Krung Thai Bank

Krung Thai Bank Plc (KTB)

3Q12’s profit hits new high, better than expected. High yield loan boosts NIM KTB reported 3Q12’s net profit better than expected, hitting a new high at B8.92bn with the growth of 20.8%qoq and 62.3%yoy due to following contributions. 1) NIM hiked 3bp to 2.80% in this quarter – in line with projection, as a result of loan restructuring to focus more on high yield loans which include SME and retail (47% of total loans at end-1H12. Net loan growth in 3Q12 stood at 1.4%qoq and 15.4%yoy from SME and retail loans that have shown notably growth, 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 has thrived 6.7% from end-2011, which is still in line with our forecast for FY2012 at 14%yoy, while funding cost remained quite flat in this quarter. 2) Fee income grew 8.4%qoq and 16.7%yoy – better than expected, making a new quarterly high due likely to the growth of fee income from SME and retail loans transactions. 3) Dividend income from Vayupak fund was recorded at B900m for 1H12 at a rate of 3% of investment that was booked in this quarter. 4) Cost of operation decreased 2.5%qoq and stabilized yoy, making cost to income ratio drop to only 39.5% from 43.9% in the previous quarter. 5) Debt provision in 3Q12 stood close to that of 2Q12 and was in line with the policy level of B500m/month.

Up forecast. Profit to contract in 4Q12 and then recover in 1Q13
We raise KTB’s earnings forecast in 2012-2013 slightly in order to reflect a down revision of our overestimated debt provision in FY2012. We believe the bank would keep on with the aggressive debt provision in 4Q12 due to its high profitability in 2012 which is reflected from ROE in 9M12 which stood high at 22.8% (we project debt provision expense in 4Q12 at B6.40bn). KTB would be able to maintain ROE in 2012 at 16.5% as we have previously projected. In addition, EPS in 2013 is anticipated to return to grow fully by 16.6%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. Very likely to outperform the market in 2013 from corporate loan growth
We reiterate “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 2013, at 1.69x PBV and under long-term ROE forecast of 16%, is B23.69/share, still implying 28% upside from the current share price.