Bank of Ayudhya

Bank of Ayudhya (BAY)

1Q14 profit far below expectation

BAY's 1Q14 net profit was reported at B3.26bn, dropping 19.2%yoy
but leaping 225.5%qoq (10% below our expectation). Debt
provision decreased by only 40.1%qoq (worse than expected). 1Q14
credit cost was 199bp (expected at 150bp), higher than the bank's
policy of 160bp. Gross NPL to total loan ratio increased to 1.86%
(company financial statement) and 2.97% (consolidated financial
statement), mainly from SME and retail loan, higher than FY2014
target of 2.5%. Still, BAY's normalized profit grew by 4.1%qoq.
Operating expense dropped by 9.1%qoq, mainly from lower
expense on marketing and impairment of assets. Total income from
core businesses fell. Net interest income dropped by 5.0%qoq
(worse than expected); net loan fell by 0.4%qoq but grew by
12.3%yoy (better than expected). Housing, SME and car leasing
loan rose, but corporate and credit card loan dropped because
repayment exceeded new loan. 1Q14 NIM fell by 31bp to 4.05%
(worse than expected) as a result of loan restructuring. Some SME
loan was counted as low-yield corporate loan and retail loan
declined, thus lowering yield. Though interest expense dropped
thanks to the growth in low-cost CASA deposit, it could not
compensate for the pressing factors. Overall fee income fell by
5.7%qoq, fee income from loan and credit card slipped while fee
income from cross sales grew. Income from other operations
plunged by 26.1%qoq, mainly due to lower profit from fund selling
(Vayupak fund) and non-performing asset (NPA) selling.

- 2Q14 profit to stay flat
As 1Q14 net profit made up only 21% of FY2014 net profit forecast,
we might revise down BAY's FY2014 earnings forecast. Although we
have already made a conservative assumption, 1Q14 NIM, net loan
growth and credit cost were dreadful, so their targets in 2014 might
be revised down in near future. 2Q14 earnings forecast is expected
to stay flat or decline qoq because the core businesses are not likely
to recover soon; car leasing loan and NIM is likely to slip further.

- Taking a rest after merger with BTMU Thailand
We derive BAY's FY2014 fair value (GGM, 1.26x PBV, 12.5% longterm
ROE) at B27.50, no upside left. Liquidity is very low. Moreover,
with its recent merger with BTMU Thailand, 2014 is not likely the
year for growth of BAY.