Krung Thai Bank

Krung Thai Bank Plc (KTB) 

 

Profit for 3Q15 was 11% below our forecast

KTB posted 3Q15 earnings of Bt5.3bn, plunging 42% YoY and 37% QoQ. The result was 11% below our forecast but 4% below the Bloomberg consensus. This was attributable to bigger loan-loss provisioning (LLP) than was modeled. KTB set its 3Q15 LLP of Bt10.5bn against our numbers of Bt8.5bn. Pre-provision operating profit was Bt17bn, up 21% YoY but down 1% QoQ. The 9M15 earnings represent 90% of our FY15 earnings projection.

Results highlights

Lending was up 0.2% QoQ and 1.6% YTD—in line with our forecast. NIM for the quarter came in at 3.04%, up 3bps QoQ and 19bps, boosted by greater emphasis on the corporate and retail sectors and well managed funding cost from the previous quarter. LLP soared 270% YoY and 39% QoQ to Bt10.5bn (equaling credit cost of 2.1%). Note that the bank received a tax benefit of about Bt300m from troubled debt restructuring and extra LLP for Sahaviriya Steel Industry (SSI) in the quarter. Therefore, its corporate tax rate was down to 15% in 3Q15 from 18% in the same period last year. 

KTB’s NPL/loan ratio rose to 4.03% at end-September from 2.96% three months earlier (from SSI, and the small SME and retail sectors). Likewise, its loan-loss-coverage ratio dipped to 103% in 3Q15 from 125% last quarter. Fee income inched up 41% YoY and 12% QoQ to Bt7.3bn in 3Q15. OPEX was Bt12.2bn, an increase of 19% YoY but down 1% QoQ. KTB’s 3Q15 cost/income ratio was 44.2%, close to last quarter and down from the 45.6% reached in the same period last year.

Outlook

We expect the bank’s 4Q15 earnings to decrease moderately YoY on higher LLP-setting. Note that NPLs had grown 36% QoQ to Bt91.5bn at the end of September. In this case, there is downside risk for earnings from bigger LLP setting in 4Q15 and next year.

What’s changed? 

We have maintained our FY15 earnings projection of Bt24bn.

Recommendation

Without the overhang of extra LLP for SSI debts, we have a positive outlook for KTB from 4Q15 onwards. There is scope for earnings upside if the bank is able to set FY15 and FY16 LLP lower than our model. Also, the stock looks very cheap at a YE15 PBV of 1.01x (below its long-term mean of 1.3x) compared to a sectoral mean of 1.4x (KTB’s last PBV peak was 1.8x). Meanwhile, its capital adequacy ratio of 15.5% (11.7%0 for Tier-1) will enable it to lend aggressively to support economic growth in FY16 without capital-raising. We roll our target price on KTB for next year to Bt21.50, pegged to a justified PBV of 1.1x. We have raised our rating on KTB to TRADING BUY from HOLD.