Bank of Ayudhya

Bank of Ayudhya Plc (BAY)

 

Earnings were 26% greater than our forecast

BAY posted a 4Q15 profit of Bt5.1bn, up 30% YoY and 5% QoQ. The result was 26% over our forecast and 11% above the Bloomberg consensus. This was because of better non-interest income growth than was modeled. We expected BAY to post non-interest income of Bt5.8bn but the bank received fee income of Bt6.8bn in 4Q15. Pre-provisioning operating profit (PPOP) soared 21% YoY and 1% QoQ to Bt11.2bn. Earnings for FY15 jumped 32% YoY to Bt18.6bn, which represents 109% of our FY15 earnings projection of Bt17bn.

Results highlights

Lending rose 5.4% QoQ (and 28.7% YoY), which was slightly better than our growth forecast of 2.5% QoQ. Corporate and retail loans rose 6.4% QoQ and 6.6% QoQ, respectively, whereas the SME sector was flat QoQ. The jump in retail lending (mostly housing and personal loans) drove its 4Q15 NIM to inch up 5 bps QoQ to 3.73% from 3.68% in the previous quarter. Net-interest income (NII) climbed 18% YoY and 4% QoQ to Bt14.6bn, in tandem with its rising loan portfolio YoY.

Fee revenue advanced 19% YoY but down 3% QoQ to Bt5.3bn. OPEX was Bt10.3bn, up 15% YoY and 5% QoQ. BAY’s cost/income ratio was 47.9% at YE15 from 49.1% in the same period last year.

Loan-loss provisioning (LLP) was flat YoY and tiptoed up 1% QoQ to Bt4.9bn—in line with our model. BAY’s NPL/gross loan ratio declined to 2.2% at YE15 from 2.4% at end-September, while its loan-loss-coverage ratio climbed up to 141% at YE15 from 139% three months earlier. Special mentioned loan rose 5% QoQ to Bt48.6bn from Bt46.1bn in 3Q15. Its NPL was Bt32.2bn at YE15, down 2% QoQ.

Outlook

We expect 1Q16 earnings to grow slightly QoQ and YoY on the positive impact of better loan growth, well managed NIM and the trend of lower LLP setting.

What’s changed? 

We maintain our FY16 and FY17 earnings projections.

Recommendation 

Again, we feel more positive about BAY’s performance during FY16 based on its better asset quality management and synergies with the Bank of Tokyo-Mitsubishi UFJ’s (BTMU) Bangkok branch, for which since Jan 2015 it has been the only commercial banking platform in Thailand. We have maintained our rating on BAY as a HOLD due to 1) its scope for upside on loan growth, 2) the potential cut in LLPs in FY16 from its high loan-loss-coverage ratio of 140% and 3) the synergies with BTMU for new investment opportunities in CLMV markets. However, we have seen that the only major risk to BAY’s stock is its illiquidity (free float is now only 3%).