Krung Thai Bank

Krung Thai Bank Plc (KTB)

Q2 2013’s profit to grow notably. Expense normalizes, loan and fee income increase
We estimate KTB’s net profit in 2Q13 at B9.02bn, making a new quarterly high with
continuous growth of 5.6%qoq and 20.1%yoy due to following factors. 1) Net
interest income in 2Q13 is projected to grow 5.1%qoq and 9.6%yoy. This is in line
with the net loan growth of 3.5%qoq and 10.2%yoy, mainly from the growth in
every type of loans, especially corporate loans which are mostly private loans for
long-term investment and short-term working capital. For government loans,
despite continuously increasing debt repayment, it is not worrying because the
corporate loans in 5M13 have grown as much as 10% from end-2012, substantially
exceeding the target. SME and retail loans, at the same time, have also shown
impressive and surprising growth. Accordingly, overall, net loans in 1H13 are
projected to grow aggressively by 5-6% from end-2012, beating the bank’s target
for FY2013 at 7-10%yoy but still in line with our target of 12%yoy. NIM in 2Q13
would stabilize at 2.70%; an increased funding cost from the bank’s special
campaign to raise deposits in this quarter has been offset by an increase in yield.
2) Operating expense is projected to decrease as much as 12.6%qoq, mainly from
a decrease in employee expense (bonus, booked in 1Q13) to a normal level in this
quarter. Cost to income ratio is anticipated to drop to 41.07% from 45.97% in the
previous quarter. 3) Fee income growth in this quarter is estimated at 2.5%qoq
and 19.1%yoy, still very high compared with FY2013’s target of 15%yoy, thanking
to growth of the fee income from loan-related and retail transactions. However, a
pressuring factor in 2Q13 is fee income from other operations that is anticipated to
decrease, especially dividend income from Vayupak fund that will not be booked in
this quarter. Debt provision expense is projected to stay close to that of the prior
quarter. Credit cost would stabilize at 40bp, while there is nothing to worry about
asset quality because NPL to total loan ratio has remained close to that of 1Q13 at
2.98%.
- Maintain forecast. 2H13’s profit to weaken as usual, provision increased in 4Q13
We maintain our earnings forecast for 2013. Although the profit growth in 1H13
would comprise 56% of our FY2013’s net profit forecast, debt provision would be
high during the end of the year, so the fiscal year profit would still be in line with
our forecast. We are reviewing our forecast for 2013-2014 on a concern that debt
provision might increase more than we have expected because the bank’s coverage
ratio (LLR/NPL) is low at 98.4%, lower than the sector’s average of 133.8%, which
would make average ROE in the next 3 years (2013-2015) stand lower than the
currently estimated 17%.
- Reiterate “HOLD”. Cut 2013’s fair value. Long-term ROE might miss target
We reiterate to hold KTB for dividend. Although the share price has substantially
undergone correction, it has only 8.5% upside when comparing with the new
2013’s fair value, based on new PBV of 1.51x (from 1.89x) and long-term ROE
forecast of 15% (from 18%).