BBL – 3Q24: Beat on gains with lower ECL

Slightly beating INVX and consensus forecasts, BBL’s 3Q24 reflected: 1) a slight rise in NPLs with lower credit cost, 2) contracting loans, 3) QoQ better NIM, 4) good NII growth from gain on financial instruments & investment, 5) a rise in cost to income ratio. We keep our Outperform rating with an unchanged TP of Bt180, supported by an undemanding valuation in terms of PBV relative to ROE and lower asset quality risk than peers.

3Q24: Slight beat on gains. 3Q24 net profit was Bt12.48bn (+6% QoQ, +10% YoY), above INVX forecast by 5% and consensus forecasts by 9% on gain on financial instruments and investment.

Highlights:

1) Asset quality: NPLs rose 4.9% or Bt4.86bn QoQ. As expected, credit cost fell 30 bps QoQ (-10 bps YoY) to 1.22% in 3Q24. LLR coverage slipped to 267% from 269% in 2Q24. We maintain our credit cost forecast at 1.25% in 2024 and 1.1% (-15 bps) in 2025.

2) Loan growth: -3% QoQ, -3.1% YoY and -1.25% YTD. We cut our 2024F loan growth to 2% from 3%.

3) NIM: Better than expected, +5 bps QoQ (-7 bps YoY) in 3Q24. Yield on earning assets rose 11 bps QoQ. Cost of funds rose 7 bps QoQ. We expect NIM to narrow 10 bps QoQ in 4Q24 and 10 bps in 2025 as we expect a policy rate cut of 50bps in 4Q24 and 50 bps in 2025.

4) Non-NII: +20% QoQ (+48% YoY) in 3Q24 due to larger gain on financial instruments and investment. Net fee income inched up 1% QoQ (+2% YoY).

5) Cost to income ratio: +357 bps QoQ (+256 bps YoY) to 47.73%, higher than expected. Opex rose 14% QoQ (+14% YoY), spent on improving efficiency and marketing.

4Q24 and 2025 outlook. 9M24 earnings accounted for 77% of our full-year forecast. We expect 4Q24 earnings to be lower QoQ (narrower NIM and seasonally higher opex) but higher YoY (lower ECL). We expect 2025F earnings to rise 5%, supported by 3% loan growth, a 10 bps squeeze in NIM, a 15 bps reduction in credit cost, a 3% rise in non-NII and a rise in cost to income ratio.

Maintain Outperform with an unchanged TP. We keep our Outperform with an unchanged TP of Bt180 (based on 0.58x PBV for 2025F) due to an undemanding valuation in terms of PBV relative to ROE and lower asset quality risk than peers.

Key risks: 1) Asset quality risk from the global economic slowdown, 2) slower-than-expected loan growth from sluggish loan demand and high competition, and 3) ESG risk from cyber security and market conduct.