Bank Sector

BANK Sector

- Index sector leaps among unclear economy and investment
In recent two weeks, banking sector share price index has surged by over
21.7% from the lowest in late-August 2013, outperforming the market’s
average increase of only 15%, despite no significant change in fundamental in
banking sector. There is only one important issue that can be a big change for
the fundamental: B2tr infrastructure investment bill, which is currently under
deliberation for the Ministry of Finance to borrow. Though the bill is
deliberated and approved by the parliament, it needs to be filed to
constitutional court as it is against the constitutional law, delaying the
investment. Another local pressure is economic deceleration. Leading
economic indicators, both household consumption and private investment,
significantly decelerated. Though 2H13 export increased, it cannot negate
pressure from economic indices. Loan growth would be pressed if the
government’s mega investment projects are terminated or delayed.
- 2H13 and FY2014 profit to be pressed more
We have more negative outlook toward the banking sector's FY2013-2014
business and earnings, especially for loan and fee income, as the growth
depends on local economy. Moreover, with rising concerns over asset quality,
banks will have to keep high debt provision. 2H13 net profit was previously
projected to improve from 1H13 due to decrease in debt provision and the
growth of core business on a high season of loan and fee income. However,
after the recent forecast was revised down to reflect that 2H13 earnings might
decelerate more than expected, loan is not likely to grow aggressive (reflected
from decelerating growth in July-August 2013 net loan), and debt provision
would remain high. 2H13 net profit would make 49% of FY2013 net profit
forecast.
- "UNDERWEIGHT". Short-term “take profit” recommended for big-cap stocks
We reiterate "UNDERWEIGHT" for banking sector, as banking sector's FY2014
EPS growth is projected at 9.6%yoy, lower than the market EPS growth of
13%yoy. Top picks are BBL and KBANK, which are big-cap stocks with healthy
financial status, capital base, and long-term profitability. We recommend
buying when prices are low for lower risk from rapid increase in share prices.
For SCB, we downgrade from "BUY" to "HOLD" for dividend, as the price has
reached its FY2013 fair value. For KTB, we reiterate "HOLD" for dividend, but
recommend short-term take profit due to 6% downside. If share price rises
and creates downside of over 10%, we promptly downgrade recommendation
to "SELL".