High Conviction: BBL Upside on DPS with the most solid B/S

Upside on DPS with the most solid B/S

Post analyst meeting, we keep BBL as our sector pick with an unchanged TP of Bt180 (based on 0.6x PBV) as it has the most solid balance sheet, strongest loan growth, lowest asset quality risk and cheapest valuation plus an upside on DPS. In 2025, BBL expects lower credit cost, solid loan growth (strongest in the sector), fee income recovery and a narrowed NIM from rate cuts. BBL is considering capital management in the form of a hike in dividend payout and/or treasury stock. We raise our forecast dividend payout to 36% from 34% for 2024, giving 4.2% dividend yield on 2H24. We see the likely hike in DPS as a near term catalyst.

Easing credit cost ahead. BBL targets reducing credit cost to 0.9-1% in 2025 from 1.3% in 2024. We maintain our conservative forecast of 2025F credit cost at 1.1% (-20 bps). With the sector’s highest LLR coverage at 334%, it has ample room to cut credit cost. It estimates NPL ratio at 3% in 2024 vs. 2.7% (BBL’s calculations) in 2024.
Sector’s highest 2025 loan growth target. BBL targets 2025 loan growth of 3-4%, comprised of 3-5% growth in international and large corporate loans and 1-2% in SME and retail loans. It is in the best position to gain from rising FDI in ASEAN. We maintain our 2025F loan growth at 3%.
Narrowing NIM. BBL targets NIM at 2.8-2.9% in 2025 (vs. 2.96% in 2024), factoring in a 25 bps cut in the policy rate. As BBL was the only bank that cut both savings deposit rates (by 10 bps) and time deposit rates (by 20 bps) in November, we expect its NIM to be squeezed less than peers’. We forecast a 13 bps drop in NIM in 2025 on a forecast of a 50 bps cut in the policy rate in 2025.
Fee income picking up. BBL targets single-digit fee income growth in 2025 (vs. +2% in 2024), driven by bancassurance and wealth management. We maintain our 2025F fee income growth at 3%.
Upside from capital management. BBL is looking at capital management, considering both a hike in dividend payout and treasury stock. We raise our forecast to a dividend payout of 36% from 34% on 2024. We expect a 2H24 DPS of Bt6.5, giving 4.2% dividend yield.
Cheapest valuation. We keep BBL as our sector pick as it has the most solid balance sheet, strongest loan growth, lowest asset quality risk and cheapest valuation plus upside on DPS.

Key risks: 1) Asset quality risk from a global economic slowdown, 2) NIM risk from interest rate cuts, 3) slower-than-expected loan growth from sluggish loan demand and 4) ESG risk from market conduct.