Krung Thai Bank

Krung Thai Bank Plc (KTB)

3Q12’s profit to make new high. High yield boosts NIM.
Dividend income from Vayupak fund
We project KTB’s net profit in 3Q12 to make a new high at B8.66bn,
growing 17.3%qoq and 57.7%yoy due to following factors. 1) NIM is
projected to hike by 7bp to 2.85% in this quarter as a result of loan
restructuring to focus more on high yield loans which are SME and retail.
This has been reflected from the portion of SME and retail loans at end-
1H12 which has increased to 47% and possibly rises further in 3Q12
from only 45% in 1Q12. Net loan growth in 3Q12 is estimated at
2.2%qoq and 16.3%yoy. SME and retail loans are still growing notably,
while corporate loans for government projects have had a continuous
repayment (but the disbursement will return again in 4Q12 which is the
high season of the next fiscal year). Overall, net loan in 9M12 would
thrive 7.5% from end-2011, which is still in line with our forecast for
FY2012 at 14%yoy, while funding cost remains quite flat in this quarter.
2) Dividend income from Vayupak fund is projected at B900m for 1H12
at a rate of 3% of investment that will be booked in this quarter. 3) Cost
of operation would remain quite flat in 3Q12, but as income base has
grown at a higher rate, cost to income ratio would drop to only 40.5%
from 43.9% in the previous quarter. 4) Debt provision in 3Q12 is
anticipated to stand close to that of 2Q12 and be in line with the policy
level of B500m/month.

Maintain forecast. KTB will make higher provision in 4Q12 like in 2011
We maintain 2012-2013’s earnings forecast of KTB. Although earnings in
9M12 would comprise 94% of FY2012’s net profit forecast, with high
profitability of the bank in 2012 we believe the bank would keep its
conservative debt provision policy in 4Q12 like it usually does (we
project debt provision expense in 4Q12 at B7.40bn). KTB is able to
maintain ROE in 2012 at 15.6% as we have previously projected. In
addition, EPS in 2013 is anticipated to return to grow fully by 17.4%yoy
after the recent capital increase of more than B35.2bn in order to
strengthen tier-1 capital to risk-weighted asset ratio to 10.83% (CAR of
15.82%) to be sufficient to support the business growth during the peak
cycle of domestic investment (following GDP) and overseas investment
(M&A) as well as to prepare for the AEC liberalization in the next 2
years.

Buy. Share price is marching to outperform market
We reiterate our recommendation “BUY” for KTB. As the bank is now far
from concerns about capital increase, full growth of loans and high
profitability are foreseen from now on. Fair value in 2012-2013, at 1.69x
PBV and under long-term ROE forecast of 16%, is B21.60 and
B23.47/share respectively, implying 16.7% and 26.9% upside from the
current share prices.