Bangkok Bank

Bangkok Bank Plc (BBL) 

4Q14 profit was 12% below our number

BBL posted 4Q14 earnings of Bt8.8bn, up 14% YoY but down 8% QoQ. The result was 12% below our forecast and 2% short of the Bloomberg consensus, attributable to heavier OPEX than expected. BBL’s OPEX rose by 14% YoY and 13% QoQ to Bt12bn (we had assumed OPEX of only Bt11bn, up 7.5% YoY). The bank’s 4Q14 pre-provision operating profit was Bt11.2bn, down by 3% YoY and 14% QoQ. FY14 earnings represent 97% of our earlier FY14 forecast.

Results highlights

Lending increased by 2.3% QoQ and 1.7% YoY to Bt1.78trn at YE14. Although SME, international lending and mortgage business expanded, corporate loans declined on a big-ticket repayment. Deposits totaled Bt2.1trn, up a sharp 7.3% QoQ and 6.4% YoY. BBL’s NIM dipped by 13 bps QoQ and 5 bps YoY to 2.29%, as deposit growth rose faster than lending expansion. As such, BBL’s LDR declined to 85% at YE14 from 91% at end-September. Fee income rose by only 1% QoQ and 1% YoY to Bt6.8bn, in line with our assumption. OPEX was Bt12.1bn, up by 14% YoY and 13% QoQ. BBL’s cost/income ratio increased to 51.9% from 45.2% the previous quarter and 51.1% in 4Q13.

The bank set loan loss provisions of Bt939m for 4Q14, down by 46% YoY and 72% QoQ. BBL’s NPLs/loans ratio declined slightly QoQ to 2.1% at YE14 from 2.3% at end-September, while the loan loss coverage ratio rose to 204% from 198% at end-September.

Outlook

We expect the bank to deliver YoY earnings growth for 1Q15, led by lending expansion and higher fee income.

What’s changed? 

Given stiffer competition for business this year, we have cut our NIM assumptions from 2.49% to 2.36% for FY15 and from 2.54 to 2.44% for FY16. As such, our profit forecasts decline by 6.7% for FY15 to Bt42bn and by 4.7% for FY16 to Bt48.6bn.

Recommendation 

Lower expectations for earnings prompted us to cut our YE15 target price by 5.7% to Bt232, pegged to a PBV at 1.27x (BBL’s long-term mean). However, we still expect FY15 lending, fee income and earnings to expand. Note that 61% of BBL’s total loan portfolio is corporate business, which will recover ahead of retail lending (Thai household debt remains high). Furthermore, corporate clients are statistically safer risks than SME customers, so LLP needs are lighter. 

 

At YE14, BBL’s NPLs/loans ratio was only 2.1% and it had the biggest loan loss coverage ratio in the sector of 204%. The stock currently trades at a cheap YE15 PBV of 1.0x against a regional mean of 1.5x and a Thai Bank sector average of 1.4x. Our BUY rating stands.