Bangkok Bank

Bangkok Bank Plc (BBL)
Investment thesis
We have cut our BBL earnings forecasts by 7% for FY13 to Bt37.2bn and by 6.4% for FY14 to Bt44bn, as we now assume heavier loan loss provision in FY13 and FY14, lower loan growth and slimmer FY13 and FY14 NIMs than we earlier modeled. Consequently, our YE14 target price declines 8% to Bt232, pegged to a justified YE14 PBV of 1.3x. But BBL looks secure, despite the prevailing economic uncertainty, given its low NPLs/loans ratio of 2.4% and high loan loss coverage of 206%.
The stock is the obvious play for the investment up-cycle and Thai offshore corporate expansion themes because of its size (the biggest single-client lending limit of any Thai bank) and its substantial international branch network. Its big CAR of 16.4% (13.9% for Tier-1) means virtually no risk of a cash call being necessary. BBL’s cheap YE14 PBV of 1.1x (the regional mean is 1.9x) justifies a BUY rating.
Further lending growth for 3Q13, but slower than in 2Q13
Management said 3Q13 lending would post some growth, driven by the SME and corporate categories. We have cut our FY13 loan growth assumption to 8% from 10% in line with BBL’s guidance of 6-8%. The 3Q13 credit cost (loan loss provision/loans ratio) is assumed 45 bps, implying LLP’s for the quarter of Bt1.7bn. Note that BBL also raised its FY13 LLP guidance range to Bt8-8.5bn from Bt6.5-7.5bn. This reflects extra-LLPs of Bt1bn against counter cyclical risk during 2Q13.
3Q13 NIM will be slightly decline QoQ
BBL guides for some QoQ NIM squeeze in 3Q13 because funding costs have risen faster than lending rates. Competition for deposit mobilization remains intense, especially from SFIs, said the bank. We have, thus, revised down our NIM assumptions by 10 bps to 2.46% for FY13 and by 10 bps to 2.57% for FY14. Management guides for an FY14 NIM of about 2.4% with scope to rise next year if interest rates were to increase.
Rising cost/income ratio for 3Q13
The 3Q13 cost/income ratio will be posted at 44-45%, according to BBL, slightly higher than the 3Q12 number. Note that fee income would have declined QoQ (but risen about 10% YoY) and OPEX probably increased QoQ. We assume a 3Q13 cost/income ratio of 45.7% and an FY13 ratio of 44.7%, close to the bank’s guidance (there is normally heavy expense-booking in the fourth-quarter).
Expect 3Q13 profit growth of 15% YoY
We estimate BBL’s 3Q13 earnings at Bt9bn, up 15% YoY but down 12% QoQ. The assumed YoY earnings growth was driven by ongoing SME and corporate business, good OPEX management and fee income. We also expect 4Q13 earnings to decline slightly QoQ because of seasonally heavy OPEX.