Bangkok Bank

Bangkok Bank Plc (BBL)

- Business to go smoothly in 1Q14
We project BBL's 1Q14 net profit at B8.48bn, growing 10.4%qoq but dropping 5.9%yoy.
Operating expense is expected to drop to normal after the high season has passed,
lowering cost to income ratio to 42.87%. BBL's core business in 1Q14 is projected to
stay unchanged from 4Q13, better than preliminarily expected. Though total net loan is
expected to stay flat qoq, demand for working capital loan has been increasing and
housing loan and loan for overseas businesses are likely to grow nicely. NIM is projected
to stay flat. Loan yield is not likely to be affected by the policy interest rate cut because
BBL can raise fee for some corporate loan. Interest expense is likely to stay unchanged.
Fee income is likely to stay flat qoq but decline yoy because of unfavorable capital
market. Income from other operations is projected to drop as a result of lower profit
from investment portfolio and non-performing asset (NPA) selling. In terms of asset
quality, BBL's NPL has been increasing along with peers', but probably not significantly.
BBL has still kept its debt provision at B8-8.50bn/year, same rate as other quarter.
- To stand firm against slowing economy
We maintain our FY2014-2015 earnings forecast. FY2014-2015 EPS growth is expected
at 12.0%yoy in 2014 and 9.1%yoy in 2015 under the assumption that the sector's net
loan growth is 5%p.a and NIM is 2.22% in 2014 and 2.26% in 2015. For the worstcase
scenario that BBL's net loan growth is 3%yoy as a result of the political turmoil,
BBL's net profit is not likely to decline much. Every 1% of net loan growth below our
forecast is expected to decrease FY2014 net profit by only 0.41% of our forecast. BBL is
currently very advantageous: 1) Retail loan makes up only 12% of BBL's total loan,
which is the smallest percentage among major commercial banks, so asset quality
would not have a severe effect on BBL. 2) Thanks to high coverage ratio, debt provision
is not likely to be raised and BBL's earnings forecast would not be revised down.
- Sector's top pick
We recommend buying BBL as the sector's top pick. FY2014 fair value (GGM, 1.18x PBV,
13.3% long-term ROE) is B197, implying 7% upside with 1.1x PBV and possibly 4-
5%p.a dividend yield; BBL's total returns is likely to exceed 10%.