Bangkok Bank

Bangkok Bank Plc (BBL)

Q3 2012’s profit contracts qoq…loan and NIM decrease, tax expense hikes
BBL posted 3Q12’s net profit at B7.80bn, contracting 12.1%qoq but still growing 3.3%yoy due to following factors. 1) NIM declined 8bp to 2.45% - as expected. Consequently, net interest income showed only the flat growth qoq and yoy from a rise of funding cost (+10bp) in this quarter from aggressive deposit raising of 6.2%qoq as a preparation for the world economic fluctuation and loan issuance in the future. Loan to deposit ratio (LDR) decreased to 87.3% at end-3Q12 from 92.1% at
end-1H12, while yield remained quite stable. Net loan in 3Q12 grew only 0.6%qoq due to repayment of some corporate loans, but impressive growth was still seen from SME and retail loans. Overall, net loan in 9M12 has thrived 5.3% from end-2011, still in line with FY2012’s target
we have estimated at 10%yoy (BBL’s loan usually grows robustly in 4Q because it is a high season of SME). 2) Corporate income tax increased to a normal level of 25.6% in this quarter – in line with projection, after falling 15.8% in 2Q12 (normally, BBL will make high tax provision in 1Q
and 3Q for the tax expense in 2Q and 4Q, which is usually lower than the provision). 3) Fee income in 3Q12 remained quite flat qoq – as projected, consistent with a deceleration of corporate loan transaction.Although retail loan has shown larger growth, it comprises only 11% of total loans so only insignificant benefit was seen on the fee income. In terms of debt provision, it was made at a policy level of B1.6-1.7bn/quarter, in line with overall NPL that dropped slightly to 2.53% of
total loan, making coverage ratio (LLR/NPL) at end-3Q12 soar to 193.1%.

Maintain forecast. Pressure from NIM foreseen in Q4 2012
Despite maintaining our net profit forecast for FY2012-2013, we have become more concerned. Although earnings in 9M12 at B24.7bn were in line with our net profit forecast for FY2012 (comprising 74% of the forecast), earnings in 4Q12 might be pressured by NIM that stays flat or
even decreases from continuous aggressive deposit raising to maintain LDR at 85-90% as mentioned above. Moreover, portfolio of retail loan has increased lower than FY2012’s target. In addition, deposit and loan rate cut by 0.125%-0.15% might depress NIM in 4Q12 and make
earnings in the quarter weaker than expected, which might hinder net profit growth in 2012 from hitting the target.

Gradually buy on weakness. Share price to underperform continuously

We reiterate our recommendation to buy but only gradually and on price weakness. Although the current share price has 30% upside from 2013’s fair value, 1.59x PBV, at B245, with pressure from a likely decelerating earnings in 4Q12 we believe BBL’s share price would underperform the
sector in the next 3 months.