Krung Thai Bank

Krung Thai Bank Plc (KTB)

Cut loan growth to factor in delay of government loans. We have lowered our forecast for KTB’s loan growth to 12% from 14% for 2013F and 10% from 14% for 2014F to factor in: 1) a lower-than-expected allotment for flood protection loans, 2) a potential delay in government loans and 3) a downward revision of 2013F GDP. Although Government Savings Bank, KTB, BBL and KBANK were already given their allotments of the Bt340bn flood protection loans from the government in late June, loan drawdown has been suspended by the Administrative Court until the projects obtain their Environment Impact Assessment and conduct public hearings. The Bt2trn infrastructure bill is on schedule to be considered by Parliament on August 7 but could also held up by a submission to the Constitutional Court for a ruling on whether the bill complies with the Constitution. KTB’s management expects lower loan demand from the private sector in 2H13 after a stronger 1H13 loan growth of 8% than anticipated. Its 1H13 loan growth was solely from tthe private sector – 12% for corporate loans and 7-8% for SME and retail loans. Repayments of government loans on the other hand led to a substantial contraction.
More extra provisions in 2H13. As expected, KTB reconfirmed additional extra provisions in 2H13 to further boost its LLR coverage to bring it closer to peers after the hefty extra provisions in 2Q13 of Bt2.5bn (added to its Bt1.6bn normalized provisions). This raised LLR coverage to 104% from 95% at 1Q13, but it remains below the sector’s average of 135%. We maintain our 2013F and 2014F provisions at Bt15bn (Bt6.5bn normalized provisions plus Bt8.5bn extra provisions), on par with 2012, translating to a credit cost of 88 bps for 2013F and 80 bps for 2014F vs. 99 bps for 2012. Its excess LLR (against required LLR) rose to Bt17bn from Bt13bn at 1Q13 and Bt12bn at end-2012, which was faster than expected. Its rapid buildup of excess LLR is more than sufficient to handle provisions against the Bt6.9bn in loans to financially troubled Saha Farm if it becomes necessary.
Maintain top Buy. We cut target price to Bt27 (1.8x 2013F and 2014F BVPS) from Bt29 to reflect the downward revision of 2013F-2014F loan growth. Still, there are three reasons to keep KTB on our list of top buys: 1) its position as a government bank puts it at the top of the list for loans for public investment – and though this may be delayed, it still proffers more hope than does consumer; 2) improving asset quality from the more rapid rise in LLR than anticipated; and 3) attractive valuation at 1.1x 2014F PBV relative to a 16% 2014F ROE, which has already priced in a potential delay in government loans.