GE stake 'to drive bay profit'

BAY offers a full array of services with total assets of Bt725.01 billion.

The bank also has bright prospects and strong support from its major shareholder, US titan General Electric, analysts said.

According to the Securities Analysts Association's consensus on BAY, updated from June to July, 13 brokers recommended a "buy", two recommended "buy on weakness" and one each recommended "hold" and "sell".

Their target price for the stock has been set in the range of Bt21-Bt32.30.

BAY offers a full array of services with total assets of Bt725.01 billion as of March 31. The bank last year recorded a net loss of Bt3.99 billion before turning a net profit of Bt1.03 billion in the first quarter.

Phillip Securities recommended a "buy" for the stock with a 12-month target price of Bt28.90.

The broker estimates BAY's second-quarter net profit will stand at Bt1.69 billion.

The key contributors expected quarterly profit growth should be a full-quarter contribution of interest income from GE Capital Auto Lease, making up roughly 25 per cent of the total portfolio.

There is an expected rise in net interest margin (NIM) to 4 per cent from an average of 3.6 per cent in the first quarter, as GE Capital Auto Lease's hire-purchase loans command higher yields than other types of lending. It will enjoy a better funding cost and a partial sale of non-performing loans.

Other factors are expectations of strong growth in fee income from BAY and its subsidiaries at 9 per  cent quarter on quarter and 46.7 per cent year on year in the second quarter, Phillip Securities said.

The cost-to-income ratio in the quarter is expected to fall to 58.9 per cent from 65.5 per cent and 79 per cent in the first quarter and the second quarter of 2007, respectively. A slight increase in loan-loss provision to Bt1.8 billion in the second quarter from Bt1.65 billion in the first quarter is also predicted, plus BAY staying tax-free in the second quarter thanks to remaining tax benefits of Bt2.8 billion at the end of the first three months of the year.

Seamico Securities recommended a "buy" with a target price of Bt27.50.

"We remain optimistic on BAY's prospect, especially on its aim to be a leader in consumer loans, with support from GE. We believe BAY's loans will continue to grow by over 12 per cent per year over the next two years, which is expected to boost net profit growth by an average of 20 per cent per annum," it said.

The broker expects BAY's second-quarter net profit to jump 40 per cent quarter on quarter and 116 per cent year on year, due to the tax shield and anticipations that the bank may mark down its collateralised debt obligations by less than the Bt600 million booked in the first quarter. Its strong NIM is expected to continue.

The bank's quarterly net interest income is expected to rise 24 per cent year on year and 4 per cent quarter on quarter to Bt5.93 billion. NIM will grow to 3.52 per cent, compared with 3.16 per cent in the first quarter and 2.93 per cent in the same period last year.

Seamico estimates BAY's second-quarter net profit will amount to Bt1.45 billion, up 116 per cent year on year and 40 per cent quarter on quarter.

KGI Securities (Thailand) is another broker that is bullish on BAY's business outlook. It recommended a "buy" with a 12-month target of Bt32.30.

"Even though there are mixed views on the synergy from the GE Capital Auto Lease acquisition, we remain optimistic and believe the synergy will be seen as soon as the second quarter from NIM improvement and better cost-to-income ratio," it said.

"This is reflected in our second-quarter earnings forecast, which is in the high range compared to the earnings projections of some other brokerages that are less positive at around Bt1.4 billion to Bt1.8 billion."

KGI expects BAY to post a net profit of Bt2 billion in the second quarter, up 94.3 per cent quarter on quarter and turning back from a big loss of Bt8.9 billion in the corresponding period last year.

Its NIM in the second quarter is expected to jump 47.1 basis points quarter on quarter and 93.5 basis points year on year to 4 per cent, boosted by a full-quarter contribution from a higher yield hire-purchase loan portfolio from GE Capital Auto Lease.

Since the acquisition, BAY's proportion of hire-purchase loans has risen from just 6 per cent at the end of 2007 to 20 per cent in the first quarter of 2008.

However, CIMB-GK Securities (Thailand) is less optimistic over BAY's prospects, recommending "underperform" with a target price of Bt22.

The broker believes benefits from the GE Capital Auto Lease acquisition have been factored into its price and the stock is the most expensive in terms of price-to-earnings (P/E) ratio, which is unjustified in its view.

According to Bloomberg data, BAY's one-year P/E was 14.66 times while the average of its industry peers stood at 7.68.

CIMB-GK expects BAY to book net income of Bt2.4 billion in the second quarter, up 132 per cent quarter on quarter and compared to Bt9 billion of net losses last year.

The quarter-on-quarter improvement is likely to come on the back of the amalgamation with GE Capital Auto Lease.

The quarterly NIM is expected to rise to 3.8 per cent, while fee income should grow at a rate of 40 per cent per annum.

Nevertheless, the its year-to-date performance has lagged behind its internal targets, such as the full-year target of 4.2 per cent for NIM and 29-per-cent loan growth, said the broker.