Bangkok Bank

Bangkok Bank Plc (BBL)

- Q1 2013’s profit shifts 21.5%qoq, thanks to fee income and investment profit
BBL reported net profit in 1Q13 at B9.01bn, growing 21.5%qoq and 7.8%yoy, beating our
projection due to following driving factors. 1) Fee income escalated 4.6%qoq and
11.6%yoy – as expected, which was in line with the bank’s target of 10%yoy. The
growth came mainly from fee income from retail transactions such as credit cards,
electronics services, and especially Bancassurance, fund sales, and life insurances that
thrived significantly in this quarter. 2) Non-interest income grew 60.5%qoq and
23.5%yoy – substantially higher than expected, due mainly to the growth of profit
from sales of investments in bonds and equity instruments, profit from asset sales, and
dividend income that increased remarkably in this quarter. 3) Operating expense
decreased 4.7%qoq (but still increasing 14.2%yoy) – lower than expected, chiefly as
a result of a decline in the expense seasonally 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). 4) Debt provision declined
30.7%qoq (but still growing 13.5%yoy) – as expected. The bank would keep its
normal debt provision policy for 2013 at B7bn/year, which is equivalent to a credit cost of
around 44bp, due to confidence toward a high coverage ratio (LLR/NPL) of 203.4% at end-
1Q13 (as a result of aggressive debt provision in the past 2 years). Asset quality was also
very strong in this quarter, reflecting from NPLs to total gross loans ratio that still stabilized
at 2.34% at-end 1Q13. On the other hand, income tax expense rose significantly to 23.5%,
from an unusually low level in the previous quarter. BBL has begun to book deferred tax for
the first time in this quarter. Moreover, net interest income in 1Q13 stayed quite flat with
the growth of 0.6%qoq and 4.9%yoy – worse than expected, in line with net loan growth in
1Q13 that quite stabilized qoq (but still growing 5.4%yoy). The net loan growth was in line
with the bank’s target for FY2013 at 6-8%yoy, but still lower than our target of 12%yoy.
However, the low net loan growth resulted from repayment of big debtors, which is a
normal situation and not worrying. Excluding this effect, growth was 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 stayed flat from the previous quarter at 2.29%. 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. Overall, with all the positive factors, the growth
was still seen in 1Q13’s net profit, which accounts for 22% of our FY2013’s net profit
forecast.
- Keep forecast. To get more benefits from aggressive business strategy in 2013
We maintain our earnings forecast in 2013-2014. For the overall business outlook in 2013,
BBL would show more aggressive growth with its 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, with an objective to increase fee income. This is believed
to benefit net profit in 2013-2014, which is projected to grow average by 23.8%qoq and
13.9%yoy and to make a new yearly high.
- Reiterate “BUY”. Share price outshines peers, reflecting improving fundamentals
We recommend buying BBL. The current share price still has 23% 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 compared with the sector’s.