Bangkok Bank

Bangkok Bank Plc (BBL) 

 

Investment thesis

We attended BBL’s analyst meeting yesterday, at which management hinted that the FY16 bank’s financial guidance remains unchanged, maintaining its FY15 loan-loss provisioning (LLP) at Bt12bn and a NIM assumption of 2.2%. On that guidance, we have kept our FY16 profit growth forecast of 4.7% to Bt35.8bn. Our target price is set at fair valuation of Bt202, pegged to a YE16 PBV of 1x, which is far below its long-term mean of 1.2x. Again, we expect its FY17 earnings to improve at least 9% to Bt39bn from higher loan demand for government projects, improved NIM and lower LLP. Our BUY rating stands.

FY16 loan growth target remains 3-4%, in line with our figure

BBL anticipated its 1Q16 loans to stay flat from last quarter as most of the corporate sector would like to wait and see how economic conditions fare before investing. Nevertheless, the bank’s management reiterates its FY16 lending growth target of 3-4%. It also expects its 2H16 loan growth to come from greater loan demand among big SMEs, corporations and SOEs. Fee-based income growth remains unchanged at 6-8%. Note that we expect the bank to achieve FY16 loan growth of 4% in line with its management’s guidance. However, management reiterates its cost/income ratio of 45%, below our forecast number of 48.8%.

NPL ratio will be slightly up in 1Q16 and on par with FY16 target

BBL expects its FY16 LLP setting of Bt12bn down from Bt14.6bn last year owing to high loan loss cushion and well managed asset quality. Hence, we have kept our FY16 LLP of Bt12.5bn. The higher LLP could be somewhat offset by its extra gain on investment and NPA sales in FY16, we believe. Note that BBL received unrealized gains of Bt32bn on its investment portfolio at YE15. It also expects its YE16 NPL ratio to be in the range of 3.2-3.3%, unchanged. Meanwhile, the bank anticipates its FY16 NIM of 2.2%, up from 2.1% last year, due to well managed funding costs. We, however, keep our FY16 NIM assumption of 2.1%. We see scope for upsides if the bank is able to post FY16 NIM as targeted. 

Expect 4Q15 earnings to drop 5% YoY on bigger OPEX

We anticipate 1Q16 earnings to drop 5% YoY with expected NIM of 2.2% and flat loan growth YTD. Its 1Q16 LLP will be Bt3bn, up 1% YoY. Its 1Q16 fee income would drop 6% YoY on slow lending activity and stiffer competition. We, therefore, forecast that its 1Q16 earnings will be Bt8.9bn, down 5% YoY but up 16% QoQ (from lower LLP and better NIM). We also expect its pre-provision operating profit to reach Bt12.9bn, down 4% YoY and 5% QoQ as OPEX is expected to rise 2% QoQ and 19% YoY from personal expenses and IT businesses. As such, we expect its 1Q16 Cost/ Income ratio to rise to 49.0% from 43.5% in the same period last year and 47.9% in the previous quarter.