Krung Thai Bank

Buy; Bt14.90

Price Target : Bt17.20; KTB TB

Expect 4Q11F loans to grow 7.5% QoQ, but earnings will soften with higher LLP and absence of VAYU1 dividends

Benefiting from higher government spending and salary hike for degree holders in civil service

Maintain BUY and Bt17.2 TP

Government loans drive growth in 4Q11. KTB booked strong Nov11 loan growth of 3.6% MoM (+18% YoY, +13% YTD) led by government and corporate loans, beating our expectation. Hence, we estimate KTB’s loans will grow 7.5% QoQ (+13.5% YoY) in 4Q11, but earnings will drop by 20% to Bt4.4bn in the absence of VAYU1 dividends and higher LLP due to floods. We also expect (i) 10 bps narrower NIM to 2.9%, (ii) 5% lower QoQ fee income, and (iii) 2% increase in opex.

Higher government spending in 2012. We expect government loans, which account 15% of total loans, to expand in FY12F with higher government spending, specifically the rehabilitation fund for industrial estates and flood-affected households. And given its large two million civil servant customer base, KTB will benefit from the salary hike for bachelor degree holders in civil service. But the positive effect of these would be offset by slower demand for loans by corporates and SMEs due to slower export growth. Hence, we forecast KTB’s loan growth at 9% for FY12F against 13.5% in FY11F.  We also estimate FY12F LLP at Bt8.5bn, much higher than Bt6.1bn in FY10, to cover rising NPLs. And we expect NIM to weaken by 11 bps in FY12F because government loan yields are lower.

Maintain BUY. KTB will benefit from higher government spending, and populist policies. We value KTB at 1.4x average FY11-12F P/BV, to derive a target price of Bt17.2.