Bangkok Bank

Bangkok Bank

Bangkok Bank Plc (BBL)

Profit was 7% below our model
BBL booked 3Q12 earnings of Bt7.8bn, up 3% YoY but down 12% QoQ. The result was 7% below our estimate and the Bloomberg consensus, due mainly to a higher effective corporate tax rate than modeled. BBL paid an effective rate of 25.6%; we had assumed 23%. Additionally, its dividend income plunged by 65% YoY and 59% QoQ to Bt395m (our number was Bt650m). Thus, pre-provision operating profit slipped 8% YoY and was flat QoQ at Bt11.3bn. 9M12 earnings grew 16% YoY to Bt24.8bn, which represents 71% of our previous FY12 forecast.

Results highlights
Lending expanded by 0.6% QoQ and 5.4% YTD to Bt1.55trn at end-September. 3Q12 lending was disappointing (we had expected 2% QoQ growth), due to a big ticket corporate debt repayment. The SME and retail portfolios grew well. 3Q12 deposit mobilization far outpaced lending growth, up by 6% QoQ and 12% YTD. Hence, NIM fell 19 bps QoQ to 2.61%, as expected. 3Q12 fee income climbed 5% YoY and dipped 3% QoQ to Bt6.1bn (we had expected fee income growth of 8.5% for the quarter). OPEX was Bt9.2bn, up 7% YoY but down 7% QoQ. Thus, the cost/income ratio declined to 44.7% in 3Q12 from 46.5% in 2Q12.
BBL set normalized loan loss provisions of Bt1.5bn for the quarter, down by 9% YoY and 7% QoQ. The NPLs/loans ratio declined to 2.6% at end-September from 2.7% three months earlier, while the loan loss coverage ratio rose to 191.8% from 187.1% at end-June.

Outlook
We anticipate stronger QoQ lending growth in 4Q12 on seasonality, led by the corporate and SME categories. We also expect BBL’s corporate tax rate to drop back to 23% in 4Q12 from 25.6% in 3Q12.

What’s changed?
In order to fine-tune for the dive in dividend income in 3Q12 and disappointing fee income growth in 9M12, we have cut our FY12 and FY13 fee income growth assumptions to 5% and 8%, respectively, from 9% and 12.5%. Also, our FY12 dividend income forecast declines from Bt3.4bn to Bt2.9bn. We have, thus, cut our FY12-13 earnings projections by 5.4% and 6.0%, respectively, to Bt33.1bn and Bt40bn.  

Recommendation
Because of our earnings forecast cuts, we have revised down our YE13 target price from Bt265 to Bt246, pegged to a PBV of 1.63x. Our BUY rating stands, premised on: 1) the bank’s resilience to economic volatility (the largest loan loss coverage ratio in the sector of 192%), 2) efficiency enhancements and 3) an inexpensive valuation—a YE13 PBV of 1.2x against a regional mean of 1.6x.