BBL (BUY : Fair Price : Bt203.00) : Resilient to rising global volatility
Maintain BUY with a fair price of Bt203. We raised our net profit forecast in 2023-25, mainly due to stronger-than-expected NIM that resulted in a robust net profit growth of 45% in 2023. The earnings growth is expected to slow to 14%, still higher than the anticipated rise of 11% for the sector. Despite the uncertainty that lies ahead, BBL's fundamentals remain strong, with adequate reserves and solid Tier 1 capital to withstand the escalation of the global economic slowdown. For 4Q23, net profit is expected to robustly rise by 28% YoY due to higher operating income. The valuation is compelling since it trades at only 0.54x PBV'24E, -1SD of its 10-year mean. BBL remains our top pick for the sector.
• BBL expected Thailand’s GDP growth to be 3% in 2023 and 3-4% in 2024, supported by consumption, government spending, foreign direct investment, and more foreign tourists. Risks that might weaken the growth were slower China’s economy and geopolitical conflicts. Thailand’s policy rate was steadily stable at 2.5% by the end of 2024.
• 2023 financial guidance was (1) loan growth of around 4% (9M23: +1.5% YTD), (2) credit costs of 120-130 bps (9M23: 130 bps), (3) NIM was around 2.96% (9M23: 2.96%), (4) cost to income ratio of low-50s (9M23: 46.4%), and NPL ratio of 3-3.1% (9M23: 3%), (5) loan to deposit ratio of 85-90% (9M23: 86.1%), and (6) dividend payout of 30-33%.
• Although NIM may peak in 4Q23, BBL expected its NIM to stay high in 2024 as there were no rate cuts expected in 2024. Credit costs were likely around 100 bps in 2024.
• Amid geopolitical conflicts, Thailand and Asia were attractive to capture business relocations from foreign investors. BBL likely benefited as it had an extensive international network throughout the region.
**Strong earnings growth is bolstered by NIM expansion **
• We raised our net profit forecast by 4% in 2023-24, mainly owing to higher net interest income from better NIM assumptions. We expect a higher NIM of 3.0%/3.2% in 2023-24 (from 2.9%/2.95%earlier).
• To reflect our earnings upgrade, we expect a net profit to rise by 45%/14% in 2023-24, respectively. The ROE steadily rises to 8.2%/8.8%% in 2023/24.
Maintain BUY with a fair price of Bt203
Our valuation is derived from the GGM model (ROE 8.8%, growth 2%), which implies a 0.7x PBV’24E, -0.5SD below its ten-year average. Our BUY call reflects (1) a strong balance sheet against uncertainty, (2) sustainable net profit growth, (3) ROE improvement, and (4) an undemanding valuation.