Krung Thai Bank

Krung Thai Bank Plc (KTB)

- 3Q13 profit recovers less than expected. Robust core business, Vayupak dividend
KTB announced 3Q13 net profit at B8.91bn, 8.7% lower than our projection but still
growing 38.2%qoq and stabilizing yoy due mainly to a decrease of debt provision in
3Q13 to B3.40bn from B4.15bn in 2Q13 (as a result of countercyclical provisioning)
but still higher than a normal level we have projected at B1.5bn/quarter. The high
debt provision in this quarter came from the same reason as in 2Q13, which is for
countercyclical buffer not because of unusual NPL situation. NPL to total loans at
end-3Q13 still stabilized at 2.90%. Moreover, in this quarter there was not a loss on
investment of more than B900m like it was in 2Q13 (one-time loss), while the bank
usually books a dividend income from Vayupak fund in the third quarter of every
year, 2.5% this quarter or around B700m. All these factors are beneficial to the net
profit in 3Q13. Excluding the items, the core business could still grow robustly as net
interest income growth in 3Q13 stood at 4.2%qoq and 11.2%yoy – better than
expected. This was in line with the net loan growth of 2.1%qoq and 10.6%yoy – as
projected. The net loan growth came from every type of loans, especially corporate
loans with increasing private loans for long-term investment and short-term working
capital. For the government loans, continuous debt repayment has made the
government loans to total loans ratio drop to 7% at present. SME and retail loans
have shown surprising growth, especially retail loans that have already made 30% of
total loans, mostly housing and personal loans (particularly government servant
loans, which have low risk). Overall, total net loans in 9M13 grew aggressively by
9.8% from end-2012, very high when compared with the bank’s target of 7-10%yoy
and our target of 10%yoy. NIM in 3Q13 increased 6bp to 2.73% - better than
expected, thanks to rising loan yields at a higher rate than rising funding cost, which
was against a 4.7% increase in deposit base in this quarter as a result of the bank’s
deposit raising campaign “Jad Nak” that offers 3.3% and 3.7% annual interest for
14-months and 37-month fixed deposits, respectively.
- 4Q13 earnings might stumble on increasing debt provision
We maintain our earnings forecast for FY2013. Although 9M13 net profit comprised
as much as 82% of our full-year forecast, there is a good chance that KTB would
make additional provision in 4Q13, as reflected from ROE in 9M13 at 18.7% that is
higher than the long-term sustainable ROE at 12-14%. Coverage ratio (LLR/NPL)
also dropped below the sector’s average of 136.3%. Even though coverage ratio at
end-3Q13 has increased substantially, it was still standing at 108.3%. However, the
government’s investment projects according to the B2tr loan bill will be a key
turning point for us to reconsider the earnings forecast again when the details of the
investments are clear.
- Hold to receive dividend. Limited upside, share price gets near 2013 fair value
We still recommend holding KTB for its dividend yield that is expected at around 4%
p.a. The share price has surged to stand close to fair value in 2013 at B20.90 and
2014 at B22.76, based on 2013 PBV of 1.47x and under long-term ROE forecast of
14.8%, implying very limited upside.