Bangkok Bank

Bangkok Bank Plc (BBL)
- 3Q13 better than expected but still contracts qoq. Loans remain weak, fee income drops
BBL posted 3Q13 net profit at B8.96bn, 4% higher than our projection but contracting
12.7%qoq (growing 9.2%yoy) due to following factors. 1) Fee income in 3Q13
decreased 8.5%qoq (though still increasing 9.9%yoy) – worse than expected.
Fee income growth in 9M13 was as high as 14.2%yoy, very high when compared with
the bank’s target at only 10%yoy. The decline in the fee income in this quarter resulted
from decreasing income from bancassurance transactions (insurance/life insurance
selling) and lower income from capital market related subsidiaries following fluctuating
market. Fee income from loan related transactions and fund selling, on the other hand,
still showed continuous growth. 2) Operating expense increased 19.4%qoq and
7.1%yoy – better than expected. The expense rose significantly in this quarter
because the bank did not recognize an income from reversal of estimated loss on the
impaired assets transferred to Thai Asset Management Corporation (TAMC) at B2.58bn
like it did in the prior quarter. As a result, cost to income ratio in 3Q13 shifted to
42.80% from 33.75% in 2Q13. 3) Income from other operation fell 27%qoq (still
growing 29.8%yoy) – as expected, mainly because of a decrease in profit from
investment sale (mostly bond portfolio), profit from NPA sale, and dividend income. On
the contrary, there were still positive factors as follows. 1) Net interest income in
3Q13 grew 1.8%qoq and 1.4%yoy – better than projected. Net loan growth stood
at 1.1%qoq and 8.7%yoy, thanking to both corporate and SME loans, while housing
loans, despite showing very strong growth, accounted for a small portion of total loans.
Overall, 9M13 net loan growth increased to 5.1% from end-2012, still in line with the
bank’s target for FY2013 at 6-8%yoy and our target at 8%yoy. NIM in 3Q13 rose
slightly by 2bp to 2.29% - better than expected because loan yields increased, while
funding cost still stayed flat qoq. 2) Debt provision normalized, decreasing
48.6%qoq (but still increasing 12.8%yoy) – better than expected because in
2Q13 the bank had brought the exceptional income from TAMC to increase provision in
order to increase the coverage ratio. As a result, credit cost in 3Q13 dropped to only
41bp from 81bp in 2Q13, against NPL (gross) that increased more than B2bn in this
quarter (no details have been released so far) to 2.46% from 2.39% of total loan at
end-2Q13. Consequently, coverage ratio (LLR/NPL) decreased slightly. As the overall
pressing factors outweighed the positive factors, 3Q13 profit was impacted.
- Profit growth foreseen in 4Q13. 2014 to be boosted govt investment projects
We maintain our earnings forecast for FY2013-2015. Although 9M13 earnings already
make up 71% of our FY2013 forecast, earnings in 4Q13 are projected to grow again as
supported by recovering fee income on seasonal effect and net loan growth during the
high season that would boost yield and NIM of loans. For the business outlook in 2014,
BBL keeps the growth target close to that of 2013 for loan, NIM, and fee income.
Despite concerns about the B2tr loan bill, the bank is still confident that the
infrastructure projects would proceed under the current government’s annual budgets,
while the government’s investments would be seen since 2H14 onward. All these factors
would help boost EPS growth in 2013-2015 to 19.9%yoy, 9.3%yoy, and 9.8%yoy,
respectively, as we have projected.
- Reiterate BUY and select as top pick. Lowest PBV and PER among big banks
We recommend BUY. The current share price has 14% upside from 2013 fair value of
B230 (1.48x PBV, GGM). Although the share price has risen rapidly previously, its PBV
and PER are still the lowest among big banks, while dividend yield can be expected at 3-
5% p.a. in the next three years.