Bank of Ayudhya

Bank of Ayudhya Plc (BAY)

Q4 012’s profit to contract slightly qoq, but 2012’s performance still magnificent with prospects in 2013

Q4 2012’s profit to contract slightly qoq. Loan growth exceeds target but provision is high
According to the recent analyst meeting regarding BAY’s business outlook in Q4 2012
and business plan in 2013, everything goes in a positive way and there is nothing
to worry. Overall earnings in Q4 2012 are projected to be in line with our estimate
with a net profit of B3.63bn or a contraction of 2.9%qoq but the growth of 6.5x
from the same period last year (yoy). The contraction has likely resulted from debt
provision which is projected to increase by more than 18.5%qoq to deal with the
transferred credit card loans of HSBC and to increase coverage ratio, not from the
increase of NPL. Credit cost in this quarter is anticipated at 159bp, up from 142bp
in 3Q12. Excluding such item, norm profit in Q4 2012 would grow more than 6.1%qoq
due to following contributions. 1) Net interest income is projected to thrive by
3.4%qoq and 15.6%yoy, in line with the aggressive net loan growth of 5.6%qoq
and 15.1%yoy in Q4 2012 which is a high season of SME and retail loans (car leasing,
credit card, and personal loans). However, overall loan portfolio would decrease
slightly because of debt repayment of some corporate loans during the end of the
year. Consequently, total net loan growth in FY2012 is projected high at
15.1%yoy, slightly exceeding our previous projection at 14%yoy. NIM in Q4 2012
would stay quite flat at 4.18%. Despite a continuous increase in loan yield, overall
funding cost is projected to increase due to the bank’s issuing of sub debts worth
of more than B14.8bn with an interest rate of 4.7%. 2) Fee income is projected to
grow 6.6%qoq and 27.4%yoy, in line with the solid retail loan growth because of a
high season. Accordingly, overall fee income in FY2012 would escalate 18.4%yoy,
beating BAY’s target at 16%yoy. In terms of operating expense, in spite of a
projected increase of 2.8%qoq in this quarter, cost to income ratio would still be
controlled close to that of the prior quarter at 50%. Overall, net profit in FY2012 is
projected to hit a historical high at B14.5bn or the growth of 56.5%yoy.

Loan and fee income to remain bright in 2013. Provision projected to decrease
We maintain our net profit forecast for FY2012-2013, projecting net profit in 2013
to grow 11.9%yoy due to 12%yoy growth in net loan from every type of loans,
especially corporate, as the bank would join in loan issuance for mega projects that
benefit from the government’s investment projects, as well as the SME, which
would show prospect growth. Accordingly, NIM in 2013 would remain strong at
4.28%. Likewise, the bank has also projected to see the growth of above 16%yoy
in fee income. Debt provision is projected to decrease; credit cost would fall to
130bp from 142bp in 2012.

Reiterate “Buy” but in short term share price still pressured by issue about new partner
We reiterate our BUY recommendation for BAY. 2013’s fair value at 1.90x PBV
(GGM) is B38 (based on long-term ROE at 16%), which implies around 46% upside
from the current share price. However, the share price might be pressured by a
selling of stakes held by GE, a major shareholder with 25% stakeholding, to a new
partner, which is still not clear about the business direction and the offering price,
so BAY would still underperform the market in the short term.