Krung Thai Bank

Krung Thai Bank Plc (KTB)

KTB’s record quarterly profit in 3Q12 beat consensus estimates by 20%

Its earnings outlook is bright, propelled by a balance sheet dressed for growth, the continued shift in loan mix (which is also positive for fee-based income), and stronger contributions from associates. 9M net profit was well ahead of expectations at 92% of our FY12 estimate due to its solid interest and non-interest income. We raise our FY12-14F EPS and roll forward our target price, now set at 1.8x FY13 P/BV (prev. 1.6x), derived from GGM (15% ROE). KTB remains our sector pick. Outperform maintained. 

Estimates crushed

KTB’s 3Q12 net profit came in at THB8.9bn, up 21% qoq and 62% yoy. Among the positives, fee income jumped 17% yoy. Profit share from associates continued to surge. Cost ratio dropped to 40%, from 46% in 1H12. Other items appeared neutral. Loans grew moderately by 6.8% YTD.NIM was stable qoq at 2.82%. Credit cost was also flat at a guided level of 10bp/quarter.

Earnings upgrade

We raise FY12-14F EPS by 12-19% mainly on the back of our revised assumptions for i) non-interest income growth from 10% to 19% in FY12 (10% in FY13-14), and ii) cost ratio from 47% to 44% in FY12 (42% in FY13-14). We build in a potential spike in provision and opex in 4Q,
during which our assumed credit cost is 30bp, the amount of the first three quarters combined. This charge is unpredictable; we assume the bank will smoothen its earnings to build up loan loss reserve.

Cheap and exciting
KTB looks like a bargain at 1.3x P/BV for 17.7% ROE, 7.7x P/E and 5% yield. Low earnings expectations could set the tone for more positive surprises. The risk of political meddling should be contained now that the interests of its major shareholders FIDF and minority shareholders seem aligned as FIDF needs decent, sustained dividends from KTB to service its debts. Earnings drivers could include more active lending post recap, more profitable loan mix, more focus on fee income and stronger contributions from associates.