Bangkok Bank

Bangkok Bank Plc (BBL) 

As expected, lower operating earnings but better asset quality. 4Q14 net profit of Bt8.8bn (+14%YoY, -8%QoQ) was in line with our estimates. This reflected a modest recovery in loan growth (+2% YoY and QoQ), narrowed NIM (-12 bps QoQ) from rising cost of funds, a substantial 18% QoQ decrease in non-NII on absence of extra income with a 5% QoQ pick-up in fee income, a QoQ seasonal hike in opex and improving asset quality. Despite a sharp 72% QoQ fall in provisions, LLR coverage rose to 204% from 198% on the back of a 2% (Bt1.1bn) QoQ slash in NPLs.  

Gradual recovery in tandem with infrastructure progress. We expect earnings to return to gradual growth, up 7% in 2015 and 11% in 2016 from 1% in 2014 as infrastructure projects – with their large loan needs – get going. We expect a modest pick-up in loan growth to 4% for 2015F from 2% for 2014, sustainable NIM, stable non-NII growth at 6% with rising fee income growth to 7% for 2015F from 2% for 2014 and minimal ease in credit cost to 46 bps vs. 49 bps for 2014.  

Maintain as top Buy for three reasons. 1) It has the strongest balance sheet by all measures: LLR coverage, capital funds, and excess liquidity, and the largest room to absorb the great amount of investment on the horizon. 2) It has the highest exposure to corporate loans, which will benefit from a move forward in infrastructure projects. 3) It is a laggard play as the only large bank trading at valuation below historical mean (1x 2015F PBV vs. 1.2-1.3 x historical mean).