Krung Thai Bank
NIM-fueled profit expansion HOLD (maintained) Target Price: Bt19.60 Price (19/07/12): Bt16.00
Krung Thai Bank Plc (KTB)
13% above our estimate: KTB booked a 2Q12 profit of Bt7.34bn, up by 40% yoy and 15% QoQ. The result was 13% above our forecast and 15% in excess of the consensus, due to a fatter NIM than modeled. (2.76%; we had expected 2.62%). Hence, pre-provision operating profit jumped by 26% YoY and 14% QoQ. 1H12 earnings represent 64% of our FY12 forecast.
Results highlights: Lending was flat QoQ (and up 5.4% YTD)—in line with our model—due to the fact that corporate and retail business expansion was offset by big-ticket loan repayments by state agencies and SOEs. Because of the bank’s migration from low-yield SOE lending to more profitable corporate and retail clients, 2Q12 NIM was sustained QoQ at 2.76%, despite the fact that KTB recognized the BOT’s 0.47% levy on deposits, B/Es and debentures for the entire 1H12 in its 2Q12 income statement.
Loan loss provisions inched up 2% YoY to Bt1.54bn, but were flat QoQ. KTB’s NPLs/loans ratio declined to 3.5% at end-June from 3.8% three months earlier, while its loan loss coverage ratio was 70% up from 66% at end-March.
Fee income increased by 16% YoY and 8% QoQ to Bt4.1bn. OPEX was Bt8.7bn up 14% YoY but down 2% QoQ. The cost/income ratio fell to 47.1% in 2Q12 from 50.5% the previous quarter.
Outlook: 3Q12 profit will decline QoQ—we expect OPEX to increase sharply and funding costs to rise further. Furthermore, KTB is in the process of making a cash call in order to boost its CAR from the current 12.9% (Tier-1: 7.92%) in order to support state projects next year.
What’s changed? We anticipate that the bank may build Tier-1 capital by cutting LLPs. Thus, we have cut our FY12 LLP assumption to Bt8bn from Bt10bn and upgraded our profit projection for the year by 6.9% to Bt23bn.
Recommendation: The market expects KTB to increase its capital within the next 12 months, which will dampen its forward share price performance. Our HOLD rating stands, but we have cut our YE12 target price by 6.7% to Bt19.60, pegged to a PBV of 1.6x (derived from a growth rate of 5%, Ke of 12% and mean FY12-13 ROE of 16%).
