Krung Thai Bank

Krung Thai Bank Plc (KTB)

We cut 2015F-2017F earnings by 5% to take into account the additional provisions needed against SSI loans and halve 2015F loan growth to 3% from 6%. This cuts TP to Bt21 from Bt22. We take it off our top pick list but maintain it as a Buy, as KTB is still in the best position to benefit from accelerating public investment and the stock price is overly discounted to the potential loss on SSI loans.

Additional SSI loan provisions partly from excess provisions. KTB reports to the SET that it will make another Bt6bn in provisions out of Bt9bn required for its Bt22.9bn exposure to SSI and its UK subsidiary, transferring Bt3bn of its excess reserve as specific provisions for the SSI loans. This will reduce LLR coverage to 100% from 124%. Since SSI UK is shuttered temporarily, it will assume no collateral value and fully provision against the loans to SSI UK. The bank will also add to its provisions for loans to parent SSI Thailand as the guarantor. At 2Q15, KTB had provisions amounting to 54% of the net loan amount to SSI and SSI UK. We have now lifted our 2015F provision forecast by Bt3bn as our prior forecast already factored in Bt5bn in extra provisions in 2H15. We also raise 2016F-2017F provisions by Bt3bn as it will need to rebuild its LLR coverage. We estimate its consolidated credit cost will increase from 0.95% in 2014 to 1.37% in 2015F, 1.07% in 2016F and 1.02% in 2017F.

Cut 2015F loan growth. KTB’s -0.4% MoM loan contraction in August was disappointing. Its YTD loan growth was merely 1.3%, far from our old forecast of 6%. We cut its 2015F loan growth to 3%, in line with the latest guidance given by its CEO. We maintain our 2016F loan growth at 8% as we believe that KTB is in the best position to benefit from accelerating public investment.

3Q15F preview. We forecast a fall in 3Q15 earnings of 44% YoY and 37% QoQ to Bt5.3bn, with stagnant net interest income on the back of QoQ easing loan growth and stable NIM. We expect provisions of Bt10bn - Bt6bn added to the Bt4bn normal provisions.

Cut 2015F-2017F earnings and TP by 5%. We cut our 2015F-2017F earnings by 5% to factor in the impact of additional provisions for SSI loans and the downward revision of 2015F loan growth. The also lowers TP to Bt21 (1.15x mid-2016F BVPS) from Bt22. 

Remove as sector’s top pick but maintain Buy. We removed KTB from the sector’s top pick list but keep it as a Buy as it is still in the best position to benefit from accelerating public investment. A 28% share correction since 1Q15 results were released has pulled valuation into a deep discount of 8.3x PER and 0.97x PBV for 2015F relative to 12% ROE (-1SD below historical mean).