May 2, 2019 OUTPERFORM Bangkok Bank (BBL TB) Share Price: Bt203.0 Target Price: Bt245.0 (+20.7%) Solid operations and asset quality Company Update Company Loan and fee income to improve from 2Q19; mutual fund and bancassurance fees to support non-NII growth. Asset quality remains strong with slower NPL formation and high NPL coverage. OUTPERFORM, Bt245 TP implies 11.5x FY19F PE and 1x P/BV; rising ROE and improving NIM Loan and fee income to pick up from 2Q19 We maintain a positive view towards BBL after the analyst briefing on Tuesday. BBL guided its loan portfolio shrank 2.6% qoq in 1Q19 due to seasonally higher repayment of corporate loans. However, they expect Jesada TECHAHUSDIN, CFA loan demand to improve and loan growth to meet full-year target of 4- 662 - 659 7000 ext 5004 6% this year. They also expect NIM to inch up yoy led by better asset [email protected] yield. 1Q19 NIM was 2.35% vs 2.33% in 2018. For fee income, BBL can Remark: KSS is a subsidiary of Bank of Ayudhya Plc. COMPANY RESEARCH | RESEARCH COMPANY still grow mutual fund and bancassurance fees and expect these to and is therefore unable to issue a report on Bank of support fee income growth this year. On a negative note, brokerage Ayudhya Plc. income and investment gains should drop yoy in FY19 due to weak Key Data capital market for the former and high base effect for the latter. 12-mth high/low (Bt) 218 / 184.5 Market capital (Btm/US$m) 387,495 / 12,137 Asset quality remains healthy with large LLR buffer 3m avg. turnover (Btm/US$m) 644.9 / 20.2 BBL’s asset quality remains superior to peers’. NPL coverage remain Free float (%) 60.3 high at 189% while NPL formation is under control. The bank is keeping Issued shares (m shares) 1,909 Major shareholders: provision target at Bt20bn this year (Bt5.1bn in 1Q19) and is comfortable -Thai NVDR 33.8 with its current loan loss reserve (LLR) which is more than sufficient to -STATE STRE ET CORP 4.4 comply with IFRS9. They are also keeping NPL ratio target at 3.85% this -SOCIAL SECURITY OFFI 3.0 year vs 4.12% in 1Q19. On the AIA partnership, BBL is offering whole Share Price Performance life and health insurance products from AIA at all branches now. They guided fee income from BLA (OUTPERFORM, TP Bt39) would grow yoy driven by new products. Top pick in banking sector; ROE should continue to improve BBL remains our top pick for offering rising earnings and ROE. The bank should be a prime beneficiary of improving demand for corporate loans. Current valuation is undemanding at 0.9x FY19F P/BV and 9.6x PE, while ROE should improve to 9.7% in 2020F from 8.7% in 2018. Financial Summary (Btm) YTD 1Mth 3Mth 12Mth Absolute (%) 0.0 (1.9) (5.6) 5.2 Year to Dec 2017 2018 2019F 2020F 2021F Relative to index (%) (7.0) (4.1) (7.5) 11.2 Operating Income 112,468 121,400 126,356 134,494 142,946 Pre-provisioning Profit 63,520 66,236 71,191 75,468 79,788 Krungsri Securities vs Market Net Profit 33,009 35,330 40,202 44,418 48,826 Positive Neutral Negative Basic EPS (Bt) 17.29 18.51 21.06 23.27 25.58 Market EPS growth (%) 3.75 7.03 13.79 10.49 9.92 Recommend 28 1 1 DPS (Bt) 6.50 6.50 7.50 7.50 7.50 Krungsri Market % +/ - PER (x) 11.7 11.0 9.6 8.7 7.9 Target Price (Bt) 245.0 237.6 3.1 ’1 9 Net Profit (Btm) 40,202 39,059 2.9 Div Yield (%) 3.2 3.2 3.7 3.7 3.7 ’20 Net Profit (Btm) 44,418 42,745 3.9 P/BV (x) 0.96 0.94 0.88 0.82 0.77 Book Value (Bt) 210.5 216.3 230.8 246.6 264.7 Krungsri's earnings revision ROAE (%) 8.5 8.7 9.4 9.7 10.0 2019 F 2020 F ROAA (%) 1.11 1.15 1.27 1.33 1.38 Earnings revision (%) - - Source: Bloomberg, Krungsri Securities Disclaimer: This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to invest in any securities. 1 Company Update | BBL May 2, 2019 BBL: 1Q19 results review Financial statement (Btm) 1Q18 4Q18 1Q19 Chg YoY Chg QoQ 1Q19F Diff Balance sheet Loans 1,978,512 2,083,160 2,029,810 2.6% -2.6% 2,062,328 -2% Deposits 2,334,078 2,326,470 2,340,979 0.3% 0.6% 2,338,102 0% Income statement Interest income 26,583 28,50 9 28,365 7% -1% 28,889 -2% Interest expenses (9,460) (10,086) (10,066) 6% 0% (10,227) -2% Net interest income 17,123 18,423 18,299 7% -1% 18,663 -2% Net fee income 7,602 7,070 6,840 -10% -3% 6,842 0% Non -interest income 14,414 10,623 10,328 -28% -3% 11,270 -8% Total operating income 31,537 29,046 28,627 -9% -1% 29,933 -4% Operating expenses (12,594) (16,317) (12,202) -3% -25% (13,602) -10% Operating profit 18,943 12,729 16,426 -13% 29% 16,331 1% Loan loss provisions (7,32 2) (2,765) (5,078) -31% 84% (4,874) 4% Pre -tax profit 11,622 9,965 11,348 -2% 14% 11,457 -1% Tax (2,522) (1,767) (2,224) -12% 26% (2,234) 0% Minority interest (95) (96) (95) 0% -2% (99) -5% Net profit 9,005 8,101 9,028 0% 11% 9,123 -1% EPS 4.72 4.24 4.73 0% 11% 4.78 -1% Key ratios Loans to deposits 84.8% 89.5% 86.7% 88.2% LDR & borrowings 81.6% 85.3% 82.7% 84.1% Net interest margin 2.22% 2.39% 2.35% 2. 41% Cost to income 39.9% 56.2% 42.6% 45.4% NPL - gross (Btm) 92,165 80,137 83,668 82,137 NPL/ Gross loans 4.66% 3.85% 4.12% 3.98% LLR/ Gross loans 7.42% 7.34% 7.79% 7.52% LLR/NPL 159.3% 190.9% 189.0% 188.7% Credit cos t 1.47% 0.54% 0.99% 0.95% ROA 1.16% 1.06% 1.16% 1.15% ROE 8.92% 7.93% 8.62% 8.84% Source: Company data, Krungsri Securities Krungsri Securities Research 2 Company Update | BBL May 2, 2019 P/E Band P/BV Band Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities Peer comparison Market PE P/BV Div Yld ROE Share Price Cap (x) (x) (%) (%) Performance BB Ticker Name US$ 19F 20F 19F 20F 19F 19F 1M 3M 6M YTD Thailand BAY TB BANK OF AYUDHYA PCL 8,870 9.4 8.7 1.1 1.0 3.0 11.6 4. 1 1.3 (4.3) 0.7 BBL TB BANGKOK BANK PUBLIC CO LTD 12,137 9.6 8.7 0.9 0.9 3.7 9.7 (1.9) (5.6) (1.9) 0.0 KBANK TB KASIKORNBANK PCL 14,317 11.1 10.1 1.1 1.0 2.6 10.5 1.9 (4.5) (4.3) 3.2 KTB TB KRUNG THAI BANK PUB CO LTD 8,273 9.4 8.4 0.8 0.8 4.1 9.4 (1.6) (4.5) (6.0) (1.6) KKP TB KIATNAKIN BANK PCL 1,750 9.6 8.6 1.3 1.2 6.8 15.1 (5.0) (3.6) (7.4) (0.4) SCB TB SIAM COMMERCIAL BANK PUB CO 13,932 10.4 9.7 1.1 1.0 4.2 11.0 (0.8) (1.5) (4.7) (1.9) TCAP TB THANACHART CAPITAL PCL 1,902 8.2 7.6 0.9 0.8 4.9 11.1 (2.8) (1.4) 0.5 6.5 TISCO TB TISCO FINANCIAL GROUP PCL 2,100 9.0 8.4 1.7 1.6 7.1 19.3 (5.1) 1.2 6.3 7.0 TMB TB TMB BANK PCL 2,774 11.4 10.2 0.9 0.8 2.7 8.3 (1.0) (8.2) (11.4) (8.2) Average 9.8 8.9 1.1 1.0 4.3 11.8 Malaysia MAY MK MALAYAN BANKING BHD 24,720 12.3 11.8 1.3 1.3 6.35 10.7 (0.2) (3.0) (2.5) (2.6) CIMB MK CIMB GROUP HOLDINGS BHD 12,398 10.1 9.5 0.9 0.9 5.05 9.3 2.3 (6.2) (7.9) (7.7) PBK MK PUBLIC BANK BERHAD 21,126 15.3 14.6 2.0 1.9 3.16 13.5 (2.8) (9.2) (8.5) (9.1) Av erage 12.5 12.0 1.4 1.3 4.8 11.2 Indonesia BBCA IJ BANK CENTRAL ASIA TBK PT 49,718 24.3 21.4 4.1 3.6 1.14 18.1 3.6 2.0 21.6 10.6 BBRI IJ BANK RAKYAT INDONESIA PERSER 37,807 14.5 12.6 2.6 2.3 2.74 18.9 6.1 13.5 38.7 19.4 BMRI IJ BANK MAN DIRI PERSERO TBK PT 25,286 12.8 11.3 1.8 1.7 3.19 14.9 3.7 3.7 12.8 4.7 Average 17.2 15.1 2.8 2.5 2.4 17.3 Singapore DBS SP DBS GROUP HOLDINGS LTD 53,117 11.6 11.0 1.4 1.3 4.41 12.5 12.0 18.1 20.4 19.2 UOB SP UNITED OVERSEAS BANK LTD 34,071 11.1 10.5 1.2 1.1 4.52 11.2 10.5 10.5 14.2 13.3 OCBC SP OVERSEA -CHINESE BANKING CORP 37,753 10.8 10.2 1.2 1.1 3.93 11.3 9.5 5.1 12.7 7.5 Average 11.2 10.5 1.3 1.2 4.3 11.7 Philippines BPI PM BANK OF THE PHILIPPINE ISLAN 7,370 13.