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Bangkok Bank

Export still boosts corporate loan demand BUY

Bangkok Bank Plc (BBL)

Keep 2014 loan growth target at 5-7%

BBL revealed its vision for the business in 2014, estimating the GDP growth at 3%

under a projection for the political situation to improve in 2H14. While viewing the

political turmoil as only a short-term negative factor, in the long run BBL foresaw rising

loan demand as a result of the upcoming AEC liberalization that would attract foreign

investors to Thailand, particularly in auto parts and food industries that adopt a supply

chain operation. Moreover, intra regional trade has also increased from Laos, Cambodia,

Myanmar, and Vietnam, which would benefit BBL that has engaged in overseas loan

transactions by more than 15%. In addition, economic growth in Thailand's provincial

areas, particularly those near neighboring countries' borders, has also improved. For

FY2014 target, BBL maintained its net loan growth target at 5-7%yoy, driven mainly by

corporate loans that account for over a half of the bank's loan portfolio. Demands for

working capital loan for export and investment credit for overseas investment are

projected to escalate. NIM is estimated close to that of 2013 at +/-2.30% as there is

still a risk from the interest rate downtrend. Fee income is also projected to increase

10%yoy, mainly from cross selling, fund, and life insurance transactions.

- Profit to revive in 1Q14

We maintain our earnings forecast for FY2014-2015, projecting EPS growth of

12.0%yoy and 9.1%yoy, respectively, under net loan growth forecast of 5% p.a. and

NIM of 2.22% in 2014 and 2.26% in 2015. Credit cost is anticipated to stabilize at

around 45bp. Although net profit in 1Q14 would recover from 4Q13 as a result of

decreasing operating expense, yield and NIM would still be adversely impacted by the

interest rate downtrend. According to our study, BBL would get the second most impact

from the policy rate cut (following KTB). At every 25bp decrease in the loan and deposit

rate, 2014 NIM of BBL will drop by 5.9bp while net profit will decrease by 4.2percent from the

current forecast. If BBL has to reduce its interest rates following the policy rate cut, we

will have to revise our 2014 net profit forecast since the current one has still not

included an assumption for the 2014 interest rate cut of 25bp.

- Top pick, with 4-5% p.a. dividend yield

We reiterate to buy BBL and select it as a top pick of the banking sector. The current

share price has a low PBV of only 1.1x. 2014 fair value, at 1.18x PBV (GGM), is B197,

implying 11% upside, under long-term ROE forecast of 13.3%. Dividend yield can be

expected at 4-5% p.a. on average.


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