Banking Sector

Banking Sector

- 4Q13 profit to plunge qoq. NIM drops, provision and operating expense increase
We estimate 4Q13 combined net profit of ten commercial banks under our coverage
at B44.7bn, plunging 12.0%qoq but growing 39.9%yoy. Debt provision is projected
to soar 82.2%qoq (though still dropping 33.6%yoy), especially for KTB that is
believed to set greatly higher provision in this quarter, while debt provision of other
banks would also increase due to their cautious policy. The banks that are
anticipated to show the most notable net profit growth are BAY, TCAP, and LHBANK,
thanks to lower/stable debt provision (BAY, LHBANK) and growing fee income during
high season. Other banks would have lower net profit in 4Q13; the top five are as
follows: KTB (significantly increasing debt provision), TISCO (increasing operating
expense, decreasing investment income), KKP (massive loss from repossessed car
sale), KBANK and BBL (decreasing NIM, increasing operating expense). Combined
normalized profit is estimated at B62.4bn, shrinking 6.4%qoq (but still expanding
7.4%) due to the following pressure. 1) Net interest income in 4Q13 is
projected to stay flat qoq (though growing 8.3%yoy), against 4Q13 net loan
growth expected at 2.7%qoq and 10.2%yoy (but still in line with FY2013 net loan
growth we have projected at 9.8%yoy), mainly because of every types of loans
including corporate, SME, and retail (housing and credit card, whereas car leasing
has been quite decelerated, especially used cars). NIM in 4Q13 is projected to
contract 5bp to 2.96%, but NIM in FY2013 would be 2.97%, still lower than our
previous projection of 3.14%. The sector’s liquidity is quite tight, reflecting from high
LDR of 97%. 2) Operating expense in 4Q13 is projected to increase 7.8%qoq
and 5.6%yoy. Cost to income ratio would increase to 45.65% from 43.20% in
3Q13, mostly because of rising seasonal expenses such as sale promotion and
marketing expense and personnel bonus. A positive factor from the fee income
growth of 1.8%qoq and 11.5%yoy in this quarter, and FY2013 fee income growth of
20.1%yoy, exceeding our target of 18%yoy, will still not be able to negate the
aforementioned negative factors. Accordingly, 4Q13 net profit would decrease. We
estimate FY2013 net profit at B196bn or the growth of 21.4%yoy, decreasing 2.2%
from our previous forecast.
- Cut 2013-2015 earnings forecast further to reflect reality
We revise down FY2013-2015 earnings forecast, as shown in the table next page,
mostly by cutting net loan growth and NIM forecasts and increasing debt provision
forecast in order to reflect the worse-than-expected economy. GDP growth tends to
drop from our current projection of 3.7-3.8%, while most banks have targeted lower
earnings in 2014, under a major risk of the country’s wobble political stability. After
the revision, net profit growth drops to 21.4%yoy in 2013, and to 8.4%yoy and
8.2%yoy in 2014 and 2015, respectively, which is lower than the market’s EPS
growth projected at 13.3%.
- Maintain UNDERWEIGHT. SETBANK declines but risks remain
We maintain UNDERWEIGHT for the banking sector. EPS growth of the sector in
2014 would be lower than that of the market’s. Although most banking stocks have
undergone substantial correction, there would not be supporting factors in the next
three to six months and fundamental factors might get worse if the GDP growth fails
to meet the projection. We still recommend blue chip banking stocks with
inexpensive prices and attractive divided. Top picks are BBL(FV@197) and
KBANK(FV@B185), whose share prices are ready to rebound when the market
revives.