Bangkok Bank

Bangkok Bank Plc (BBL)

Investment thesis
We expect BBL to post steady earnings growth for 1Q13, in-trend with our FY13 profit forecast of Bt40bn. The bank has the lowest loans/deposits ratio (87%) and the highest loan loss coverage ratio (207%) among Thai banks, so has the greatest scope for corporate and SME lending upside (and YoY earnings upside from lower loan loss provisioning) in the sector. Additionally, it has a big capital adequacy ratio of 16.2% (11.9% Tier-1), so there is no risk of a cash call being necessary. Given a steady business growth profile and a cheap YE13 PBV of 1.5x (against a regional mean of 1.9x), we maintain our BUY rating.

Q1 2013 lending assumed flat QoQ, due to big-ticket loan repayment
Management reiterates an FY13 lending growth target range of 6-8% (the same as last year’s target). Note that its FY12 loan growth exceeded its target somewhat. BBL guides that its loan portfolio was flat QoQ at end-March, due to a big-ticket corporate loan repayment.  Its 1Q13 NIM will post a slight QoQ rise (2.48% in 4Q12). We expect a 1Q13 NIM of 2.52%. Given anticipation of stronger lending demand in 2H13 (mostly corporate and SME), we maintain our FY13 loan growth assumption of 10%.

Good asset quality management
BBL has set an FY13 credit cost (loan loss provision/loans ratio) range of 45-50 bps of gross loan for FY13. This means its FY13 loan loss provisions will be in the range of Bt6-7bn (against Bt7.2bn last year). Its big loan loss coverage ratio of 207% with an NPLs/loans ratio of 2.3% virtually obviates the risk of the bank having to set counter-cyclical provisions. We expect BBL to set 1Q13 LLPs of Bt1.75bn, up 14% YoY. 

Better efficiency from the building of scale
The bank expects its fee income to grow 10% this year, driven by loan-related fees and sales of bancassurance and mutual funds. Its 1Q13 net fee income will post a rise of about 10% YoY, in line with its FY13 target, according to management.  Thus, BBL reiterates an FY13 cost/income ratio target in the range of 43-44% following 44% last year. Its 1Q13 cost/income ratio will be close to 43%, said management. We conservatively project cost/income ratios of 44.7% for 1Q13 and 44.0% for FY13.

Expect steady profit growth for 1Q13
Assuming lending growth of 6.2% YoY (but flat QoQ), a NIM of 2.52%, normal loan loss provisions of Bt1.75bn and a lower headline corporate income tax rate of 20%, we model for a 1Q13 net profit of Bt9bn, up by 11% YoY and 9% QoQ. We expect BBLs earnings to rise further in 2Q13, led by lending growth and a fatter NIM.