Krung Thai Bank

Krung Thai Bank Plc (KTB)

- KTB’s FY2014 earnings goal too optimistic. To be revised down later 
Under the assumption that FY2014 GDP growth would exceed 4% (excluding effects from the political turmoil), KTB expects FY2014 net loan growth at 5-7%yoy, focusing on SME 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. Moreover, the political turmoil has hindered disbursement for the government’s projects. FY2014 fee income is projected to grow by 15%yoy, focusing on growth in fee income from all types of loan. For corporate loan, KTB would hire more employees to increase efficiency for international transactions services (foreign exchange and risk management). For retail loan, KTB would boost cross sales of financial products such as bancassurance (with Krungthai AXA) and fund selling (with KTAM). In terms of asset quality, KTB aims to reduce NPL from 2.58% at end-2013, which would be a difficult goal (peers project that their NPL would stay unchanged or increase slightly). Thus, KTB would keep FY2014 debt provision target normal at B500m/month (averagely B1bn/month in 2013). KTB also expects to keep ROE at 16.2% (close to 2013; excluding income from selling of investment in Vayupak fund), which might also be a hard target to achieve, as dividend income from Vayupak would also decrease to B1.5bn in 2014.
- Our FY2014 earnings forecast includes political risk already
We maintain our FY2014-2015 earnings forecast. We revised down business growth forecast since after FY2013 earnings report at the beginning of the week to reflect the political turmoil, expecting it to end within 1H14. 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. We expect FY2014 net loan growth at 6%yoy, close to the bank's target. However, NIM is likely to fall by 4bp to 2.74% as interest rate might be cut.
- Hold for dividend. FY2013 average dividend yield is 5.7%p.a
We reiterate to hold KTB for its average dividend yield of 5-6%p.a. in the next few years.  FY2014 fair value is B19.50 (1.22x PBV, 13.5% long-term ROE forecast). The current share price has only 13% upside.