Broker Name: CGS International Securities
Date of Report: October 17, 2024
3Q24 Financial Performance Overview
Bangkok Bank (BBL) reported a 3Q24 net profit of THB 12.5 billion, marking a 10% year-on-year increase and a 5.7% rise quarter-on-quarter. This result was 9% higher than the Bloomberg consensus forecast, although it was 6.5% below CGS International’s estimate. The bank’s pre-provision operating profit grew by 2.7% year-on-year but declined by 1.4% quarter-on-quarter.
Key Drivers
- Net Interest Margin (NIM): The NIM improved to 3.06% in 3Q24, up from 3.01% in 2Q24. This was driven by higher asset yields despite rising funding costs, resulting in a slight increase of 0.7% quarter-on-quarter in net interest income, though there was a year-on-year decline of 2.2%.
- Non-Interest Income: The bank’s non-interest income grew by 47.6% year-on-year and 19.8% quarter-on-quarter, boosted by strong gains on investments and financial instruments measured at fair value. Additionally, net fee income showed modest growth of 2.4% year-on-year and 1.2% quarter-on-quarter, driven by improved bancassurance and mutual fund fees due to better capital market performance.
Loan Growth and Asset Quality
- Loan Growth: Loan growth remained muted, showing a decline of 3.9% year-on-year and 3.0% quarter-on-quarter, with a cumulative drop of 1.7% from the end of 2023.
- Non-Performing Loans (NPLs): The bank’s NPL ratio increased to 3.4% in 3Q24 from 3.2% in 2Q24, reflecting some deterioration in asset quality. Credit costs declined to 122 basis points in 3Q24 from 153 basis points in 2Q24, leading to a reduced NPL coverage ratio of 266.6% from 283%.
Cost Structure and Capital Position
- Cost-to-Income Ratio: The cost-to-income ratio rose to 47.7% in 3Q24 from 44.1% in 2Q24, primarily due to increased operating expenses related to process improvements and marketing activities.
- Capital Adequacy Ratio (CAR): The bank’s CAR improved to 20.8% in 3Q24 from 19.5% in 2Q24, supported by retained earnings allocated to legal and general reserves of THB 5.5 billion.
Dividend and Valuation
- Dividend Yield: CGS International expects BBL to maintain a dividend yield of 4.5-4.8% per annum for FY24-26F, based on dividend payout ratios of 29-30%.
- Valuation: The broker retains an “Add” rating for BBL, with a target price of THB 195. This valuation is based on a 0.62x FY25F P/BV, reflecting the bank’s strong NPL coverage and high capital adequacy ratio. At the current valuation of 0.5x FY25F P/BV, BBL is seen as a top sector pick due to its low exposure to consumer retail loans and high proportion (25%) of overseas loans.
Risks and Re-Rating Catalysts
- Downside Risks: The bank’s international lending business might face headwinds from elevated geopolitical risks affecting global trade. Additionally, BBL’s loan growth could be impacted by subdued private investment.
- Re-Rating Catalysts: Potential improvements in lending growth in overseas markets such as Indonesia, China, Hong Kong, and Taiwan, along with a sharp decline in credit costs and upgrades of corporate loans from NPL to performing loans, could serve as positive re-rating catalysts for the bank.
ESG Performance
- ESG Scores: Bangkok Bank received a B rating for ESG Combined Score by LSEG in 2023 and an AA rating by the Stock Exchange of Thailand. The bank is part of the SET ESG Index. Despite an increase in Scope 1 greenhouse gas emissions by 48.48%, there was a decrease of 3.13% in Scope 2 emissions compared to 2020.
- Sustainability Initiatives: The bank’s ESG strategy focuses on prudent risk management, corporate governance, and creating sustainable value for society. However, BBL’s environmental initiatives were noted to be less aggressive compared to peers, suggesting room for improvement, especially in climate action for lending and investment operations.
Conclusion
Bangkok Bank’s 3Q24 results reflect robust performance driven by gains in non-interest income and a stable NIM. The bank’s strong capital position and strategic focus on overseas markets provide a solid foundation for future growth, though challenges in loan growth and asset quality remain. The bank’s sustainability practices indicate a focus on long-term value, but there is potential for stronger environmental action.
