We expect BBL to continue reporting the strongest earnings growth in 3Q23 and 2023, driven by the largest ease in credit cost, widening NIM with potential upside and sustainable loan growth, which is supported by its positioning to benefit most from business relocations into ASEAN. We keep BBL as the sector’s top pick with an unchanged TP of Bt210.
Catalysts.
- Easing credit cost ahead. At the analyst meeting, BBL confirms a HoH ease in credit cost in 2H23, after front-loading ECL in 1H23. It guides to a 2023F credit cost of slightly higher than its original target of 1% (vs. 1.29% in 1H23), in line with our forecast of 1.15% (-9 bps). NPLs have been subsiding for three quarters and LLR coverage has risen to a new high of 287% at 2Q23, the highest in the sector. This will allow a further ease in credit cost in 2024. We conservatively expect a 5 bps fall in credit cost to 1.1% in 2024.
- Raised 2023F NIM with upside. We raise BBL’s NIM by 4 bps to factor in the latest policy rate hike to 2.25% from 2% in August and now expect 2023F NIM to rise 53 bps. BBL was the only bank to cut savings deposit rates, by 20 bps in June. We expect it to show the largest NIM expansion in 3Q23. There is a chance of another 25 bps rise in the policy rate to 2.5% and we leave this as an upside to BBL’s NIM.
- Accelerating loan growth in 2H23 and 2024. Based on upcoming loan drawdowns, BBL is keeping its 2023 loan growth target at 4-6% vs. 0.6% YTD in 1H23, suggesting it expects accelerating loan growth in 2H23. It also expects a recovery in loan growth in 2024. BBL is in the best position to benefit from business relocations into ASEAN. We maintain our loan growth forecast at 4% in 2023F and 5% in 2024F.
Implications. Of peers, we expect BBL to exhibit the strongest earnings growth in 3Q23 and 2023. We preliminarily forecast a rise in 3Q23F earnings of 55% YoY (higher NII, lower ECLs) and 5% QoQ (lower provisions, higher NII). In 2023, we expect robust 55% earnings growth supported by a 14 bps reduction in credit cost, 4% loan growth, a 53 bps improvement in NIM, flat non-NII and easing cost to income ratio.
Action & recommendation. We keep BBL as the sector’s top pick with an unchanged TP of Bt210 (0.7x PBV or 8.5x 2024F PE).
Key risks: 1) Asset quality risk from the global economic slowdown and 2) slower-than-expected loan growth from sluggish loan demand and high competition.
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