Krung Thai Bank

Krung Thai Bank Plc (KTB)

2Q12’s profit beats expectation, thanks to interest income and
fee income
KTB declared 2Q12’s net profit at B7.34bn, growing 15.1%qoq and 40.1%yoy,
better than expected and hitting a quarterly high, thanks to following supporting
factors. 1) Net interest income has grown 4.2%qoq and 15.9%yoy – higher than
expected although net loan in 2Q12 has thrived only 0.8%qoq due to high
repayment of debtors that are the government sector. Meanwhile, other types of
loan have still grown continuously, including the corporate (both government and
private loans; although no accelerated growth is seen in 1H12, higher growth is
foreseen in 2H12) as well as SME and retail loans. Particularly, for SME loans, the
bank has revised its strategy by aiming to increase a proportion of SME loans in
order to boost yield and NIM (long-term target is to increase a proportion of SME
and retail loans to above 50% of total loans from 45% at present). 2) NIM in 2Q12
was quite close to that of the previous quarter – better than expected compared
with our projection for a decrease of 14bp. Although there was a negative effect
from a back recognition of additional DPA contribution for 1Q12 in this quarter, a
higher-than-expected rise in yield from loans helped offset the negative factor
substantially. 3) Fee income has grown as high as 7.9%qoq and 7.1%yoy – higher
than projected, in line with the growth in loan transactions. 4) Operating expenses
have dropped 2.2%qoq due to a decrease of employee expense from an
adjustment of employee bonus in 1Q12 (to reflect the unpaid bonus and the
actually paid bonus). All these are the factors boosting net profit growth in this
quarter. Meanwhile, debt provision was still close to that of the prior quarter
(normally, KTB will book higher debt provision in 2H if the profit is higher than
expected). Overall, net profit in 1H12 stood at B13.7bn, growing 27.9%yoy due
mainly to the growth of the core businesses, including interest income and fee
income, and a flat growth of debt provision.
Core business tends to remain robust in 2H12, but profit might
be used for provision again

We maintain our forecast for 2012-2013 although earnings in1H12 already
comprised 58% of our FY2012’s net profit forecast because the bank usually
increases debt provision significantly in 4Q in order to increase coverage ratio
if net profit or ROE in the year can hit the target; and this situation is likely to
occur in 2H12. ROE in 2012 stood high at 17.3%, which we have already
included in our forecast. Consequently, debt provision in 2012 is expected at
B12.0bn (in 1H12 the bank has made provision at only B3.07bn). However,
overall, net profit is anticipated to grow remarkably by 39%yoy in 2012 and
16.5%yoy further in 2013.

Buy on weakness…low PBV, attractive upside and dividend yield
We reiterate BUY. Fair value in 2012 is B21.63, based on PBV of 1.69x and
ROE forecast of 16%, still implying 35% upside which is the highest among
large banks. Nevertheless, in order to reduce investment risk from shortterm
correction of share price after 2Q12’s earnings declaration, we
recommend gradually investing when the price weakens.