Krung Thai Bank

Krung Thai Bank Plc (KBANK)

3Q13 profit was in line with our model (but not with the street)
KTB posted a 3Q13 profit of Bt8.9bn, flat YoY and up 38% QoQ. The result was in line with our forecast but was 7.2% lower than the Bloomberg consensus. Pre-provision operating profit was Bt14.1bn, up by 10% YoY and 7% QoQ. 9M13 earnings grew 6% YoY to Bt23.9bn, which represents 84% of our FY13 projection.   
Results highlights
Lending rose by 2.1% QoQ and 9.8% YTD, in line with our model. Because, the bank lent more heavily to corporate and SME clients than to state agencies/SMEs during the quarter, its 3Q13 NIM inched up by 8 bps QoQ and 5 bps YoY to 2.83%.
Loan loss provisions shot up 122% YoY (but fell 18% QoQ) to Bt3.4bn (including an impairment of Bt1.7bn). KTB’s NPLs/loans ratio declined to 2.9% at end-September from 2.95% three months earlier, while its loan loss coverage ratio increased to 108.29% from 104.36% at end-June.
Fee income rose 11% YoY but dipped 2% QoQ to Bt5.1bn in 3Q13. OPEX was Bt9.4bn, up by 9% YoY and 2% QoQ. Given good loan growth, a fatter NIM and rising fee income, the cost/income ratio declined a little to 43.8% from 44.3% in 2Q13.
Outlook
4Q13 profit will rise YoY in tandem with loan and fee income growth. We also expect LLPs to decline YoY after the bank built substantial extra loan loss provisions during 9M13. KTB’s loan loss coverage ratio now exceeds 100%, which is management’s stated comfort zone (much of its lending is to state agencies, so its LLP requirements are lower than those of other commercial banks).Moreover, there should be dividend income in the region of Bt809m to book for the quarter from Vayupak Fund 1.  
What’s changed?
We maintain our net earnings projections unchanged at Bt28.5bn for FY13 (up 21% YoY) and Bt34.5bn for FY14 (up another 21%).
Recommendation
KTB should report strong core operations for FY13 and FY14, driven by ongoing loan growth, much of it tied to state infrastructure projects (especially in late FY14). Its capital adequacy ratio of 15.4% (10.1% Tier-1) will enable it to lend aggressively for at least several years without need for a cash call.  Our TRADING BUY rating stands.