Bangkok Bank

Bangkok Bank Plc (BBL)

Q1 2013’s profit to grow 7.9%qoq…Loan and NIM stay flat; fee thrives
We project BBL’s net profit in 1Q13 at B8.21bn, growing 7.9%qoq and 1.7%yoy
due to following driving factors. 1) Net interest income is estimated to
escalate 3.3%qoq and 2.7%yoy. Although overall net loan growth in 1Q13 is
projected to stay quite flat qoq (though it would grow 6.8%yoy, which is in line
with the bank’s target for FY2013 at 6-8%yoy but still lower than our target of
12%yoy) due to repayments of big debtors, this is a normal situation and not
worrying. Excluding this effect, growth would be seen from every type of loans,
particularly corporate loans including long-term loans for investment and working
capital loans, and loans for overseas businesses that have recovered from the
prior year. NIM in 1Q13 is anticipated to stabilize from the previous quarter at
2.23%. Even though NIM has been pulled down by a slight decrease in yield,
there has been an advantage from funding cost that remained in a downtrend this
quarter. 2) Fee income is estimated to thrive 3.8%qoq and 11.2%yoy, in
line with the bank’s target of 10%yoy, due mainly to the growth in fee income
from non loan related retail transactions, especially Bancassurance and fund sale
which have grown remarkably in this quarter. 3) Non-interest income is
projected to grow 17.8%qoq (but still decreasing 9.7%yoy), mainly
because of recognition of substantially increasing dividend income in this quarter.
4) Operating expense is anticipated to decrease by 8.9%qoq (but still
increasing 10.5%yoy), chiefly as a result of a decline in the expense after it
had risen aggressively in the end of last year, except for employee expense that
has remained high in this quarter due to additional financial aids for employees
(apart from bonus). 5) Debt provision is estimated to decrease 30.3%qoq (but
still rising 14.1%yoy). The bank would keep its normal debt provision policy for
2013 at B7bn/year, which is equivalent to a credit cost of around 42bp, due to
confidence toward a high coverage ratio (LLR/NPL) of 207.1% at end-2012 (as a
result of aggressive debt provision in the past 2 years) and NPL that has
remained quite flat. Despite an adverse effect from a significant increase in the
tax expense (to 20%) because the bank has begun to book deferred tax for the
first time in this quarter, the more positive factors would compensate for the
negative factor and thus vigorous net profit growth is still foreseen in this quarter,
which would comprise 20% of our FY2013’s net profit forecast.

Benefit from CAPEX cycle. Ready for aggressive strategy in 2013
More aggressive growth is foreseen for the business outlook in 2013, with BBL’s
strong point of corporate and SME loans that have promising growth potential in
2013 under facilitating environment of mega CAPEX cycle and investment to
prepare for the AEC. Moreover, the bank will strengthen weak points through a
rebranding to show its strong points, especially its position as a leader in SME and
housing loans. This is believed to benefit net profit in 2013-2014, supporting it to
make a new yearly high.

Buy. To outperform sector and market continuously
We recommend buying BBL. The current share price still has 24% upside from
2013’s fair value at 1.79x PBV (GGM) at B280. Since the beginning of the year,
the share price has managed to outperform the sector and the market, and is
believed to continue outperforming, embraced with the returning business
opportunity of BBL. Moreover, the current PBV is very low at only 1.5x, versus the
sector’s average of more than 2x.