Krung Thai Bank

Krung Thai Bank Plc (KTB)

4Q12 profit projected to severely sink QoQ due to debt provision,
but main business very bright
According to the analyst meeting to hear the announcement of 4Q12
operating result and business strategy in 2013, the operating result in 4Q12
is projected to bring about B3.13bn of net profit or 64.7% QoQ decrease, but
still growing by 3x from the same period of 2011. This is not surprising
because KTB usually raises the debt provision significantly in the last quarter.
In case ROE is over 14-15%, the company would raise the debt provision to
increase the coverage ratio (LLR/NPL) from the present at only 73.5% (the
sector’s average stands at around 111.4%). If the mentioned effect isn’t
included, the profit from operation is projected to grow by 13% QoQ and
32.7% YoY due to the main business that has shone brightly and has been
able to exceed most targets. For the net loan in 4Q12, it is projected to grow
by 5% QoQ and 12.2% YoY (exceeding KTB’s target assigned at 1.5x of GDP,
but still lower than our projection at 14% YoY) due mostly to the growth of
almost every type of loans such as corporate loans (largely from more growth
of the private sector loans which would be more beneficial for the yield than
the government sector’s loan) and SME loans, especially retail loans that
have grown vigorously for both in property loans and personal loans.
Accordingly, NIM in 4Q12 would benefit from the growth of high-yield loans
that would offset effects from the loan and deposit rate cuts during October
2012 (small increase of 2.82% is seen in NIM). For the fee income, it’s still
the strong point of KTB, growing notably by 6.1% QoQ in 4Q12 which is in
line with the loan direction. In terms of the administrative expense, the cost
to income ratio is projected to rise to 45.9% after unusually declining to the
low level of 39.9% in the prior quarter as a result of effects from low season
in the late of year. However, this isn’t worrisome. Overall, FY2012 operating
result is projected to bring about B25.7bn of net profit or 51.6% YoY growth,
which is still in line with our current forecast.

2013 over all business outlook sparkling. Loan strategy still focuses on high yield
KTB’s 2013 business strategy led by the new CEO would preliminarily still
stay on the previous route, focusing on loans with “sustainable growth”.
Moreover, the company still constantly focuses on loans with high yield which
are both SME (20% of total loans) and retail loans (29% of total loans), and
property and personal loans by aiming at government employees and state
enterprise officers using cash management service. For corporate loans of the
government sector and state enterprise (13% of total loans), outstanding
growth would be seen more clearly in 2013 due to the government sector’s
acceleration on disbursing investment budget for mega public utility projects.
This is the strong point of KTB that is the leader in this type of loans.
Meanwhile, the company would focus more on increasing the market sharing
of private sector’s loans with high yield. Overall, 2013 net profit is projected
to grow continuously by 16.6% YoY.

Recommend “BUY”… the laggard of big commercial bank sector
We reiterate our recommendation of “BUY” for KTB which is already free from
the capital raising issue. Accordingly, full growth of loans and high
profitability would be seen from now on. 2013 fair value, using 1.69x PBV
under long-term ROE projected at 16%, stands at B23.69, with 21% upside
from the current share price.