Bangkok Bank

Further scope for upside BUY (maintained) Target Price: Bt181.00 Price (09/02/12): Bt164.00

Bangkok Bank Plc (BBL)

Investment thesis: Yesterday, we hosted a BBL luncheon with institutional investors. BBL president, Chartsiri Sophonpanich, and other exectutives spoke about the bank's key successes and its outlook. The feedback from the luncheon was good. BBL's prospects are solid—its loan portfolio will sustain growth, fueled by a private sector investment up-cycle, economic recovery and further international business expansion. Moreover, it has the lowest loans/deposits ratio and the highest loan loss coverage ratio (199%) among Thai banks, so has the greatest scope for corporate lending (and earnings upside from YoY lower loan loss provisioning) in the sector. Our BUY rating stands.

Robust loan growth: Based on a GDP growth range of 4.6%, BBL has set an FY12 lending target range of 6-8% (we expect 7%), following 17% expansion last year. The bank anticipates growth across all lending categories. SME lending, which represents 26% of the aggregate portfolio, is targeted to increase by 8-9%, while the combined corporate and international lending (63% of the portfolio) objective is 6-8%. The retail growth target is 10-12%, but it represents only 11% of the portfolio. Note that if GDP growth in 2012 were to overshoot projections (or if BBL were to buy portfolios from third parties), we would expect stronger lending expansion.

Fee income recovery: BBL has set a 10% fee revenue growth target for FY12 (it was 5% YoY in FY11, dampened to some extent by the 4Q11 flooding). The international lending business, more cross-selling of financial products and increased fee income related to loans will drive fee revenue. We see great scope for BBL to build fee income from global market services, bancassurance and banking transactions.

Some pressure on NIM ahead: Given fierce pricing competition and the BOT's planned levy on bank deposits to service FIDF debt, BBL expects its NIM to come under pressure. The bank guides for an FY12 NIM of 2.7%, down slightly from 2.76% last year.

Further efficiency enhancements: BBL anticipates a cost/income ratio of 41-42% for FY12. The drivers will be continuing loan growth, a sustained NIM,

increased fee income expansion (more cross-selling, both in Thailand and abroad) and good OPEX management.

Key takeaways from BBL luncheon

Last Thursday, we hosted a BBL luncheon at the Dusit Thani Hotel with institutional investors, "BBL's Vision for 2012". President, Chartsiri Sophonpanich, and other executives spoke at the event. The discussions mostly involved key successes to date, the bank's FY12 outlook and its business targets. The key talking points from the luncheon are summarized below:

Buoyant FY12 lending outlook

Based on a GDP growth range of 4.6%, BBL has set an FY12 lending target range of 6-8% (we expect 7%), following 17% expansion last year. The bank anticipates growth across all lending categories. SME lending, which represents 26% of the aggregate portfolio, is targeted to increase by 8-9%, while the combined corporate and international lending (63% of the portfolio) objective is 6-8%. The retail growth target is 10-12%, but it represents only 11% of the portfolio. Note that if 2012 GDP growth were to overshoot projections (or if the bank were to buy portfolios from third parties), we would expect stronger lending expansion.

Scope for loan growth upside—international lending and portfolio acquisitions: Note that last year BBL targeted a lending growth range of 6-8%, but posted spectacular expansion of 17.1%. It is probably capable of managing a similar (if not quite so spectacular) outperformance of its guidance this year. The government plans heavy spending of Bt2.3trn during fiscal-years 2012-16, much of it on infrastructure projects (especially mass transit) and flood prevention. As the biggest bank with one of the highest capital adequacy ratios, BBL has the biggest single-client lending limit in the country, which gives it an advantage over the competition as a potential vendor of big-ticket loans.

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