Krung Thai Bank

The Rights Offering price will be
B12.60/share, worth totaling B35.2bn. XR date is 28 August and closing date
of the share register book is 31 August 2012. At the same time, the meeting
also approved a cash dividend payment of B0.36/share for ordinary share
and B0.43725/share for preference share. XD date is 28 August and dividend
payment date is 3 October 2012.
  Positive perspective…strengthen capital base. EPS still grows
despite dilution effect
We have positive perspective toward the declaration of capital increase of
KTB as it helped unlock the concern that has pressured the share price. In
addition, there are also supporting factors as follows. 1) The capital increase
will help strengthen capital adequacy ratio of the bank to be rival to the
sector’s average of 11-12%. With the money from the capital increase plus
with earnings in 1H12 and deducted by dividend payment, Tier 1 capital to
risk-weighted asset of the bank will increase to 10.83% (CAR of 15.82%), up
from 7.92% (CAR of 12.91%) at end-1H12, which is sufficient to support the
business growth during a peak cycle of both domestic investment (following
GDP) and international investment (M&A and AEC liberalization) in the next 2
years. 2) EPS growth is projected as large as 12.7%yoy in 2012 and
17.4%yoy in 2013 despite the dilution effect from the capital increase. We
have revised up our FY2012-2013’s earnings forecast slightly to reflect a
decrease in a burden of deposit raising as compensated by money from the
capital increase, under a very conservative assumption for a debt provision
with credit cost for FY2012-2013 projected as high as 74bp compared with
only 41bp in 1H12. 3) FIDF still maintains its major shareholding at 51% of
paid-up share capital in the bank under an assumption for the FIDF to fully
exercise its rights to buy the additional ordinary shares which has helped
alleviate concerns that the FIDF might decrease its shareholding and over a
change of shareholding structure by major shareholders. Consequently, the
bank will still receive good credit rating from world-class credit rating
agencies as a bank that is supported by the government (such as low cost
deposit and the government’s mega project auction). 4) The capital increase
is made during a right time of market brightness. The offering price is close
to BV at end-1H12 and still has discount from the recent market price by
29.4%.
  Short-term psychological effect unavoidable. Wait to buy on
weakness
We reiterate our buy recommendation for KTB only on price weakness in
order to avoid risks from short-term psychological impacts. For investors who
are holding KTB, we recommend exercising the rights to buy the new
ordinary shares. New 2012’s fair value after the forecast revision is B21.60,
dropping slightly from B21.63, based on 1.69x PBV under long-term ROE
forecast of 16%.