Krung Thai Bank

Krung Thai Bank Plc (KTB) 

 

 - 2Q15 profit to shrink sharply; provision increased from NPL 

 

We estimate 2Q15 net profit at B6.83bn, shrinking 13.8%qoq and 10.3%yoy as debt provision is projected to increase significantly in this quarter; there will be extraordinary provision of B3.60bn for bad debts, as the bank already revealed in late May, and a normal provision of B700m a month, totaling B5.7bn in 2Q15, which is an increase of 53.0%qoq and 6.2%yoy. This is in line with a projection that NPL would increase around B3-5bn in this quarter (according to a newspaper), from 2.82% of total loans at the end of 1Q15, possibly due to housing loans and small SME loans from both government and private sectors in 1Q15. Excluding such item, the core business has remained sluggish; net interest income would decrease as NIM is projected to lower continuously after the recent policy rate cut and debt restructuring to relax some interest rate for debtors. Fee income would also decrease following slowing loan granting. On the other hand, operating expense would decline, mostly premise and equipment expense and personnel expense (personnel expense increased significantly in 1Q15), but it would not be able to offset the aforementioned negative factors, so KTB’s net profit would decrease in this quarter. 

 

- Sluggish rebound in 2H15 

 

We slash our profit forecast for 2015-2016 by 1.0% and 2.5%, respectively, to reflect a down revision of net loan growth forecast and up revision of operating expense forecast since the business in 2H15 may show a slower growth than estimated. According to the new forecast, KTB’s net profit would weaken 10.7%yoy in 2015 but rally 17.2%yoy in 2016 from the low base and the hope toward the economic rebound. We also cut 2015 fair value from B23 to B20 (GGM, based on 1.13x PBV, under long-term ROE forecast of 13.5%). 

 

- Fundamental factors not attractive 

 

Although the share price has already undergone substantial correction, we recommend only holding KTB for dividend because its fundamental factors are not good and its asset qualities are more worrying than other big banks.