Bank of Ayudhya - BAY - BUY
Target price : Bt11.90
Recommendation : BUY
Closing Price (2 April 09) : Bt8.90
1Q09 profit expected to be down 17.1% YoY but up 1.2% QoQ
- We expect BAY, Thailand's fifth largest lender by assets to deliver strong growth of 20.3% YoY and 44.5% QoQ in 1Q09 pre-tax profit
despite slowing loan growth in the face of deteriorating economic conditions. The key drivers of growth would be the absence of investment losses and massive losses on sale of foreclosed assets.
- Given about-to-expire tax benefits, we estimate the bank's 1Q09 net profit to be about Bt854.10m, down 17.1% YoY but up 1.2% QoQ.
- The takeover of two consumer finance businesses AIG Retail Bank (AIGRB) and AIG Card (Thailand) Co (AIGCC) from AIG Consumer Finance Group (AIGCFG) is expected to be completed this month according to the plan. The acquisition would lift the bank's net interest margin (NIM) in 2H09.
- We maintain a 'BUY' rating on BAY with a price target of Bt11.90/share.
1Q09 net profit expected to be Bt854.10m, down 17.1% YoY but up 1.2% QoQ
Net loans dropped by 3.7% in the first two months of 2009 as the slumping economy sapped demand for loans. Corporate, SME and retail loans contracted. Especially for retail lending, auto hire purchase, credit card and mortgage loans shrank. Net interest margin is forecast to drop in line with falling market interest rates, which immediately effect lending rates but have a time lag for the reductions in deposit rates to take effect. In our view, there is no need for the bank to make additional loan-loss provisions for the time being as the quality of assets shows no signs of a marked deterioration. We expect loan-loss provisions to be about Bt1.88b in 1Q09. Non-interest income is forecast to improve both YoY and QoQ thanks to the absence of investment losses and massive losses on sale of foreclosed assets. Fee income should be weak as a result of a slowdown in loan-related income and trade finance. No exceptional expenses are anticipated in 1Q09. The cost/income ratio is accordingly predicted to fall in 1Q09.
We expect the bank to report strong growth of 20.3% YoY and 44.5% QoQ in 1Q09 pre-tax profit. With the resumption of tax payments at normal rates in 1Q09, we estimate the bank's 1Q09 net profit to be about Bt854.10m, down 17.1% YoY but up 1.2% QoQ.
Takeover of AIGRB and AIGCC likely to be completed this month according to the plan
The takeover of AIG Retail Bank (AIGRB) and AIG Card (Thailand) Co (AIGCC) from AIG Consumer Finance Group (AIGCFG) is expected to be completed this month according to the plan. The acquisition of the two consumer finance businesses would boost BAY's retail loan portfolio by Bt16.50b and Bt9.30b respectively. The integration is expected to take about six months. The above deal is expected to lift the bank's net interest margin (NIM) in 2H09, as average loan yield is high at about 10%.
BUY rating with a Bt11.90/share price target
BAY management makes no revisions to its 2009 targets despite the 1Q09 figures will remain weak. However, the acquisition of AIGRB and AIGCC would help strengthen the bank's inorganic growth. The bank is still looking at opportunities to grow via acquisitions. For the time being, we leave our 2009 estimates unchanged. We may put our estimate under review following 1Q09 results announcement. At current prices, we maintain a 'BUY' rating on BAY with a price target of Bt11.90/share.
By Phillip Securities (Thailand) Plc. on Apr 3, 2009
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