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Bank of Ayudhya
Phatra Securities has a "buy" rating on Bank of Ayudhya's stock, with a price objective of Bt22.50 per share.
BAY reported unconsolidated earnings of Bt1.2 billion for the first three months of the year, up from a loss of Bt3.7 billion in the fourth quarter last year but down (due to the expiry of tax credit) 33 per cent year on year. The improved performance was largely from the cost saving on recapitalisation. Despite a higher return on assets, the lower gearing due to the capital increase shrank the return on equity (ROE). The gearing dropped dramatically from 14 times in the fourth quarter last year to nine times, driving ROE down to 8 per cent. From a capital management standpoint, ROE improvement would need either a significant asset mark-down or very strong asset growth in order to achieve the ROE target. The bank's new chief executive officer has roughly discussed his thoughts about how to raise the bank's ROE to 20 per cent by 2010. These include higher wallet shares of 4.5 million customers, very strong growth on fee-based income from selling fees and off-balance sheet banking, as well as a shift of asset mix toward retail banking for better risk-adjusted margins. These are generally in line with the broker's assumptions.
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