Bangkok Bank

Investment thesis

We have cut our BBL loan growth projections from 6% to 3% for FY14 and from 6% to 5% for FY15, as the pace of the post-coup economic recovery has so far been slower than we had anticipated. Thus, our earnings projections are pared back by 5% for FY14 to Bt38bn and by 3.4% for FY15 to Bt45bn. The lower profit expectation caused us to cut our YE15 target price 5% to Bt246, pegged to an unchanged justified YE15 PBV of 1.35x. Note that BBL has both the highest loan loss coverage ratio of 216% and the highest CAR of 17.2% in the sector. The stock trades at an inexpensive YE15 PBV of 1.1x against a regional mean of 1.5x. BUY!

3Q14 loans flat QoQ, but will expand in 4Q14

BBL said that 3Q14 loans will be posted flat QoQ, due to slow business (particularly corporate and retail). But the bank stands by its FY14 lending growth target range of 3-5% (we cut our FY14 lending growth assumption to 3% from 6%), following 9.2% expansion in FY13. Business will improve in tandem with a new govt stimulus package in 4Q14 and ground-breaking on state infrastructure projects in 2015. BBL expects an FY14 NIM of 2.3%; it posted 2.4% for FY13. The bank guides that its 3Q14 NIM will be flattish QoQ, supported by lower funding costs (in part aimed at trimming excess deposits). Swifter lending in 4Q14 (led by working capital loans) will boost NIM in 4Q14.

NPLs will rise slightly in 3Q14, due to slow TDR

The bank expects the end-Sept NPLs/loans ratio to report a slight rise to 2.4% from 2.3% at end-June, due to delayed troubled debt restructuring for a corporate client. However, we expect the bank to manage its asset quality comfortably compared with its competition, especially in 4Q14 onward. Note that about 61% of its loan portfolio comprises corporate clients, who as a group entail less risk than SME or retail borrowers. Our model assumes LLPs of Bt8.5bn in both FY14 and FY15. We expect the bank to set 3Q14 LLPs of Bt2.4bn, up by 38% YoY and 3% QoQ.

Lighter OPEX will make for a 3Q14 cost/income ratio of 42-43%

BBL guides for a 3Q14 cost/income ratio of 42-43% (down from 46% in 2Q14), in line with its FY14 cost/income ratio target range of 43-44%. Management indicated that 3Q14 OPEX will post a QoQ decline, while fee income will report a modest QoQ rise. We assume a 4Q14 cost/income of 42-43%, slightly below the bank’s guidance range.

3Q14 earnings will rise YoY on lighter OPEX and higher fee income

The bank looks set to deliver 3Q14 earnings of Bt9.5bn, up by 5% QoQ and 6% YoY, led by good OPEX management. Our model indicates 3Q14 OPEX of Bt10bn, down 9% QoQ. Likewise, we estimate a 3Q14 pre-provision operating profit of Bt13.5bn, up by 6% QoQ and 9% YoY, supported by a slightly fatter NIM and well-managed OPEX.