Bangkok Bank

Bangkok Bank Plc (BBL)

Q2 2013’s profit to grow vigorously qoq. Fee income growth exceeds target
We estimate BBL’s net profit in 2Q13 at B9.33bn, making a new quarterly high by
growing 3.6%qoq and 5.2%yoy due to following contributions. 1) Fee income
growth in 2Q13 is projected at 6.8%qoq and 18.5%yoy, very high compared
with the bank’s target of only 10%yoy, thanking mainly to Bancassurance
transactions (life insurance/insurance business) and fund selling, while loan-related
fee income has also shown impressive growth. 2) Operating expense in 2Q13 is
projected to decrease 3.3%qoq and 5.6%yoy, mainly from a decrease in
employee expense after an increase in expense on financial aids for employees in
1Q13. Cost to income ratio is projected to drop to 40.35% from 42.19% in 1Q13. 3)
Net interest income in 2Q13 is anticipated to show slight growth of
0.8%qoq and 0.4%yoy. Although net loan growth is estimated as much as
3.7%qoq and 7.1%yoy in this quarter, the growth in June has come mainly from
corporate loans, which have still not fully generated fee income for the bank.
Nevertheless, it has confirmed that the net loan growth in 2013 would be able to
make it to the target of 6-8%yoy, because of the net loan in 1H13 that has shifted
2.9% from end-2012 compared with no growth in 5M13. Other loans, at the same
time, would also show continuously growth, especially SMEs that have thrived
remarkably since the beginning of 2013 and would probably exceed 2013’s target at
10-12%yoy. NIM in 2Q13 would weaken slightly due to pressure from yield as the
bank has focused more on corporate loans and from such high loan growth at the
end of the quarter that the bank cannot generate income to catch up with. However,
the factor to suppress earnings in this quarter is a decrease in other income, such as
profit from selling of investment money (mainly bond portfolio), but it is
compensated by increasing FX gain. Moreover, debt provision expense in 2Q13 is
anticipated to increase by 9.1%qoq and 14.2%yoy, but there is nothing to worry
about the quality of debt, and the expense is still in line with the policy level of 2013
at B7.5bn a year, which is equivalent to a credit cost of around 45-50bp. NPL to
total loan is estimated to stabilize at 2.34%.
- Maintain forecast. To benefit from more aggressive strategy in 2013
We maintain our earnings forecast for 2013-2014. The business outlook in 2013
would be more aggressive than 2012, thanking to corporate and SME loans that
would show high growth in 2013 under the mega capex cycle and investments in
preparation for AEC liberalization in 2015. Despite rising concerns about the B2tr
loan bill, the bank is still confident that the infrastructure projects would proceed
under the current government’s annual budgets. Moreover, the bank attempt to
improve its weakness by boosting the fee income has also succeeded, considered as
another factor to support EPS growth in 2013-2014 to our projection of 23.8%yoy
and 13.9%yoy, respectively.
- Reiterate to BUY. Share price already undergoes correction. PBV, PER still low
We recommend BUY for BBL. The share price still has 43% upside from 2013’s fair
value of B280 (1.79x PBV, GGM). The share price has declined substantially
previously, with very low PBV and PER, against the business opportunity, creating
advantages for BBL.