Krungthai Card

Krungthai Card Plc (KTC) 

Investment thesis

We attended KTC’s post-results analyst meeting yesterday. The firm targets YoY growth of 10% for loans and 10-15% for earnings in FY15. Given the improving outlook, we have raised our FY15 loan growth assumption to 10% from 8% formerly. Hence, we have upgraded our FY15 earnings forecast 5% to Bt2.1bn. Because of our bottom-line projection upgrade, we have increased our YE15 target price from Bt88 to Bt97, still pegged to a justified PBV of 2.90x (derived from average ROE of 24%, industry growth of 5% and Ke of 11.5%). Our TRADING BUY rating stands.

FY15 loan growth target of 10%, led by personal loans

Following 7.4% YoY loan expansion in FY14, management aims for 10% loan growth for FY15, driven by personal loans. KTC’s personal loan growth target is 15% and its credit card loan growth target range is 5-10%. By YE15, the firm plans to expand the number of personal loan accounts by 146k to 850,000 accounts and increase its credit card subscriptions by 400k to 2.2m cards. As such, We have raised our FY15 loan growth forecast from 8% to 10%. Our FY15 NIM assumption is 23.5%.

Our LLP assumption much heavier than guidance

KTC guides that it is likely to keep its FY15 loan loss provisioning at about or slightly above its FY14 LLPs. At YE14 its loan loss coverage reserve equaled 360% of NPLs. The NPLs/gross loans ratio is set to stay at close to the YE14 ratio of 2.4%. For the moment, we assume that LLP-setting will jump 21% YoY to Bt3.9bn. Lighter LLPs than modeled would mean upside to our FY15 earnings model.

Low D/E ratio = no need for capital raising 

The YE14 net debt/equity ratio was low at 6.5x. Thus, KTC can expand lending without need for a capital increase for at least several years. Note that the firm’s D/E ratio in its creditor covenant is 10x. We do not expect KTC to raise capital this year or next. Our dividend payout assumptions are 40% for both FY15 and FY16.

OPEX will rise in FY15 as firm seeks to build business

After implementing a cost-cutting program in FY13 and FY14, KTC plans to increase marketing spending by Bt1bn in FY15 in order to boost loan growth (both organic and in-organic) and credit card use among its clients. Therefore, we expect its OPEX to rise 10% in FY15 to Bt5.9bn. Our model indicates an FY15 cost/income ratio of 48%, down from 49.8% last year.