Bangkok Bank

Bangkok Bank Plc (BBL)  

 

BBL is playing the same tune as the other big banks: less optimism is leading to cuts in targets for loan growth, NIM and asset quality. In response we slice our 2015F by 4% and cut TP to Bt208 (1.15x 2015F BVPS) from Bt230. We see no reason to downgrade our rating, however, as valuation remains undemanding at below 1x PBV, its balance sheet continues to be the sector’s strongest, able to withstand the down-cycle in 2015 and it is well positioned to get in on the 2016F investment up-cycle.   

Lower 2015 targets. In recognition of the lack of any real pickup in the economy, BBL has lowered its sights for 2015 in terms of loan growth, NIM and asset quality. It cut loan growth target to 2-4% (vs. 1.7% for 2014) from 3-5% with a more bearish view on all segments. It lowered its 2015 NIM target to 2.1-2.2% from 2.3-2.4% as a result of May’s lending interest rate cut. It also lifted its 2015 provision target to Bt10bn (Bt3bn in 1Q15, Bt3bn in 2Q15F and Bt4bn in 2H15F) from the original target of Bt8.5-9bn, anticipating a rise in NPL ratio to 2.4-2.6% by YE2015 vs. 2.2% at 1Q15, mainly from loans to the seafood and textile businesses. The bank did keep its 2015 fee income growth target at 6-8%. To fine tune our forecast with the new guidance, we cut our 2015F by 4% to Bt33bn (-9% YoY), reducing 2015F loan growth from 4% to 3% and raising provision forecast to Bt10bn from Bt9.1bn. We maintain our 2015F NIM at 2.05% (-20 bps QoQ) and 2015F fee income growth at 8%. 

2Q15F preview: Sluggish. We forecast BBL’s 2Q15F earnings to decrease 12% YoY and 15% QoQ to Bt8bn, based on expectation of loan growth of 1% QoQ (0% 1H15 YTD), a sharp >10 bps QoQ NIM squeeze to below 2%, a YoY rise but QoQ fall in fee income, both YoY and QoQ rise in opex and QoQ stable provisions of Bt3bn with a slight rise in NPLs. Its NIM is expected to hit bottom in 2Q15F and we expect cost of funds to come back down in 2H15 as its deposit campaign closes.  

 

Maintain Buy with a slash in TP. We slash target price to Bt208 (1.15x 2015F BVPS) from Bt230 as a result of a 4% downward revision in 2015F earnings. We maintain Buy: 1) we believe the current undemanding valuation of below 1x PBV already discounts the 2015F down-cycle; 2) BBL has the strongest balance sheet with which to cushion it during the dip; and 3) it is in a good position to get in on 2016F investment up-cycle triggered by accelerating public investment.