Krung Thai Bank

Krung Thai Bank Plc (KTB)  

 

- Rising NPL comes mainly from housing loans  

KTB explained that the more than B10bn increase in NPL (consolidated financial statement) in 1Q15 came mainly from housing loans (only slightly from small SME loans  for the bank had temporarily slowed down loan granting for small SME as a result of the economic downturn) because of the sluggish economy and high household debts. The troubled housing loans were those the bank had increasingly granted in 2012-2013 in order to increase its market share of retail loans from 25-26% on average in 2010-2011 to 32% of total loans; those loans were granted through a decentralized approval process and the bank had not strictly taken into account statistics from the National Credit Bureau (NCB) in considering approving loans. However, after a transformation, which will focus on improving loan granting efficiency to enhance its competitiveness under a concept of loan factory, KTB’s loan approval process will become faster and stricter, through a centralized approval process and with use of statistics from the NCB. Yet, restructuring of the current debts will not be undertaken soon; unless the economy recovers, NPL would remain high or increase further, which would affect FY2015 loan growth forecast of 6-7%yoy (1.5x of GDP), under GDP growth forecast of 4-4.5%; this means the bank will have to become more stringent about its loan granting. 

- Forecast revised down: increasing provision vs consolidating KTC  

We revise down our FY2015-2016 earnings forecast by 16.9% and 10.9%, respectively, to reflect the consolidation of KTC’s financial statement (KTB holding 49.45% stake) according to the Thai Financial Reporting Standard (TFRS) No.10; FY2015 net profit of KTC is estimated at B2.4bn. NIM forecast is also increased (for yield from KTC, which focuses on retail loans, is higher than KTB’s), but it is offset by a loan growth forecast cut and significantly rising debt provision. According to the new forecast, KTB’s net profit is projected to decrease 3.2%yoy in 2015 but improve 19.1%yoy in 2016 due to low base effect. 2015 fair value lowers from B29 to B24 (GGM, based on PBV of 1.34x, and under long-term ROE forecast of 15.5%). 

- Severe correction seen. Still not attractive due to weak fundamental factors  

Although the share price has undergone severe correction, we reiterate to only hold KTB for its dividend; its fundamental factors are not attractive, especially given the current worrying asset quality.