Banque Pour Le Commerce Exterieur Lao

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1 Company Update Banque Pour Le Commerce Exterieur Lao Earnings upgrade/earnings downgrade/overview unchanged Earnings uncertainty remains Price Performance (%) 200% 160% 120% 80% 40% 0% 40% Jan 11 Jun 11 Dec 11 May 12 Oct 12 Mar 13 Sep 13 Feb 14 Jul 14 Jan 15 Jun 15 Nov 15 May 16 Source: Bloomberg, KT ZMICO Research FY16 FY17 Consensus EPS (LAK) KT ZMICO vs. consensus n.a. n.a. Share data Reuters / Bloomberg BCEL.LS / BCEL LS Closing Price (USD, LAK) 0.65 / 5,250 Paid up Shares (m) Par (USD, LAK) / 5,000 Market cap (LAK bn/ USDmn) / Foreign limit / actual (%) / week High / Low (LAK) 6,600 / 4,200 Avg. daily T/O (shares 000) Free float (%) Beta (%) 0.14 URL Note: BCEL KT Securities Co., Ltd. is a joint venture company between BCEL Bank and KT ZMICO Securities (Thailand). Prapharas Nonthapiboon Analyst, no Prapharasn@ktzmico.com 66 (0) LSX BCEL Underperform (16E TP: LAK6,000; US$0.74) Close LAK5,250/US$0.65 REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 6 Banking May 19, 2016 Capital issue remains its key share price overhang We maintain an Underperform rating for BCEL. Although its cheap valuation should be the main share price support, we see the ongoing concern over its limited capital to remain its key share price overhang. Meanwhile, its earnings uncertainty could stem mainly from the efficiency of its asset quality control as well as some extra items that might incur. However, we see that the main share price catalyst could come from the progress of its recapitalization plan, with the timeframe still uncertain. 1Q16 net profit stood at LAK15bn ( 71% YoY, 84% QoQ) The weaker results were due mainly to 1) a much higher tax rate to 28%; 2) much lower extra gains YoY as the bank booked huge extra gain from share of profit (LAK73bn) of joint ventures (Lao Viet Joint Venture Bank) and gain (LAK25bn) from margin trading transactions in 1Q15 vs. the absence of extra income in 1Q16. Moreover, a higher provision QoQ vs. the huge provision reversal in 4Q15 was another reason behind the earnings drop QoQ. Top line growth showed improvement in 1Q16 Loans grew sharply 29% YoY and 15% QoQ mainly from the industrial services and trading companies sectors. The net interest margin showed sharp improvement both YoY and QoQ to 2.35%, thanks mainly to the bank s better balance sheet leverage (with a higher loan to deposit ratio to 58%) and higher loan growth. Net trading income (excluding margin trading transactions) grew well at 40% YoY and 36% QoQ. However, the unusually high tax rate in 1Q16 and the continuing high cost to income ratio following the bank s expansion stage were the main earnings pressures for 1Q16. Asset quality for 1Q16 improved QoQ but still needs a close watch The bank s NPLs in 1Q16 declined slightly QoQ to LAK273bn from LAK289bn in 4Q15, while the NPL ratio declined QoQ to 2.14% of loans from 2.62% as loans hiked sharply 15% QoQ. Despite the NPL drop, the bank still set a higher provision at LAK36bn in 1Q16. This resulted in a higher reserve to NPL ratio to 112% vs. 93% in 4Q15. However, we still have to keep a watch on the bank s consistency with respect to the control of asset quality, which was quite volatile in Note also that we saw higher accrued interest (+17% QoQ) in 1Q16, which could imply higher NPLs for the following quarters if these loans cannot be resolved on time. Its capital adequacy ratio of 5.2% in 1Q16 remained below the BOL s minimum requirement of 8%. Fine tune earnings forecasts with the latest results We fine tune our earnings forecasts for BCEL to reflect the latest 2015 and 1Q16 results with a small adjustment in net profit for E; see figure 2. The main revisions are 1) higher loan growth and NIM; and 2) an adjustment for lower non interest income, mainly on lower gain on margin trading transactions and lower net fee income on much higher fee expenses in 1Q16. Given the insignificant adjustment of our net profit forecasts, we maintain the 16E target price at LAK6,000/share. Financials and Valuation FY Ended 31 Dec E 2017E 2018E PPP (LAKmn) 247, , , , ,734 Net profit (LAKmn) 132, ,371 97, , ,054 EPS (LAK) ,047 EPS growth (%) 44% 6% 21% 29% 14% BVPS (LAK) 8,184 8,521 8,856 9,538 10,323 DPS (LAK) FY Ended 31 Dec E 2017E 2018E PER (X) PBV (X) Div. Yield (%) ROE (%) 12% 11% 8% 10% 11%

2 Figure 1: 1Q16 earnings results Income statement (LAKmn) Fiscal Year Ended Dec. 1Q15 4Q15 1Q16 % YoY % QoQ E % YoY % 1Q vs. 16E Net Interest Income 52,851 76,774 93,611 77% 22% 260, ,229 42% 25% Non Interest Income 148,693 61,052 48,631 67% 20% 383, ,911 33% 19% Net Fee and commission income 33,293 48,608 31,484 5% 35% 158, ,347 7% 19% Net trading income (excl. margin trading) 10,846 11,121 15,150 40% 36% 41,002 57,403 40% 26% Other income 104,554 1,323 1,997 98% 51% 184,537 29,161 84% 7% Operating Income 201, , ,242 29% 3% 644, ,139 3% 23% Operating Expenses 81, ,523 84,777 4% 35% 382, ,485 0% 22% Provision expenses (Reversal) 63,715 (104,895) 36,108 43% 134% 114, ,595 9% 29% Tax expenses (Reversal) 3,084 20,287 5,911 92% 71% 22,377 21,611 3% 27% Net Profit 52,467 93,023 15,245 71% 84% 124,371 97,665 21% 16% PPOP post tax 88,463 48,729 54,275 39% 11% 116, ,126 91% 24% Pre provisioning profits (PPP) 116,182 (11,872) 51,353 56% N.M. 238, ,259 7% 23% EPS (LAK) % 84% % 16% Key Statistics and Ratios 1Q15 4Q15 1Q E Gross NPLs (LAKmn) 348, , , , ,823 Gross NPLs/Loans 3.52% 2.62% 2.14% 2.62% 2.60% Loan Loss Reserve/NPLs 73.0% 93.0% 112.0% 93.0% 109.1% Loan Loss Reserve/Loans 2.6% 2.4% 2.4% 2.4% 2.8% Capital Adequacy Ratio 8.5% 5.6% 5.2% 5.6% 5.1% Loan to Deposit Ratio 52.5% 51.7% 58.2% 51.7% 54.7% Cos t to Income 40.6% 94.0% 59.6% 59.4% 61.0% Non Interest Income/Total Income 73.8% 44.3% 34.2% 59.6% 40.8% Provision/Loans 2.58% 3.81% 1.13% 1.04% 1.00% Tax rate 5.5% 17.9% 27.7% 8.4% 18.0% Net Interest Margin 1.44% 2.07% 2.35% 1.74% 2.34% Loan Growth YoY 6.1% 13.3% 28.6% 13.3% 13.0% Loan Growth QoQ 1.7% 3.3% 15.4% Source: KTZMICO Research Figure 2: Key changes in our earnings revision 2016E 2017E Previous New Previous New Net Profit (LAKmn) 96,614 97, , ,611 % Change in net profit from previous forecasts 1% 3% % YoY Change in net profit 21% 29% Loan growth 9% 13% 7% 10% Net interest margin (NIM) 1.82% 2.34% 2.00% 2.43% Provision expenses (LAKmn) 102, , , ,200 Provision expenses (% to loans) 0.87% 1.00% 0.92% 0.95% Non interest income growth 20% 33% 11% 8% Net fee income growth 15% 7% 14% 12% Net gain from dealing in foreign currencies 40,226 57,403 41,433 59,125 Gain/(loss) from margin trading transactions (LAKmn) 18,000 7,000 21,600 6,000 Source: KT ZMICO Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 6

3 Figure 3: Loans by currency Loans by currency Q16 Loans in LAK 39% 44% 43% 41% 40% Loans in USD 44% 42% 43% 47% 48% Loans in THB 18% 14% 14% 12% 12% Total loans 100% 100% 100% 100% 100% Source: KT ZMICO Research, BCEL Figure 4: Deposits by currency and type Deposits by currency Q16 LAK 40% 45% 44% 47% 51% 52% Foreign currency 60% 55% 56% 53% 49% 48% Total 100% 100% 100% 100% 100% 100% Deposit structure Q16 Current 29% 23% 20% 23% 21% 19% Savings 40% 42% 42% 39% 40% 42% Margin and Fixed 30% 34% 36% 37% 37% 37% Other 1% 1% 2% 1% 1% 2% Total 100% 100% 100% 100% 100% 100% Current and Savings (CASA) 69% 65% 62% 62% 62% 61% Source: KT ZMICO Research, BCEL Figure 5: BCEL's P/BV band and sensitivity of market prices based on P/BV at different standard deviation levels (X) E PBV (x) Implied market Upside/ Downside price (LAK) to current price (%) S.D S.D S.D S.D. 1.1 Avg S.D. -1 S.D S.D. -2 S.D Jan-11 May-11 Oct-11 Feb-12 Jul-12 Nov-12 Apr-13 Sep-13 Jan-14 Jun-14 Oct-14 Mar-15 Jul-15 Dec-15 Apr SD , SD , SD , SD 1.1 9,520 7 Average 1.0 8, SD 0.8 7, SD 0.7 6, SD 0.6 5, SD 0.5 4, Source: Bloomberg, KT ZMICO Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 6

4 Statement of Comprehensive Income (LAKmn) Year end 31 Dec E 2017E 2018E Total Interest Income 1,003,754 1,073,610 1,211,648 1,322,265 1,465,421 Total Interest Expenses 689, , , ,829 1,011,780 Net Interest Income 314, , , , ,641 Net Fee and Service income 131, , , , ,202 Net trading income (excl. gain/(loss) from margin tradi 54,774 41,002 57,403 59,125 60,899 Other Income 128, ,537 29,161 25,881 28,362 Total Non Interest Income 314, , , , ,463 Operating Income 628, , , , ,103 Personnel Expenses 212, , , , ,400 Depreciation and amortization 58,861 64,465 70,912 78,712 88,157 Other Expenses 85,374 97,685 79,819 88,053 97,200 Total Operating Expenses 357, , , , ,757 Operating Profit 237, , , , ,480 Net Provision Expenses (Reversal) 115, , , , ,680 Tax Expenses (Reversal) 22,805 22,377 21,611 27,771 31,620 Net Profit 132, ,371 97, , ,054 Pre Provisioning Profit (PPP) 247, , , , ,734 EPS (LAK) ,047 Statement of Financial Position (LAKmn) As at 31 Dec E 2017E 2018E Assets Cash 7,271,254 9,466,790 9,561,458 8,605,312 7,744,781 Interbank & Money Market 3,774,198 1,986,635 1,986,635 1,804,361 1,775,491 Net Investment 2,027,400 2,562,220 2,794,077 3,028,162 3,284,750 Loans 9,728,396 11,026,334 12,459,452 13,705,268 15,075,540 Accrued Interest Receivable 93,822 97, , , ,680 Net Loans 9,622,905 10,854,955 12,216,999 13,385,073 14,671,997 Premises and Equipment, Net 250, , , , ,800 Other Assets 340, , , , ,943 Total Assets 23,483,159 25,776,860 27,499,203 27,795,169 28,478,831 Liabilities & Equity Deposits 19,101,649 21,310,561 22,759,679 22,914,445 23,441,477 Interbank & Money Market 2,861,725 2,446,347 2,568,664 2,594,351 2,620,295 Borrowing 121, , , , ,032 Other Lialilities 253, ,384 98,787 95,615 92,828 Total Liabilities 22,338,468 24,579,789 26,255,702 26,457,840 27,033,632 Paid up Capital 682, , , , ,888 Premium on Share Capi tal Retained Earning 92, , , , ,188 Other Equity Items 342, , , , ,845 Minority Interest 32,902 33,243 33,908 34,586 35,278 Total Shareholders' Equity 1,117,789 1,163,828 1,209,594 1,302,743 Source: KTZMICO Research 1,409,922 REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 6

5 Valuation and Ratio Analysis Year end 31 Dec E 2017E 2018E Per/Share Data (LAK) EPS ,047 DPS BV 8,184 8,521 8,856 9,538 10,323 Multiplier (X) P/E P/BV Dividend yield (%) Growth YoY (%) Net Profit 43.7% 6.2% 21.5% 28.6% 13.9% EPS 43.7% 6.2% 21.5% 28.6% 13.9% Net Interest Income 27.1% 17.0% 42.4% 13.5% 7.6% Non Interest Income 60.5% 22.0% 33.3% 7.6% 10.2% Net Fee and Service income 17.5% 20.5% 7.0% 12.5% 12.5% Operating Income 0.3% 2.5% 2.7% 11.1% 8.6% Operating Expenses 0.2% 7.2% 0.1% 7.8% 8.1% Operating Profit 22.4% 41.5% 76.0% 18.1% 9.5% Pre Provisioning Profit (PPP) 16.0% 3.7% 6.9% 15.1% 9.0% Loans 4.8% 13.3% 13.0% 10.0% 10.0% Deposits 31.5% 11.6% 6.8% 0.7% 2.3% NPLs 325.1% 2.9% 12.0% 10.9% 9.8% Asset Quality Ratio Gross NPLs (LAKmn) 297, , , , ,580 Gross NPLs/Loans 3.1% 2.6% 2.6% 2.6% 2.6% Loan Loss Reserve/NPLs 66.9% 93.0% 109.1% 123.5% 136.7% Loan Loss Reserve/Loans 2.0% 2.4% 2.8% 3.2% 3.6% Capital & Liquidity Ratio Equity/Asset 4.8% 4.5% 4.4% 4.7% 5.0% Tier I to Risk Assets 8.0% 5.5% 5.0% 5.0% 5.0% Capital Adequacy Ratio 8.0% 5.6% 5.1% 5.1% 5.2% Loans to Deposits Ratio 50.9% 51.7% 54.7% 59.8% 64.3% Loans to Deposits and borrowings 50.6% 50.0% 52.8% 57.7% 62.0% Profitability Ratio ROA 0.7% 0.5% 0.4% 0.5% 0.5% ROE 12.2% 10.9% 8.2% 10.0% 10.5% Cost to Income 56.8% 59.4% 61.0% 59.2% 58.9% Non Interest Income/Total Income 50.0% 59.6% 40.8% 39.5% 40.1% Net Interest Margin (NIM) 2.36% 1.74% 2.34% 2.43% 2.42% Tax rate 14.6% 8.4% 18.0% 18.0% 18.0% Key Assumptions E 2017E 2018E Loan Growth Net 4.8% 13.3% 13.0% 10.0% 10.0% Cost to Income 56.8% 59.4% 61.0% 59.2% 58.9% Net Interest Margin 2.36% 1.74% 2.34% 2.43% 2.42% Provision/Loans 1.2% 1.0% 1.0% 1.0% 0.9% Source: KTZMICO Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 6

6 Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investment in the securities of KTB and ZMICO, investor should consider risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, PLE, TPOLY. KT ZMICO is a co underwriter of TPBI. Anti corruption Progress Indicator Level 1 (Committed) : Organization s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user. KT ZMICO RESEARCH RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between 10% to +15%; returns expected to exceed market returns over a six month period due to specific catalysts UNDERPERFORM: Expecting total returns between 10% to +15%; returns expected to be below market returns over a six month period due to specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 6

7 KT ZMICO Securities Company Limited 8 th, 15 th -17 th, 19 th, 21 st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok Telephone: (66-2) Fax. (66-2) Phaholyothin Branch 3 rd Floor, Shinnawatra Tower II, 1291/1 Phaholyothin Road, Phayathai, Bangkok Telephone: (66-2) Fax. (66-2) Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang, Nakhon Pathom Province Telephone: (034) Fax: (034) #100 Chachoengsao Branch 108/34-36 Mahajakkrapad Road, T.Namuang, A.Muang, Chachoengsao Telephone: (038) Fax. (038) Khon Kaen Branch 5 th Floor, Charoen Thani Princess Hotel, 260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen Telephone: (043) Fax. (043) Central World Branch 999/9 The Offices at Central World, 16 th Fl., Rama 1 Rd, Pathumwan, Bangkok Telephone: (66-2) , (66-2) Fax. (66-2) Pak Chong Branch , Mittapap Road, Nong Sarai, Pak Chong, Nakhon Ratchasima Tel. (044) Fax. (044) Nakhon Ratchasima Branch 624/9 Changphuek Road,. Naimaung, A.Maung, Nakhon Ratchasima Telephone: (044) Fax: (044) Ploenchit Branch 8 th Floor, Ton Son Tower, 900 Ploenchit Road, Lumpini, Pathumwan, Bangkok Telephone: (66-2) Fax. (66-2) Viphavadee Branch G Floor, Lao Peng Nguan 1 Bldg., 333 Soi Cheypuand, Viphavadee-Rangsit Road, Ladyao, Jatujak, Bangkok Telephone: (66-2) Fax. (66-2) Chonburi Branch 4 th Floor, Forum Plaza Bldg., 870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi Telephone: (038) Fax. (038) Hat Yai Branch 200/301 Juldis Hatyai Plaza Floor 3, Niphat-Uthit 3 Rd, Hatyai Songkhla Telephone: (074) Fax: (074) Chiang Mai Branch 422/49 Changklan Road, Changklan Subdistrict, Amphoe Meuang, Chiang Mai Telephone: (053) Fax: (053) Cyber North Nana Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict, Wattana District, Bangkok Telephone: Sindhorn Branch 2 nd Floor, Sindhorn Tower 1, Wireless Road, Lumpini, Pathumwan, Bangkok Telephone: (66-2) Fax. (66-2) , Phitsanulok Branch Krung Thai Bank, Singhawat Branch 114 Singhawat Road, Muang, Phitsanulok Telephone: Pattaya Branch 382/6-8 Moo 9, T. NongPrue, A. Banglamung, Cholburi Telephone: (038) Fax. (038) Sriworajak Building Branch 1 st 2 nd Floor, Sriworajak Building, 222 Luang Road, Pomprab, Bankgok Telephone: (02) Fax. (02) Phuket Branch 22/61-63, Luang Por Wat Chalong Road, Talat Yai, Mueang Phuket, Phuket Tel. (076) ,(076) Fax. (076) Bangkhae Branch 6 th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok Tel. (66-2) Fax. (66-2) Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.