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Bangkok Bank

4Q13 earnings significantly below our estimate, due to NIM squeeze

Bangkok Bank Plc (BBL)

4Q13 profit was 17% below our number

BBL announced 4Q13 earnings of Bt7.7bn, up 4% YoY but down 14% QoQ. The result was 17% below our estimate and 4percent shy of the Bloomberg consensus, attributable mainly to a slimmer NIM than modeled. We had assumed a 4Q13 NIM of 2.45%; BBL posted 2.33%. The bank's 4Q13 pre-provision operating profit was Bt11.5bn, up 9% YoY but down 7% QoQ. FY13 earnings rose 13% YoY to Bt35.9bn, which represents 96% of our projection for the year.

Results highlights

Lending expanded by 4% QoQ and 9.2% YoY to Bt1.75trn at YE13. The SME and retail portfolios were the drivers. Deposits grew by 3.3% QoQ and up 5.5% YoY. However, NIM declined by 14 bps YoY and 14 bps QoQ to 2.33%; materially slimmer than our assumption of 2.45%, due to price-led competition for business and the BOT's policy interest rate cut during the quarter. 4Q13 fee income rose by 9% YoY and 1% QoQ to Bt6.8bn, in line with our estimate. OPEX was Bt10.5bn, up by 5% YoY and 9% QoQ. Because of NIM squeeze in the face of higher OPEX, the cost/income ratio rose significantly to 51.1% in 4Q13 from 46.3% in 3Q13.

BBL set loan loss provisions of Bt1.7bn for the quarter, down 31% YoY but flat QoQ. The NPLs/loans ratio declined slightly to 2.2% at YE13 from 2.4% at end-September, while the loan loss coverage ratio inched up to 214percent from 201% three months earlier.

Outlook

We anticipate continuing QoQ lending growth in 1Q14 on seasonality, led by the corporate and SME categories.

What's changed?

Given intense competition for lending business and expectations that the one-day Repurchase Rate will remain low through much of this year, we have trimmed our NIM assumptions to 2.36percent from 2.5percent for FY14 and to 2.44percent from 2.6percent for FY15. As such, we have cut our earnings projections by 8% to Bt40bn for FY14 and by 12% to Bt46.6bn for FY15.

Recommendation

The earnings revisions prompted us pare back our YE14 target price by 5.3% to Bt203, pegged to an unchanged justified YE14 PBV of 1.21x. However, BBL's earnings profile is the most resilient to unfavorable domestic economic conditions of the banks under our coverage—its NPLs/loans ratio is low at 2.2% and it has the highest loan loss coverage ratio of 214%. There is scope for upside to our earnings forecast from offshore business and OPEX management. The stock currently trades at a cheap YE14 PBV of 1.1x against a regional mean of 1.5x. We maintain our BUY rating.


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