KTB's first capital increase in 13 years
Krung Thai Bank stands to grow business faster than expected following the first capital increase in 13 years despite some dilution effect, said brokerage houses.
KTB yesterday announced a massive capital increase plan, to raise at least Bt14 billion. A number of 2.8 billion shares at Bt5.15 par value will be offered to existing shareholders at the ratio of one new share to four old shares. Any leftover shares will be offered to shareholders who express interest to subscribe for shares in excees of their rights.
The bank said that it would offer shares left over from the process to specific investors at the price of not lower than Bt12.60 apiece, which may be lower than 90 per cent of the market price. The extraordinary shareholder meeting will be held on August 9 to approve the recapitalisation. KTB is 55 per cent owned by the Financial Institutions Development Fund (FIDF).
Kittiratt said that FIDF has enough liquidity to subscribe for the new shares.
Tisco Securities noted that KTB's capital hike from Bt57.6 billion to Bt72 billion has been anticipated, given the stricter capital rules by the Bank for International Settlements' Basel III as well as its massive loans to Sahaviriya Steel Industries. Banks are not allowed to lend above 25 per cent of its capital fund to a single borrower. The house anticipated a 20 per cent dilution effect if the new shares are fully subscribed, while the tier-1 capital will increase from 8.6 per cent to 10.9 per cent.
At Bt12.60 a share, KTB will raise Bt35.2 billion.
"We have positive perspective toward the declaration of capital increase of KTB as it helped unlock the concern that has pressured the share price," Asia Plus Securities said.
The capital increase will help strengthen capital adequacy ratio of the bank to be rival to the sector’s average of 11-12 per cent. Its tier-1 capital to risk-weighted asset of the bank will increase to 10.83 per cent (while capital adequacy ratio will be 15.82 per cent), up from 7.92 per cent (CAR of 12.91 per cent) at the end of 2012, which is sufficient to support the business growth during a peak cycle of both domestic investment (following GDP) and international investment (M&A and AEC liberalisation) in the next 2 years. Earning per share growth is projected as large as 12.7 per cent on year in 2012 and 17.4 per cent on year in 2013 despite the dilution effect from the capital increase.
Asia Plus consequently revised up earning forecasts for the bank in 2012 and 2013, as the capital increase will reduce deposit-related burden.
"We reiterate our buy recommendation for KTB only on price weakness in order to avoid risks from short-term psychological impacts. For investors who are holding KTB, we recommend exercising the rights to buy the new ordinary shares. New 2012’s fair value after the forecast revision is B21.60, dropping slightly from B21.63, based on 1.69 time price-to-book-value under long-term return on investent forecast of 16 per cent," it said.
