Krung Thai Bank

Krung Thai Bank Plc (KTB)

Investment thesis

We attended KTB’s pre-results analyst meeting yesterday. Management guides that the outlook for 4Q14 and FY15 is good, due to a recovering economy. Based on the guidance, we have upped our loan growth assumptions from 7% for both FY14 and FY15 to 8% for each of the two years, led by business with corporates and state-owned enterprises. Hence, our profit forecasts rise by 3.7% to Bt34bn for FY14 and by 5.7% to Bt37bn for FY15. There would be scope for upside to our FY15 projection if KTB were to deliver loan growth exceeding 8% (driven by state infrastructure projects and finance for M&A deals). 

The better earnings outlook prompted us to upgrade our YE15 target price by 3.7% to Bt28 (pegged to a justified PBV of 1.6x). Our BUY rating stands.

Better loan growth than targeted in FY14, led by SOE and corporate

KTB’s 11M14 loan growth was 8.1% YTD, which exceeds management’s full-year guidance range of 5-7%. The bank anticipates that FY15 lending growth will be sustained, driven by greater loan demand among corporates and state-owned enterprises (hence our upgraded loan growth assumptions). 

NIM assumptions increased to 2.8% for FY14 and FY15 from 2.65% 

Management continues to guide for an FY14 NIM of 2.7% (9M14 MIM was 2.8%). KTB also expects a flattish YoY FY15 NIM, supported by funding costs declining faster than lending rates. We have raised our NIM assumptions to 2.79% for both FY14 and FY15 from 2.65% for each of the two years, premised on the BOT’s policy interest rate remaining at 2% through to YE15. An interest rate uptrend in FY15 would mean scope for upside to NIM and profit.

FY15 LLPs will be flattish YoY

KTB is cautious about the outlook for business with small SME and retail clients in FY15. The bank guides for an NPLs/loans ratio of 2.9% at YE14 and guides that the ratio will decline this year. Thus, we have raised our FY14 LLP assumption by 9% to Bt12bn, due to the concern voiced by management over small SME and retail credit risk. Our FY15 provisioning assumption is also Bt12bn.

Anticipate softer 4Q14 earnings; no extra gain

We expect KTB to post a 4Q14 profit of Bt8.8bn, down by 10% YoY and 5% QoQ. Earnings would have been squeezed by heavy OPEX and the absence of the Bt3bn extra gain on asset sales reported for 4Q13. Our model assumes LLPs of Bt2.1bn for the quarter, down by 32% YoY and 26% QoQ. 4Q14 loan growth is assumed at 3% QoQ and 8% YoY. We expect a pre-provisioning operating profit of Bt13.3bn, up 5% YoY.