Bank of Ayudhya

Bank of Ayudhya Plc (BAY)

- 4Q13 profit to grow 7.8%qoq. Core businesses strong in high season
We project BAY's 4Q13 net profit at B4.09bn, growing 7.8%qoq and 8.9%yoy, mainly
due to strong growth in core businesses in high season, as follows: 1) Growth in
4Q13 net loan income is projected at 1.7%qoq and 11.1%yoy. Though 4Q13 net
loan growth is expected at 4.2%qoq and 11.6%yoy, NIM is predicted to drop by 4bp to
4.12%. Though interest cost is likely to increase slightly qoq, loan yield would contract,
as loan growth would mostly consist of low-yield corporate loan (short- and mid-term
loan for investment). SME and retail loan is projected to grow nicely in high season,
whereas car leashing loan has declined in the first two months of 4Q13 due to a fierce
competition against captive market (Mazda launched a new model, which received a
positive feedback from consumers). Overall, FY2013 net loan growth is projected at
11.6%yoy, slightly lower than targeted at 12%yoy. 2) 4Q13 fee income is expected
to grow by 2.9%qoq and 9.5%yoy, mainly from an increase in fee income from
non loan-related bancassurance and credit card businesses. 3) Other operating
income in 4Q13 is projected to grow by 9.6% qoq (but falling 21.3%yoy), as
B136m extraordinary income from fund selling in Vayupak fund (net after tax) would
be booked. 4) Debt provision is likely to drop by 4.3%qoq (but increasing by
3.9%yoy). 4Q13 credit cost would decrease from 142bp in 3Q13 to 130bp, close to a
normal level of 140bp. Gross NPL to total loan ratio might not be high; despite an
increase in NPL from used car loans, BAY has sold NPL of B1.9bn. Overall, we project
BAY's FY2013 net profit at B14.9bn, growing 2.3%yoy, 5.1% higher than the forecast.
- To revise forecast after FY2013 earnings report to reflect FY2014 strategy
We will revise FY2014-2015 after FY2013 earnings report in mid-January 2014 in order
to reflect FY2014 business strategy with the information we have (excluding an effect
from a merger with BTMU's branch in Thailand). BAY projects its loan growth
conservatively at 8-9%yoy, in line with FY2014 GDP growth forecast of 3-4%, and fee
income is expected at 14-15%yoy. We hold a positive outlook toward BAY's long-term
business strategy that it would be more aggressive, mainly the coming of loans clients
from Japan who transact in Thailand or Thai-Japanese joint companies in order to
develop sales of other financial product in the BAY group. Moreover, BTMU's strength is
its global banking business under its parent company in Japan - Mitsubishi UFC
Financial Group (MUFG). MUFG is a holdings company with shares in over 540 financial
institutions in 40 countries and over 40 million retail clients and 0.5 million corporate
clients. We believe that BAY would benefit from business synergy with the new ally,
especially Japanese clients both in and outside Thailand.
- "HOLD" for dividend. Low trading liquidity makes BAY less attractive
We recommend "HOLD" for dividend. After the tender offer, BAY's free float decreased
to only 3%, making BAY less attractive. We derive FY2014 fair value (1.91x PBV, GGM,
16% long-term ROE) at B41.47.