Banking

Banking 

 

- Profit to plunge in 3Q15: TISCO, KTB, SCB  

We estimate net profit of ten commercial banks under our coverage at B44.6bn in 3Q15, shrinking as much as 13.0%qoq and 17.3%yoy due to increasing debt provisioning expense as a result of SSI’s NPLs (TISCO, SCB, KTB) and general NPLs, especially SMEs, from the sluggish economy. Although other non-interest income, especially capital gain (SCB) and gain from asset sales, would increase significantly in this quarter, it could not offset such effects. Excluding the aforementioned items, 3Q15 normalized profit would remain close to that of 2Q15. NIM would decrease; loans would start to grow (mainly short-term working capital corporate loans); loan yield would lower as a result of the policy rate cut in late 2Q15 and relaxation of interest rate for restructured debtors. On the other hand, fee income would increase. The banks that would show the biggest decline in net profit in this quarter are TISCO, KTB, and SCB, whereas BBL would be the only big bank with a strongest net profit growth. 

- Low base in 2015 is good for 2016  

After slightly revising down 2015-2016 earnings forecast of BBL, 2015-2016 net profit of the banking sector dropped respectively by 0.5% and 0.3% from the initial forecast, resulting in a projected earnings decline of 11.7%yoy in 2015 but a rebound of 17.7%yoy in 2016 from the low base and a better economic outlook in 2016. Moreover, debt provisioning expense from SSI case was booked almost entirely, so the rebound in 2016 would be solid, awaiting the approaching mega investment cycle of the government. 

- We like KBANK, TCAP  

We recommend NEUTRAL, believing that SETBANK has substantially reflected negative factors by undergoing 20%ytd correction until its 2015 PBV is only 1.2x, which is 2SD below five-year average PBV of 1.7x and close to the regional average PBV of 1.2x. We select KBANK(FV@B232) and TCAP([email protected]) as top picks.