Krung Thai Bank

Krung Thai Bank Plc (KTB)

39% above our estimate
KTB booked a 3Q12 profit of Bt8.9bn, up by 62.3% YoY and 21.4% QoQ. The result was 39% above our forecast and 18% in excess of the consensus, due to lower loan loss provisions than modeled (1.5bn; we had expected Bt3.5bn) and well-managed OPEX. Its pre-provision operating profit jumped by 24% YoY and 16% QoQ. 9M12 earnings represent 94% of our earlier FY12 earnings forecast. 

Results highlights
Lending inched up by 1.5% QoQ and 7.0% YTD, in line with our model, driven by corporate and retail business. Because of the bank’s migration from low-yield SOE lending to more profitable corporate and retail clients, 3Q12 NIM rose 3 bps QoQ to 2.79%.
Loan loss provisions plunged 49% YoY to Bt1.54bn, but were flat QoQ. KTB’s NPLs/loans ratio declined to 3.42% at end-September from 3.54% three months earlier, while its loan loss coverage ratio inched up to 71% from 70% at end-June.
Fee income increased by 19% YoY and 5% QoQ to Bt4.4bn. OPEX was Bt8.5bn, up 1% YoY but down 3% QoQ. As such, The cost/income ratio fell to 44.1% in 3Q12 from 47.1% the previous quarter.

Outlook
4Q12 profit will decline QoQ—we expect OPEX to increase sharply. Furthermore, KTB’s loan loss provisions will be bigger than the normal level of Bt1.5bn/quarter following its 35bn capital increase, which toll place during October 4-11.

What’s changed?
In order to fine-tune for its well-managed OPEX and lower loan loss provisioning for 3Q12, we have revised down our FY12 and FY13 OPEX assumptions by 5% and 4%, respectively, to Bt36.4bn and Bt42.1bn. Note that we have cut only our loan loss provisioning assumption for FY12 (to Bt6.5bn from Bt8bn). Hence, we have raised our FY12 and FY13 earnings forecasts by 12.5% for FY12 to Bt27bn and by 5.5% for FY13 to Bt29bn.

Recommendation
Because of our earnings forecast upgrades, we have raised our YE13 target price from Bt20.00 to Bt21.20, pegged to a PBV of 1.5x (based on a growth rate of 5%, Ke of 12% and a mean FY13-14 ROE of 15.5%). We expect KTB’s lending performance to normalize with the recapitalization of the bank. We calculate that its capital adequacy ratio will have increased to 16% from 12.9% at end-September (before capital-raising) in order to enable the bank to lend in support of government stimulus plans for next year. As such, we have upgraded our KTB rating to TRADING BUY from HOLD.