Bangkok Bank

Clear roard ahead

Bangkok Bank Plc (BBL)

Investment thesis

Business with corporates and big SMEs continues to expand as major Thai firms build new capacity, work on state infrastructure projects or establish new operations offshore. BBL stands out from its peers as the banker of choice for big companies and the greatest beneficiary of the investment up-cycle. We also believe that its earnings profile would prove resilient in the event that the economy weakened. BBL currently trades at a low YE13 PBV of 1.3x against a regional mean of 1.9x. Our BUY rating stands.

Good QoQ profit growth for Q4 2012

We forecast a 4Q12 net profit of Bt8.3bn, up by 41% YoY and 7% QoQ. The QoQ bottom-line growth is due to lending expansion of 3% QoQ, improved fee income and a very low effective tax rate of 16%. Our model indicates that BBL's cost/income ratio dropped to 48percent for the quarter from 53% in 4Q11 (but up from 44.7% in 3Q12, due to seasonality—expense recognition at the end of the year). Note that its effective 4Q12 corporate tax rate will fall with the use of tax credit items, such as specific loan loss reserve—we estimate it at 20percent for FY12.

FY13 loan growth target range of 6-8% looks unduly modest

BBL guides for 4Q12 loan growth of at least 2% QoQ, driven by corporate, SME and international lending. That would make for FY12 lending expansion of 10% YoY. Note that its 11M12 YTD net loan growth was 8%. Based on the guidance, we have reduced our FY12 loan growth projection from 12% to 10%, but cut our FY12 LLP assumption from Bt7bn to Bt6.7bn. Thus, our FY12 earnings forecast of Bt33bn remains unchanged. The bank has set an unduly modest FY13 loan growth target range of 6-8%, led by corporate and SME business (excluding M&A deals and new loan demand related to state projects, such as flood protection). We forecast much stronger FY13 loan growth of 10%.

FY13 NIM target range of 2.5-2.6%

Despite good lending, BBL guides that its 4Q12 NIM will be squeezed by 10-15 bps QoQ, because of the 25 bps cut to the Repo Rate on Nov 27, 2012, which intensified competition for business and, hence, deposit mobilization. That would imply a 4Q12 NIM of 2.65%. We conservatively.

assume an FY12 NIM of 2.67%, slightly better than the 2.6% posted for FY11. BBL has set a modest FY13 NIM target range of 2.5-2.6%.

Normal LLP-setting for FY12 and FY13

Management said FY12 LLPs LLPS will be Bt6.5bn-7bn, which would put 4Q12 LLPs in the range of Bt1.8-2.3bn. The bank guides for an FY13 LLP policy range of Bt6.5bn-7bn (like last year). BBL isn't worried about its asset quality as its NPLs/loan loss reserve ratio was 192% at end-September, the highest in the sector. Its YE12 NPLs/portfolio ratio will remain basically flat QoQ at 2.6%, according to management.