Krung Thai Bank

Krung Thai Bank Plc (KTB)

Investment thesis
We have cut our FY13 and FY14 earnings forecasts by 11% and 4%, respectively, to Bt28.5bn and Bt34.5bn, as we now expect heavier loan loss provisioning (LLPs) than we did earlier. We have revised up our LLP assumptions by 60% to Bt12bn for FY13 and by 33% to Bt10bn for FY14. Due to our earnings forecast downgrades, we have cut our YE13 target price by 11% to Bt21, pegged to Ke of 12%, average ROE of 15.3% and growth of 5%. Our TRADING BUY rating stands.
2H13 loan growth will be slower HoH
Despite strong 1H13 lending expansion of 7.3% YTD, KTB maintains its FY13 target range at 7-10%, due to the negative outlook for 2H13—slowing consumption and delays to ground-breaking for some government projects. The bank expects corporate loan demand to remain strong in 2H13, especially related to public infrastructure projects. However, SME and retail lending (such as mortgages and HP) growth will slow down. Note that 1H13 loan expansion was driven by corporate business, up 12% YTD, followed by retail (up 8% YTD) and SME (up 8% YTD). Lending to state agencies and SOEs was flat YTD.
NIM trend will be stable at about 2.7%, assuming no Repo Rate cut
Stiffer competition for business and a greater emphasis on corporate lending means little chance for upside to NIM, said management. KTB’s 1H13 NIM was 2.73%, slightly below our FY13 assumption of 2.8%. The bank doesn’t anticipate another cut to the policy interest rate in 2H13. It targets FY13 deposit growth in the range of 7-10%.
Heavier FY13 LLPs than earlier modeled
Despite its high loan loss coverage ratio of 108% at end-June, KTB plans to set extra provisions on top of its normal LLPs (Bt1.5bn/quarter). Management claims that the economic slowdown and the implementation of the Basel III Accord prompted the setting of heavier LLPs than earlier guided. The bank has not yet offered new guidance. In the absence of guidance, we have upped our LLP assumptions by 60% to Bt12bn for FY13 and by 33% to Bt10bn for FY14.
Fee income trend is good
The bank posted 1H13 fee income growth of 20% (driven by banking fees, loan-related fees and bancassurance sales commissions), which was slightly above its guidance for FY13 of 15%. Management aims to sustain fee growth momentum in 2H13. We conservatively maintain our FY13 fee income growth assumption at 12% for the moment.