Bank of Ayudhya's net profit dropped 25% to THB3.039b

Here's what to blame.

According to Maybank Kim Eng, Bank of Ayudhya (BAY) reported a 2Q13 net profit of THB3.039b, down 25% QoQ and 18% YoY. The results were below Maybank and market estimates of THB4.6-4.7b.

Here's more:

However, exclusive of the THB2.55b extra provisioning (Countercyclical) and a THB550m bad-debt reversal from Dubai World, the norm profit was THB4.6b, in line with market forecasts.

The PPOP rose 21% QoQ and 25% YoY to THB9.8b. Loan growth sped up by 3.2% QoQ (+4.1% Ytd), led by the retail segment. The NIM was flat at 4.24% and the Non-NII grew 11% QoQ and 19% YoY, thanks to strong fee income growth and a bad-debt reversal.

Opex declined 8% QoQ from lower staffing costs and a THB1.1b reversal of a TAMC reserve. The cost-to-income ratio dropped to 44% and provisioning increased to THB5.9b on countercyclical provisioning. NPLs rose slightly to 1.9% with a high coverage ratio of 134%.

What’s next? We estimate earnings performance will get back on track in 2H13F in the absence of any extra provisioning. We expect the profit to stay at THB4-4.5b/quarter in 2H13F.

Loan growth is likely to accelerate, especially in 4Q due to the seasonal impact. The NIM will be sustained at 4.2% and fee income will tend to keep growing.

However, with the extra provisioning in 2Q13, we have decided to cut our 2013F profit forecast by 14% to THB15.8b (+8% YoY), but we have kept the 2014 forecast unchanged at THB21.2b.

Recommendation. We believe that earnings performance will not affect the BAY share price awaiting for the VTO at THB39.00/share. We still rate BAY as a Hold.

We have run a sensitivity on returns from the VTO and found that at a share price above THB37.50, the yield will be less than 3.5% in 6 months, which, in our view, is not attractive. We thusrecommend that investors sell the stock if price rises above that level.

However, if the price falls below THB36.00, it is a good opportunity to take a 7.8% return in 6 months. We forecast the 1H13F interim DPS at THB0.50, or a 1.3% dividend yield.