Krung Thai Bank

Krung Thai Bank Plc (KTB)

6% above our estimate: KTB booked a 1Q12 profit of Bt6.38bn, up by 16% YoY and 708% QoQ. The result was 6% above both our forecast and the consensus, due to stronger loan growth of 4.6% QoQ and 14.5% YoY than modeled (we expected 2.5% QoQ). Pre-provision operating profit jumped by 11% YoY and 24% QoQ. 1Q12 earnings represent 29.6% of our FY12 forecast. 
Results highlights: Lending jumped 4.6% QoQ (and 14.5% YoY)—above our model—led by big-ticket business with state-owned enterprises and corporate loan expansion. The yields are lower for SOE and corporate loans than for retail business, which meant that 1Q12 NIM dipped 7 bps QoQ to 2.76%. KTB’s loan loss provisions inched up 1% YoY to Bt1.5bn, but were down 80% QoQ (KTB set heavy 4Q11 provisions, due to the flooding).
Stronger loan growth offset the effect of NIM squeeze, so 1Q12 net interest income rose by 21% YoY and 3% QoQ to Bt13.7bn, while fee income increased by 17% YoY and 5% QoQ to Bt3.8bn. OPEX was Bt8.9bn, up 12% YoY but down 4% QoQ. The cost/income ratio fell to 50.5% in 1Q12 from 54.6% the previous quarter. KTB’s NPLs/loans ratio was 3.79% at end-March, down from 4.00% at YE11, whereas its loan loss coverage ratio was 66% down from 69% at YE11.
Outlook: 2Q12 profit is likely to fall QoQ—we expect lending growth to slow, dividend income to decline and loan loss provisions to increase. Furthermore, KTB is in the process of a capital increase in order to boost its CAR, so it can support government projects next year.
What’s changed? We maintain our earnings forecasts unchanged at Bt21.5bn for FY12 and Bt24bn for FY13.  
Recommendation: Given stronger 1Q12 loan growth than modeled, KTB appears to have scope for earnings upside from our FY12-13 forecasts, so long as it can sustain its NIM at about the 1Q12 level and isn’t subject to any big-ticket loan repayments (as it was last year). Our BUY rating stands, premised on the bank’s role servicing state agencies and helping implement government financial policy