Bangkok Bank

Bangkok Bank Plc (BBL)

 - 4Q13 profit shrinks qoq….loan grows but NIM contracts, expense increases
BBL reported 4Q13 net profit at B7.68bn, contracting 14.2%qoq, 3% worse than our
projection (but still growing 3.6%yoy) due mainly to the following reasons. 1) Net
interest income dropped 2.3%qoq (though quite stable yoy) – as expected,
against the net loan growth of 4.0%qoq and 9.2%yoy that came mostly from short-term
working capital loans. Overall, FY2013 net loan growth slightly exceeded the bank’s
upper target of 6-8%yoy. NIM in 4Q13 contracted 10bp to 2.19% (a quarterly record
low in several years) as a result of lower loan yield after the 25bp cut in the RP 1-day
policy rate. Moreover, substantial booking of loans in December 2013 that would still not
be able to fully generate income was another factor to aggravate the yield, against
rising funding cost since most deposit in this quarter was special deposit that had higher
cost than general deposit. 2) Fee income decreased 1.7%qoq (still rising
2.7%yoy though) – as projected. Fee income growth in FY2013 slightly exceeded
the bank’s target, standing at 11.2%yoy. Income from bancassurance (insurance/life
insurance selling) and capital-market-related subsidiaries declined as a result of
decelerating capital market quarter on quarter, whereas fee income from loan-related
transactions and fund selling still showed good growth. 3) Operating expense in
4Q13 rose 9.1%qoq and 4.7%yoy – higher than expected, mainly because of
seasonal effect. Cost to income ratio in 4Q13 shifted to 47.88% from 42.82% in the
previous quarter. In terms of asset quality at end-2013, NPL to total loans dropped from
2.46% at end-3Q13 to 2.18%. Debt provision in 4Q13 still stabilized qoq, with credit
cost of over 40bp – better than expected, which is still in line with the bank’s target for
FY2013. Overall, FY2013 net profit equated to B35.9bn, growing 12.7%yoy, making the
year’s high.
- Maintain 2014-2015 forecast. Low NIM still depresses 1Q14 earnings
We maintain our earnings forecast for FY2014-2015, projecting EPS growth of
12.0%yoy and 9.1%yoy, respectively, under net loan growth forecast of 5% p.a. and
NIM of 2.22% in 2014 and 2.26% in 2015. Credit cost is anticipated to stabilize at
around 45bp. Although net profit in 1Q14 would recover from 4Q13 as a result of
decreasing operating expense, yield and NIM would still be adversely impacted by the
interest rate downtrend.
- Reiterate to buy. PBV only 1.1x, dividend yield over 4% p.a.
We reiterate to buy BBL. The current share price has a low PBV of only 1.1x. 2014 fair
value, at 1.18x PBV (GGM), is B197, implying around 10% upside, under long-term ROE
forecast of 13.3%. Dividend yield can be expected at 4-6% p.a. on average in the next
three years.