Krung Thai Bank

Krung Thai Bank Plc (KTB)

- 4Q13 profit rises 12.8%qoq. Vayupak sale income booked. Provision normal
KTB reported 4Q13 net profit at B10bn, 85% better than our projection,
leaping 12.8%qoq and almost tenfold from 4Q12 (yoy) due to the following
contributions. 1) Debt provisioning expense decreased 8.8%qoq and
70.5%yoy – better than expected, which was unusual as KTB usually makes
high provision in the last quarter of a year. Credit cost in 4Q13 dropped to
only 73bp from 81bp in the prior quarter. The bank had previously explained
that, with its adequate NPL coverage ratio of 114.18%, it might not need
additional provisioning, and NPL also decreased from 2.86% of total loans at
end-3Q13 to 2.58% at end-2013. 2) In this quarter the bank booked a gain
of B2.20bn from selling of investment in Vayupak fund after the fund had
matured. 3) Net interest income in 4Q13 shifted 2.5%qoq and 4.1%yoy –
better than expected. Consistently, 4Q13 net loan grew 1.8%qoq and
11.8%yoy, thanks to every type of loans, especially corporate loan from
private sector, both long-term investment loan (mostly loan for Thai
entrepreneurs to invest abroad, especially in neighboring countries) and
short-term loan for working capital, whereas government loan has witnessed
continuous repayment in the past couple years, brining down its proportion to
only 8% of total loans. Overall, FY2013 net loan still grew aggressively by
11.8%yoy, exceeding the bank’s target of 7-10%yoy and our projection of
10%yoy. NIM in 4Q13 rose 5bp to 2.78%, mainly from increasing loan yield
against a 0.125% cut in loan and deposit rates. On the other hand, there was
a negative factor from operating expense that increased 20.7%qoq and
23.3%yoy – substantially higher than expected, mostly from personnel
expense and seasonal expense during year-end. As a result, cost to income
ratio increased slightly to 42.26% from 39.85% in 3Q13. Overall, FY2013 net
profit was B33.9bn, expanding 44.0%yoy, beating our estimate of only
B28.9bn and making a yearly high.
- Cut 2014-2015 forecast to reflect more realistic loan target and NIM
We cut our earnings forecast in 2014-2015 by 6.2% and 2.2%, respectively.
Net loan growth and NIM assumptions are revised down, as shown in the
table. After the forecast revision, FY2014 net profit is projected to contract
11.4%yoy as there will not be an extraordinary income from Vayupak
investment selling like it previously was, and dividend income from Vayupak
would also decrease to B1.5bn. However, net profit growth of 12.8%yoy is
still expected in 2015. The bank expects FY2014 net loan growth at 5-7%yoy,
focusing on SME (mainly medium enterprises, as small enterprises have more
risk) and retail loan (mainly housing loan and personal loan for government
officers who have already registered for KTB's cash management
transaction). Corporate loan has been growing nicely in 2013, but KTB is not
likely to focus on it because of its low yield.
- Cut 2014 fair value to B19.50. Hold for dividend
We reiterate to hold KTB for its average dividend yield of 5-6%p.a. in the
next few years. FY2014 fair value is revised down to B19.50, at 1.22x PBV
and long-term ROE forecast of 13.5%. The current share price has only 15%
upside.