Bank sector

Bank sector

Public investments, key factor to boost loan growth in 2013
Net loan outlook in 2013 is projected to be bright with the growth
expected at 13.5%yoy continuing from 13.8%yoy in 2012 due to the
hope toward the public investment projects that would grow at an
accelerated rate compared with 2012 in which a water management
project was delayed. An aggressive loan disbursement for the
government’s projects would help compensate a decelerated export
industry in 2013 from the world economic downturn. Meanwhile, private
investments in 2013 are projected to exhibit solid growth of 7.7%yoy
(according to NESDB’s recent forecast) like in 2012 as private projects
would also benefit from the government’s investments, such as the
construction, constructional raw material, and logistics sectors, for
example.

NIM drops from short-term interest rate cut, to recover in 1Q13
We estimate the sector’s profit in 4Q12 to weaken 14.9%qoq (but still
grow 78.9%yoy) from the following short-term pressuring factors. 1)
NIM is projected to decrease from the banks’ loan and deposit rate cuts
(the fixed deposit rate is cut more than loan rate), which will
immediately affect interest income. 2) Debt provision expense would
increase to a year’s high in the high season. However, net profit is
projected to rebound again in 1Q13. Apart from the continued growth of
net loan, NIM would also improve from a gradually decreasing funding
cost as a reflection of the new interest rates. Moreover, operating and
debt provision expenses would normalize in the quarter. Consequently,
overall, we project EPS growth in 2012-2013 at 23.7%yoy and
16.6%yoy, respectively.

Share prices have corrected bases, time to accumulate. Top
picks are KBANK and TCAP
We maintain OVERWEIGHT for the sector. SETBANK has corrected base
more than 6% from the record high in the beginning of October to a PBV
of 1.8x at present, so this is the time of accumulation. Top picks are
KBANK and TCAP which would show notable EPS growth in 2013 and
have attractive upside. For investors who can bear risk from
international investment, we recommend US banking stocks whose
share prices are still lower than fair value and PBV and PER are lower
than Thai banking stocks, such as Wells Fargo, Citigroup, and JP
Morgan. We also recommend EU banking stocks which have strong
fundamental to withstand pressure from the economic crisis, such as
BNP, Paribas, and HSBC Holdings. Moreover, banking stocks in Asia such
as China and South Korea are also good choices as they also received
OVERWEIGHT recommendation from analysts, such as CMB, ABC
(Chinese), and KB Financial Group and Woori Finance Hldgs (Korean).