Our BBL earnings forecasts fall by 4.6% for FY14 to Bt41.5bn and by 9.4% for FY15 to Bt48bn, as we now assume lower loan growth in FY13 and FY14 and slimmer NIMs in FY14 (and FY15) than we did earlier. We have, thus, cut our YE14 target price by 8% to Bt214, pegged to a justified YE14 PBV of 1.27x. But BBL looks secure, despite the weak economy, given its diverse portfolio (including substantial offshore business), its low NPLs/loans ratio of 2.4% and its huge loan loss coverage ratio of 201%. Also, its big CAR of 17.6% means virtually no risk of a cash call being necessary. The stock trades at a cheap YE14 PBV of 1.0x (the regional mean is 1.9x), justifying a BUY rating.
Loan growth guidance of 5-7% for FY14
Management guides for good 4Q13 loan growth, driven by the SME and corporate categories. We expect FY13 loan growth of 8% YoY (BBL’s target) the bank also guides for FY14 loan growth of 5-7%—corporate up 5-7%, SME up 7-9%, retail up 12% and offshore loans up 3%. Hence, we have cut our FY14 loan growth assumption to 6% from 9%. BBL’s FY14 credit cost (loan loss provisions/loans ratio) is assumed at 45-50 bps, implying FY14 LLPs of Bt7.5bn-8bn. Note that BBL raised its FY13 LLP guidance to Bt8.5-9bn from Bt6.5-7.5bn, which reflects extra LLPs of Bt1bn against counter-cyclical risk in 2Q13.
FY14 NIM target of 2.35%
The bank announced QoQ NIM squeeze of 10 bps in 4Q13 because of the BOT’s policy rate cut and heavy loan draw-downs in late Dec. BBL expects an FY13 NIM of about 2.4%, in line with our number. Competition for deposit mobilization remains intense, especially from SFIs, claims management. We have, thus, cut our FY14 NIM assumption by 10 bps to 2.45%. BBL guides for an FY14 NIM of about 2.35% with scope to rise next year if interest rates were to increase in 2H14.
Cost/income ratio to rise in FY14 to 43-44%
The posted FY13 cost/income ratio will be 41-42%, according to the bank, slightly lower than its guidance of 42-43%, due to an extra gain from asset sales to the TAMC. BBL said 4Q13 fee income declined QoQ (but rose about 10% YoY) and OPEX probably increased QoQ. We assume an FY13 cost/income ratio of 43.6% (excluding extra gains) and an FY14 cost/income ratio of 42.4%, slightly below the bank’s guidance (there is normally heavy expense-booking in the fourth-quarter).
Expect 4Q13 profit growth of 25% YoY
We estimate BBL’s 4Q13 earnings at Bt9.3bn, up by 25% YoY and 4% QoQ. The assumed YoY profit growth was driven by ongoing SME and corporate business, good OPEX management and fee income expansion. Despite NIM squeeze, we expect 4Q13 earnings to rise QoQ because of seasonally good lending and good OPEX management.