Krung Thai Bank
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Poor July net lending as expected; looking ahead to next year
Krung Thai Bank Plc (KTB)
Investment thesis
We believe that KTB will deliver solid lending growth in FY14 and FY15 as a commercial bank helping to implement government policies, such as state infrastructure projects. Its capital adequacy ratio of 13.6% (10.2% Tier-1) will allow the bank to lend aggressively for at least several years without need for capital-raising. KTB currently trades at inexpensive PBVs of 1.45x for YE14 and 1.33x for YE15 (up 0.5SD) against its last peak of 1.7x in 2013 (up 1.5SD). Given a favorable outlook and a cheap valuation, our BUY rating stands.
Poor July net lending behind us
No surprise, KTB’s net lending amounted to Bt1.73trn in July, down 0.2% MoM (but still up by 4.8% YTD and 7.9% YoY). We expect its lending performance to improve significantly in September onward because the new regime is moving to accelerate budget disbursements and institute a stimulus package. Note that the numbers for July put KTB’s 7M14 lending growth at 4.8% YTD, which exceeds its previous full-year lending growth guidance of 4.5%.
Hence, management has just revised up its FY14 loan expansion target to a range of 5-7%. Note that we assume FY14 lending growth of 7% in our model. Given that the bank has achieved the swiftest 7M14 loan growth in the sector, we see scope for upside to our current model. We expect 2H14 lending expansion to accelerate HoH, driven by the fact that the political and macro-economic climates are improving.
Loan loss provisioning likely to decline in 2H14
KTB has managed its asset quality well—its loan loss coverage ratio is 114% and it has a low NPLs/loans ratio of 2.9%. We expect its 2H14 loan loss provisioning to decline HoH after the bank set heavy provisions totaling Bt12.3bn in FY13 and Bt7.1bn in 1H14. Our current FY14 LLP assumption is Bt11bn, down 10.5% YoY. We expect LLP-setting to dive from Bt7.1bn in 1H14 to Bt4bn in 2H14.
FY14 NIM expected to be stable YoY
Given that it has the strongest lending growth profile for FY14 among the big banks, KTB should sustain its NIM in the 2.6-2.7% range, according to management. The institution plans to increase its emphasis on high-yield loans (personal loans and SME business). Note that we assume an FY14 NIM of 2.6% in our model. Management expects the one-day Repurchase Rate to stay at 2.00% throughout 2014.
