Bangkok Bank
3Q14 Preview: the best investment cycle play BUY
Bangkok Bank Plc (BBL)
Minimal deterioration in asset quality. BBL’s 3Q14 preview guidance took us by
surprise. It has raised provisions QoQ as a result of a reclassification of one large SME
loan as an NPL after failing to get debt restructuring done in time. However, the bank
maintains its full-year provision target at Bt8.5bn, expecting provisions to ease in 4Q14
following the restructuring of this loan. A rise in NPLs will pull its loan loss reserve
coverage down in 3Q14 from 216% at 2Q14, the highest in the sector. BBL expects its
NPL ratio to increase to 2.4-2.5% from 2.3% at 2Q14. We forecast a 10% QoQ increase in
provisions to Bt2.6bn in 3Q14, then easing to Bt1.6bn in 4Q14.
Expect moderate loan growth in 4Q14–2015, then strong in 2016. After
essentially flat loan growth in 9M14, BBL expects loan growth to come back
moderately from 4Q14 through 2015 before turning strong in 2016 as infrastructure
projects get underway. Management expects government stability and action to
restore confidence in private investment. However, BBL expects little infrastructure
spending in 2015. It is also not seeing major capex expansion in the private sector yet.
BBL is keeping its 2014 loan growth target at 3-5%. We forecast loan growth of 4% for
2014F, 7% for 2015F and 8% for 2016F.
Requesting a lift in NVDR limit. BBL shares recently felt selling pressure after the
MSCI cut its weighting after its NVDR shares hit the 35% limit. BBL has asked the BoT to
expand the limit but is still uncertain whether or not this will be granted. BBL’s NVDR
limit has been lifted twice already, from 25% to 30% and then to 35%.
3Q14F preview –flat. We forecast a slip of 1% YoY and 2% QoQ in 3Q14 earnings to
Bt8.8bn. BBL guides to QoQ zero loan growth, QoQ stable net interest margin (NIM), a
slight recovery in fee income on QoQ basis but flat YoY, QoQ stable investment gain,
QoQ ease in cost to income ratio to 42-43%, and QoQ hike in provision as noted above.
Myanmar banking license. BBL is the first – and so far the only - Thai bank of nine
foreign banks applying, to win a limited banking license in Myanmar. The approval is
preliminary for 12 months, during which time the winning banks must comply with
Central Bank of Myanmar requirements before starting limited operations by the end
of that period. Foreign banks in Myanmar are limited to providing loans to overseas
companies in foreign currency and foreign exchange activities with only one branch
allowed.
Maintain as top Buy: The share price weakness following the MSCI weighting change
offers an accumulation opportunity for BBL shares. We see BBL as the best play on the
investment cycle of all banks: it has the strongest balance sheet in all aspects (LLR
coverage, capital adequacy ratio and liquidity), it has highest exposure to corporate
loans and is in the best position to benefit from AEC integration in terms of network.
