Bangkok Bank

Q4 2012's profit a little lower than projected. Grade-A asset quality with aggressive strategy in 2013

Bangkok Bank Plc (BBL)

4Q12's profit grow 5.9% qoq…Loan rises but NIM falls, compensated by lower tax expense

BBL posted 4Q12's net profit at B8.26bn, reversing to the growth of 5.9%qoq

and 39.7%yoy after shrinking in the prior quarter. The net profit was slightly

lower than our projection because of the debt provision of B2.5bn or an increase

of 63.1%qoq (but a decrease of 64.4%yoy), which was higher than our previous

projection of only B2bn and also higher than the policy level of B1.6-

1.7bn/quarter. The raise of debt provision was carried out due to the bank's

conservative policy, although NPL decreased B1.90bn to only 2.34% of total

loans in this quarter. Accordingly, coverage ratio at end-2012 increased to

207.1%, the highest among peers. Excluding the pressuring factor, norm profit

still grew by 19.2%qoq and 39.9%yoy as expected due to following

contributions. 1) Net fee income has shifted 5.3%qoq and 18.9%yoy - as

expected, in line with corporate and SME loan transactions which have grown

aggressively in this quarter. However, overall net fee income in FY2012 has

thrived only 5.4%yoy, still lower than the bank's and our target at 10%yoy. 2)

Corporate income tax expense has decreased to only B109m in this quarter or a

tax rate of only 1.3percent from 25.6% in 3Q12. Although it is a normal situation for

BBL to set high tax provision in 1Q and 3Q for the tax expense in 2Q and 4Q,

which is usually lower than the provision, in 2013 there will be a reduction of the

tax rate to 20percent so the bank has to accelerate on booking some tax deducible

expenses such as specific provision for exercising privilege from the tax rate at

23%, like that occurred to most banks in 4Q11. On the other hand, a pressuring

factor in 4Q12 is NIM which has contracted continuously by 14bp qoq to 2.31% a

result of a rise in funding cost (+15bp) in this quarter from aggressive deposit

raising in the past and in this quarter by 3%qoq to prepare for future loan

issuance. At the same time, yield remained quite flat as a result of a cut in all

loan rates by 0.125% in October 2012 despite the growth of 3.5%qoq in net

loan in 4Q12 due to a high season of corporate and SME loans which made total

net loan in FY2012 grow by 9.1%yoy. Overall, the aforementioned positive

factors have more weight and could offset the effect from the pressuring factors,

so net profit in FY2012 made a new high at B33bn or the growth of 20.8%yoy.

Aggressive growth foreseen in 2013 with more strong points

For the business outlook in 2013, the bank aims for more aggressive growth. In

spite of still keeping the net loan growth target of 6-8%yoy, the bank has shown

an intention to make it above the target with the strong point of corporate and

SME loans which have shown larger growth in 2013 under supports from CAPEX

cycle and investment to prepare for the AEC. Moreover, the bank will strengthen

weak points by improving its image to show the strong points, especially its

position as a leader in SME loan and housing loan. This is believed to benefit net

profit in 2013-2014, making it grow continuously by 14% p.a. and hit a year

high.

Time to accumulate. Good chance of laggard stocks of big banks sector

We recommend buying BBL. The current share price has 25% upside from

2013's fair value, at 1.55x PBV (GGM), of B244. Moreover, it is still laggard

other big banks, against the business growth that would become robust again in

2013.