Bangkok Bank

Catch up the investment up-cycle

Bangkok Bank Plc (BBL)

Investment thesis

Yesterday, we hosted our annual BBL luncheon with institutional investors. BBL president, Chartsiri Sophonpanich, and other exectutives spoke about the bank's key successes and its FY13 outlook. The feedback from the luncheon was positive. BBL's prospects are firmly solid—its loan portfolio will sustain growth, driven by a private investment up-cycle, further economic growth and international business expansion. Moreover, it has the lowest loans/deposits ratio (87%) and the highest loan loss coverage ratio (207%) among Thai banks, so has the greatest scope for corporate and SME lending upside (and YoY earnings upside from lower loan loss provisioning) in the sector. Our BUY rating stands.

Targets 6-8% loan growth for FY13

BBL has set an FY13 lending growth target range of 6-8% (we expect 10%), following 9.1% expansion last year. The bank anticipates growth across all lending categories. SME lending, which represents 28% of the aggregate portfolio, is targeted to increase by 9-11%, while the objectives for corporate (45% of total lending) and international loans (16% of the loan portfolio) are 6-8% and 3-5%, respectively. Retail growth is targeted at 10-12%. Management believes Its strong relationships with SME and corporate clients, along with its overseas network, will enable the bank to meet the targets. Note that if BBL were to lend substantially for M&As, Thai direct investment abroad or loan demand related to state projects, such as flood protection, we would expect stronger lending expansion.

Fee income outlook looks better

BBL has set a 10percent fee revenue growth target for FY13 (it was 5.5% YoY in FY12, dampened by slow retail business). The international lending operation, 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, trade finance, bancassurance and banking transactions.

FY13 NIM target range of 2.5-2.6%

Given fierce pricing competition and a low policy interest rate of only 2.75%, BBL expects its NIM to remain around its FY12 level. The bank guides for an FY13 NIM of 2.5-2.6%; it posted 2.55percent for last year. It has set an FY13 credit cost (loan loss provision/loans) range of 45-50 bps. The implication is that BBL will set FY13 loan loss provisions in the range of Bt6.5-7bn (against Bt7.2bn last year).

Efficiency enhancements

Management anticipates a cost/income ratio of 43-44percent for FY13 following 44% in FY12, supported by continuing loan growth, a sustained NIM, fee income expansion (more cross-selling, both in Thailand and abroad) and good OPEX management. BBL guides that FY13 OPEX will rise by 7-8% (against 5% last year).