up from 50% for the same period last year. 
3Q12 NIM will dip QoQ, then recover: BBL expects its 3Q12 NIM to fall by 5-10 bps QoQ, due to an aggressive deposit mobilization program during 2Q-3Q12. As such, its deposits rose 5% QoQ in 3Q12 and its LDR dropped below 90% from 92.5% at end-June. The bank’s FY12 NIM target range is 2.6-2.65%. We expect a 3Q12 NIM of 2.7%, down from 2.8% for 2Q12. Its 4Q12 NIM will rise in step with stronger loan growth.
Momentum will be sustained into 4Q12: Earnings will expand QoQ in 4Q12 on seasonally better loan growth, a fatter NIM and greater fee-based income (mostly loan-related fees and sales of mutual fund and bancassurance products). Typically, corporate lending jumps in 4Q12, buoyed by seasonality. We also expect govt disbursements to rise during the quarter.