Krung Thai Bank

Krung Thai Bank Plc (KTB)

Investment thesis
In its role as a commercial bank helping to implement government policy, we expect KTB to deliver strong core operations for FY14 and FY15, led by loan growth tied to state agencies/SOEs and state infrastructure projects. Its capital adequacy ratio of 13.3% (9.8% Tier-1) will enable it to lend aggressively for at least several years without need for a cash call.  KTB currently trades at a cheap YE14 PBV of 1.35x (up 0.5SD from its long-term mean) against its last peak at 1.7x in 2013 (up 1.5SD). Our BUY rating stands.
May net lending rose 1.9% MoM, led by state agency business
No surprise, KTB’s net lending amounted to Bt1.73trn in May, up by 1.9% MoM and 4.8% YTD. Loans to state agencies (8% of total loans) jumped 10% MoM, while the corporate and retail portfolios both grew 1% MoM. We expect its lending performance to improve further in June onward because the political chaos has ended and the new regime is moving to accelerate budget disbursements and institute a stimulus package.
The numbers for May put KTB’s 5M14 lending growth at 4.8% YTD, which already exceeds management’s full-year lending growth guidance of 4.5%. Note that we assume FY14 loan expansion of 7% in our model. Given that the bank has achieved the swiftest 5M14 loan growth in the sector, we see scope for upside to our current model. We expect 2H14 lending growth to accelerate HoH, driven by the fact that the political and macro-economic climates are improving.
FY14 loan loss provisioning likely to decline
KTB has managed its asset quality well—its loan loss coverage ratio is 106% and it has a low NPLs/loans ratio of 2.9%. We expect its FY14 loan loss provisioning to decline YoY after the bank set heavy provisions totaling Bt12.3bn in FY13. We currently assume LLPs of Bt11bn this year, down 10.5% YoY.
FY14 NIM expected to be stable YoY
Given that it has the strongest lending growth profile for FY14, KTB should sustain its NIM in the 2.6-2.7% range, according to management. The bank plans to increase its emphasis on high-yield loans (personal loans and SME business). Note that we assume an FY14 NIM of 2.6% in our model. Management expects the one-day Repurchase Rate to stay at 2.00% throughout 2014 (the managements of most of the other banks we cover expect at least one more cut to the Repo Rate during the year).

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