Krung Thai Bank

Krung Thai Bank Plc (KTB)
 

Q4 2011 result undershot estimate by 79%: KTB booked a Q4 2011 profit of Bt790m, down by 79% YoY and 86% QoQ. The result was 79% below our estimate and 83% short of the street, due to heavy loan loss provisions of Bt7.5bn (we expected Bt4bn). Pre-provision operating profit rose 16% YoY but declined 24% QoQ. FY11 earnings increased 14% YoY to Bt17bn, equal to 85% of our FY11 projection. 
Results highlights: Lending jumped 8% QoQ—we had modeled for only 3% QoQ growth—driven by big-ticket loan demand among state-owned enterprises and corporates. NIM dipped 9 bps QoQ to 2.83% in Q4 2011. Net interest income rose 22% YoY and was flat QoQ at Bt13.4bn, while fee income grew 22% YoY and was flat QoQ to Bt3.7bn. KTB’s 4Q11 OPEX increased by 15% YoY and 11% QoQ to Bt9.3bn. The cost/income ratio rose to 54.6% in 4Q11 from 49.4% in 3Q11.
Loan loss provisions jumped by 380% YoY and 149% QoQ to Bt7.5bn—almost double what management had guided. The NPLs/loans ratio was 4.0%, down from 4.4% at end-Sept. KTB’s loan loss coverage ratio rose to 69% at YE11 from 57% three months earlier.
Outlook & model adjustments: The govt’s spending plans have prompted us to raise our KTB loan growth targets to 10% for both FY12 and FY13 from 6% and 7%, respectively. We have also cut our FY12-13 NIM assumptions by 10 bps, as we expect the BOT’s plan to levy new fees on deposits and bank-issued B/Es in 2H12 (in order to service FIDF debt) to squeeze margin. Lending competition will also intensify. But KTB’s aggressive lending policy for FY12-13 could offset the effect of NIM squeeze. As such, we maintain our FY12-13 earnings projections at Bt20.5bn and Bt22.8bn, respectively.    
Recommendation: Given KTB’s role as lead lender to state agencies and state-owned enterprises and the govt’s heavy spending plans for 2012-13, there is considerable scope for upside to the bank’s earnings. Our BUY rating stands with a YE12 target price of Bt19.60, pegged to a justified PBV of 1.5x.