Bangkok Bank

Bangkok Bank Plc (BBL)

Keep 2014 loan growth target at 5-7%
BBL revealed its vision for the business in 2014, estimating the GDP growth at 3%
under a projection for the political situation to improve in 2H14. While viewing the
political turmoil as only a short-term negative factor, in the long run BBL foresaw rising
loan demand as a result of the upcoming AEC liberalization that would attract foreign
investors to Thailand, particularly in auto parts and food industries that adopt a supply
chain operation. Moreover, intra regional trade has also increased from Laos, Cambodia,
Myanmar, and Vietnam, which would benefit BBL that has engaged in overseas loan
transactions by more than 15%. In addition, economic growth in Thailand’s provincial
areas, particularly those near neighboring countries’ borders, has also improved. For
FY2014 target, BBL maintained its net loan growth target at 5-7%yoy, driven mainly by
corporate loans that account for over a half of the bank’s loan portfolio. Demands for
working capital loan for export and investment credit for overseas investment are
projected to escalate. NIM is estimated close to that of 2013 at +/-2.30% as there is
still a risk from the interest rate downtrend. Fee income is also projected to increase
10%yoy, mainly from cross selling, fund, and life insurance transactions.
- Profit to revive in 1Q14
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. According to our study, BBL would get the second most impact
from the policy rate cut (following KTB). At every 25bp decrease in the loan and deposit
rate, 2014 NIM of BBL will drop by 5.9bp while net profit will decrease by 4.2% from the
current forecast. If BBL has to reduce its interest rates following the policy rate cut, we
will have to revise our 2014 net profit forecast since the current one has still not
included an assumption for the 2014 interest rate cut of 25bp.
- Top pick, with 4-5% p.a. dividend yield
We reiterate to buy BBL and select it as a top pick of the banking sector. The current
share price has a low PBV of only 1.1x. 2014 fair value, at 1.18x PBV (GGM), is B197,
implying 11% upside, under long-term ROE forecast of 13.3%. Dividend yield can be
expected at 4-5% p.a. on average.