Bank of Ayudhya

Q4 2012's profit beats projection. ROE projected above 15% in 2013 from aggressive business plan BUY

Bank of Ayudhya Plc (BAY)

4Q12's profit beats projection. Loan&NIM are good. Lower than expected provision

BAY posted 4Q12's net profit at B3.75bn, staying flat qoq and growing significantly by

6.8x yoy (provision was high due to the flood impact), beating our projection for a

contraction of 2.9%qoq due to following contributions. 1) Debt provision remained quite

stable qoq. Credit cost dropped to 140bp from 149bp in 3Q12 - better than expected,

comparing to our estimation of 159bp. Likewise, NPL decreased more than B474m in

this quarter to 1.82% of total loans from 1.99% in the prior quarter. Consequently,

coverage ratio (LLR/NPL) increased to 135.5%. 2) Net interest income growth in 4Q12

stood at 0.8%qoq and 12.6%yoy - as projected, in line with the aggressive net loan

growth of 5.9%qoq and 15.4%yoy during the same period which was a high season for

SME loans (+7.2%qoq and 12.6%yoy) and retail loans including car hire-purchase,

credit card, and personal loans (+6.4%qoq and 24.2%yoy). For corporate loans

(+3.6%qoq and +3.7%yoy), there was still debt repayment during the end of the year.

Accordingly, overall loan portfolio in Fy2012 still decreased. NIM in 4Q12 stayed at

4.18%; both loan yield and funding cost were stabilizing in this quarter despite the

bank's launch of sub debts worth of B14.8bn with an interest rate of 4.7% in November

2012. 3) Fee income in 4Q12 escalated 4.5%qoq and 24.9%yoy - as anticipated, in line

with the growth of retail loans during the high season, including credit card and fund

management. Although operating expense rose more than expected by 8.9%qoq and

32.2%yoy in this quarter, making cost to income ratio hike from 50.1% in the prior

quarter to 52.3%, this negative factor was entirely compensated by the aforementioned

positive factors. Accordingly, net profit in FY2012 of BAY could make a historical high at

B14.6bn or the growth of 57.9%yoy.

Focus on loan and fee income&boosting NIM in 2013. Provision tends

to decrease

We revise up our net profit forecast for FY2013-2014 by 11.7% and 18.3%,

respectively. As a result, 2013-2014's net profit growth is estimated at 23.9%yoy and

20.3%yoy, respectively. According to the analyst meeting last Friday (18 Jan 2013),

new President and CEO of BAY announced their vision about the strategy in 2013 with a

target to use the bank's strong point in emphasizing on high yield loans including retails

(with the growth of above 3x of the GDP) and SMEs (with the growth of 2x of the GDP).

At the same time, the bank would also launch corporate loans, despite their low yield, in

order to expand fee income base from related transaction, such as cash management.

The bank has targeted net loan growth in 2013 at 12%yoy, with challenging NIM target

of 4.40percent from 4.27% in the previous year and fee income growth target of 15%yoy. At

the same time, debt provision is projected to decrease; credit cost is anticipated to drop

to 130bp from 137bp in 2012. If BAY can accomplish its goals, ROE in 2013 would make

a new high at 15.3% as projected. Moreover, the bank's CEO has also revealed its plan

to seek new partners that will surely bring about strong network for overseas

businesses as a preparation for the AEC to generate growth for the bank in the long run.

Up 2013's fair value to B39. Reiterate to buy. Strong surge foreseen

We reiterate our BUY recommendation for BAY. 2013's fair value after the forecast

revision, at 1.91x PBV (GGM) is B39 (based on long-term ROE at 16%), which implies

around 17% upside from the current share price. The share price is projected to surge

aggressively after having been underperforming the market if the partner seeking issue

gets clearer.