Krung Thai Bank

Krung Thai Bank Plc (KTB) 

 

- 3Q15 profit to decline from provision for SSI  

We estimate 3Q15 net profit at B5.62bn or a decline of 33.4%qoq and 39.2%yoy. KTB increased debt provisioning by B6bn to improve the coverage ratio after it had allocated B9bn in excess provisioning as special reserve for the entire SSI’s loan. At the same time, the bank made normalized provisioning of B700m/month, totaling B2.1bn. Plus provisioning of the subsidiaries, KTB and KTB leasing, total provisioning of the bank increased significantly in this quarter. However, NPLs would increase from 3.42% of total loans at end-2Q15 to 4.58% at end-3Q15, so the coverage ratio may decrease from 124.5% at end-2Q15 to 102.0% at end-3Q15. KTB said it still did not plan to write off a bad debt for SSI-UK case. Excluding such items, normalized profit of KTB would stay flat from the prior quarter. Overall, total loans are still decelerating; net interest income would decrease because of massive investment income recognized in 2Q15, so NIM would drop slightly to 3.00%; fee income would still show good growth. 

- Continued impact in 4Q15  

We maintain 2015-2016 earnings forecast for KTB, projecting net profit to weaken 33.2%yoy in 2015 as a result of SSI’s provisioning but rebound 36.3%yoy in 2016 from the low base after provisioning expense returns to normal and there is a better outlook about the economic recovery. Yet, 4Q15 earnings would remain low because we believe KTB would increase its coverage ratio continuously by making special provisioning for the sluggish economic rebound in the short term and a projected decrease in NIM and increase in operating expense at the end of the year. 

- Unattractive because of weaker asset quality  

Although the share price has undergone substantial correction, we reiterate to only hold KTB for dividend because its fundamental factors are still unattractive. 2015 fair value (GGM, based on PBV of 1.06x and long-term ROE forecast of 13.0%), is B18.50, implying only 10% upside from the current share price. 2015 dividend yield can be expected at 3.9% p.a.