BUY (maintained) Target Price: Bt225.00 Price (29/05/12): Bt181.00Bangkok Bank Plc (BBL)
Investment thesis: Last week we arranged a non-deal roadshow for local fund managers to meet with BBL executives, Chaliga Saengudomlert (AVP of Investor Relations). Management guidance confirmed our bullish view of the bank's prospects for 2Q12—QoQ lending growth and fee income expansion are driving earnings for the quarter. We anticipate that BBL's NIM will be sustained QoQ. Expectations of strong 2Q12 numbers should push up the share price ahead of results in late July. We maintain our BUY rating.
FY12 loan growth target of 6-8%; scope for upside: Management continues to sit with its FY12 lending growth target range of 6-8%, which would represent a sharp slowdown from the 17% posted for last year. Note that the target doesn't include funding for government projects or financing for big-ticket acquisitions by clients. We expect BBL to deliver lending growth of 12% this year, driven by the corporate and SME categories. The bank's lending expanded 2.9% YTD during 4M12, an annualized rate of just under 12%.
FY12 NIM will be 2.6-2.7%: BBL guided that FY12 NIM will be in the 2.6-2.7% range, down slightly YoY because of the BOT's 0.47% levy on bank funding sources and intensifying competition for business and deposit mobilization. We expect a NIM of 2.7percent for 2Q12, up slightly QoQ. We conservatively assume an FY12 NIM of 2.7%, close to the margin posted for FY11.
Lower loan loss provisions = rising profitability: The bank plans to set loan loss provisions in the range of Bt6-6.5bn (equal to 0.4-0.5% of gross loans) for FY12, down 40-46percent from the Bt12bn set last year. The implication is that BBL will set provisions of Bt1.6bn-1.7bn/quarter. Neither the bank nor we have any significant concerns over NPLs—its loan loss coverage ratio is the highest of any of the big-four banks at 193%.
FY12 cost/income ratio down, efficiency up: Premised on good loan growth, a stable NIM, fee income expansion and lower OPEX, management guided for an FY12 cost/income ratio of 41-42%, down from 44% last year. The bank has set a fee-based income growth target of 10percent for this year, driven by credit cards, trade finance and bancassurance sales.
Key takeaways from local NDR
Reaffirm 6-8% lending growth in FY12 with scope for upside: BBL is positive about the Thai economic outlook, driven by investment spending by both the government (up 13% in 2012 from a contraction of 8.7% last year) and the private sector (up 14.5percent from 7.2% last year). The bank guides for FY12 lending growth of 6-8% after FY11 expansion of 17% (despite the flooding). At end-March 2012, its aggregate loan portfolio's composition was corporate 47%, SME 26%, retail 10% and international 17%. The bank anticipates lending growth by category of 6-8percent for corporate, 8-9percent for SME, 10-12percent for retail and 6-8% international.
The international lending business, the most substantial of any Thai bank, means regional risk diversification. BBL has 25 full-service overseas branches (and one representative office in Yangon) across the region and elsewhere (China, Hong Kong, Taiwan, Singapore, Indonesia, USA, UK, Japan, Malaysia, the Philippines, Vietnam and Laos), the most of any Thai bank. That overseas presence paves the way for BBL to act as financier for Thai firms when they make new investments abroad (such as for the foreign acquisitions of BANPU, TUF and IVL). We see scope for upside from further foreign acquisitions by Thai-based firms this year.
Received little BOT soft funding: BBL was the recipient of just Bt13bn in BOT soft funding for clients affected by the 4Q11 flooding, equal to only about 1% of total lending. The bank must add Bt5bn from conventional funding sources and lend on to flood-ravaged SME and retail clients at a concessionary rate of 3%. We have already included the BOT's soft funding into our model.