Bank of Ayudhya (BAY)

Bank of Ayudhya Plc (BAY)

Q1 2013’s profit to grow 9.1%qoq, thanks to subsidiaries’ profit. Provision is normal
We estimate 1Q13’s net profit of BAY at B4.48bn, growing 19.3%qoq and 30.6%yoy and
comprising 24% of our FY2013’s net profit forecast due to following factors. 1) Noninterest
income growth in 1Q13 is projected as high as 21.7%qoq and 53.1%yoy,
mainly from the growth of the securities business, the insurance business, and profits from
investment. At the same time, the fee income is anticipated to grow by 1.4%qoq and
19.1%yoy, which is still in line with the bank’s target for FY2013 at 15%yoy, thanking to fee
income from non-loan transactions, such as Bancassurance and fund sale. 2) Debt
provision in 1Q13 would decrease 6.1%qoq (but remaining quite stable from
1Q12). Credit cost is projected to drop to 130bp from 140bp in the previous quarter, which
is in line with the policy rate in 2013 of the bank. Moreover, asset quality has become
stronger as the bank has sold NPLs of B2.5bn in this quarter, making NPLs (consolidated
financial statement) at end-1Q13 decrease to lower than 2.39% of total loans and lower
than 1.55% of total loans for separate financial statement. On the other hand, pressuring
factors are still foreseen in this quarter. 1) Net interest income in 1Q13 is anticipated
to stay flat from the previous quarter (but still growing 9.7%yoy), in line with
decelerated net loan growth in 1Q13 and very low compared with the bank’s net interest
income growth target for FY2013 at 12%yoy. Despite magnificent growth in new car loans
in the first 2 months of the year (average by 2% a month) and the growth in corporate
loans that are mainly long-term loans for investment, they have been offset by the
contraction in credit card loans and personal loans, mainly from repayments of credit card
debts for LTF-RMF purchases in the end of last year. Accordingly, overall net loan growth
has remained quite flat from the prior quarter. NIM in 1Q13 is estimated to drop slightly to
4.14%. Loan yield is projected to stabilize, while funding cost would decrease as a result of
repricing of interest rate for special deposits that have been previously raised aggressively
by the bank (the new rate is higher than that for savings deposits but lower than that for
fixed deposits). 2) Cost to income ratio in 1Q13 would remain high at 49.9% and be
higher than FY2013’s target of the bank at lower than 48%, due mainly to high employee
expenses. Nevertheless, overall, the aforementioned positive factors would be able to
compensate for all the negative factors and thus boost 1Q13’s profit to a new high.
Focus on loan and fee income, boosting NIM in 2013. Provision tends to decrease
We still have a positive outlook toward BAY’s business in 2013, projecting net profit growth
in 2013-2014 at 23.9%yoy and 20.3%yoy, respectively. With the bank’s continuous
aggressive penetration into high yield loans, including retail and SME which are promising as
a result of the minimum wage raise to B300 a day and the starting salary increase for the
graduated to B15,000 a month as well as strong demands for SME loans along with growing
demands for corporate loans from entrepreneurs running supply chain business. At the
same time, the bank has also given significance to corporate loans, despite their low yield,
in order to create an opportunity for expanding loan-related fee income and non-loanrelated
income such as cash management, Bancassurance, and other retail transactions.
Buy. Share price is substantially laggard peers against low PBV and PER
We reiterate our BUY recommendation for BAY. 2013’s fair value at 1.91x PBV (GGM) is B39
(based on long-term ROE at 16%), which implies around 13% upside from the current share
price. We believe BAY has a chance to outperform the market again because the current
share price has relatively low PBV and PER compared with the sector’s average, contrary to
its promising earnings growth.