BBL – 2Q23: Decent results, beat consensus

In line with our forecast but beating consensus, BBL’s 2Q23 reflected falling NPLs with higher credit cost to further build LLR coverage, QoQ decent loan growth, better NIM and higher non-NII from FVTPL gain and easing cost to income ratio. We keep our Outperform with a hike in TP to Bt210 from Bt197 to reflect a rollover to 2024F. We see upside to NIM from a potential further hike in policy rate to 2.5%.

2Q23: In line with INVX estimate but beat consensus. 2Q23 net profit was Bt11.3bn (+11% QoQ, +62% YoY), in line with INVX forecast but 12% above consensus forecast. The larger-than-expected gain on financial instruments was partly offset by higher-than-expected opex.

Highlights:

• Asset quality: NPLs fell 5% QoQ. Credit cost rose 6 bps QoQ to 1.33% in 2Q23, higher than expected and its full-year guidance of 1%. LLR coverage rose to 287% at 2Q23 from 255% at 1Q23. We maintain our 2023F credit cost at 1.15%, as believe BBL front-loaded provisions in 1H23 and expect it to ease off in 2H23.
• Loan growth: +1.7% QoQ, +2.2% YoY, +0.6% YTD. We maintain our 2023F loan growth at 4%.
• NIM: Beat expectations, +10 bps QoQ as a 25 bps increase in yield on earning assets exceeded a 17 bps QoQ rise in cost of funds.
• Non-NII: +7% QoQ (+3% YoY), mainly from a 133% QoQ (-2% YoY) rise in gain on financial instruments measured at FVTPL (+133% QoQ). Net fee income fell 8% QoQ (-2% YoY).
• Cost to income ratio: -25 bps QoQ and -260 bps YoY as topline growth exceeded a rise in opex (+7% QoQ, +15% YoY).

3Q23F and 2023F outlook. 1H23 earnings accounted for 49% of our full-year forecast. We expect 3Q23F earnings to be stable QoQ (lower FVTPL gain to be offset by lower ECL) and rise strongly YoY (higher NII and lower ECL). In 2023, we maintain our forecast of a 50% recovery in earnings, supported by a 14 bps reduction in credit cost, 4% loan growth, a 49 bps improvement in NIM, flat non-NII and easing cost to income ratio.

Maintain Outperform, rolling TP to 2024. We keep our Outperform rating with a hike in TP to Bt210 (0.7x PBV or 8.5x PE for 2024F) from Bt197 as we rolled valuation base over to 2024. We see upside to NIM from the potential further hike in policy rate to 2.5%.

Key risks: 1) Asset quality risk from global economic slowdown and 2) slower-than-expected loan growth from sluggish loan demand and high competition.