Krung Thai Bank

Krung Thai Bank Plc (KTB)

Q3 2012A well above estimates. Q3 2012A net profit rose 62% YoY and 21% QoQ to
Bt8.9bn, well above our forecast of Bt7.8bn – pushed up by higher-than-expected
non-interest income and lower-than-expected opex. 9M12A earnings accounted
for 94% of our full-year forecast, but our forecast assumes extra provisions in Q4 2012,
though the bank itself guides to only normalized provisioning. We believe KTB is
under pressure to build up excess LLR to cope with the possible new BoT
requirement to maintain a certain level of excess LLR.

Key points:
1. Loan growth: At just +1.4% QoQ, mainly driven by SME and retail loans with
repayments by the government sector. 9M12 loan growth was 7%, but we
expect loan growth to rise in 4Q12 as the government takes out loans to fund
its investments plus SME loans. We slashed our loan growth forecast by 2
percentage points to 10% for 2012F and 12% for 2013F. We expect rising public
investment will lead to accelerating loan growth for KTB in 2013.
2. Net interest margin (NIM): As expected, +2 bps QoQ to 2.79%. Yield on earning
assets rose 2 bps QoQ, reflecting a lower proportion of low-yield government
loans. Cost of funds rose 8 bps QoQ.
3. Non-interest income: Better than expected, +17% QoQ, driven by fee income
(+8% QoQ) and dividend income (+840% QoQ) mainly from the Vayuphak fund.
We raised 2012F fee income growth to 15% from 12%.
4. Cost to income ratio: Better than expected, falling to 40.7% from 44.7% in
2Q12%, on easing opex (premise expenses) and a rise in the top line.
5. Asset quality: As expected, NPL ratio fell to 4.09% from 4.17% at 2Q12.
Provisions were stable at its normalized rate. LLR coverage marginally rose to
71% from 70% at 2Q12.

Maintain top Buy with a rolled-over TP. KTB remains on our list of top buys for
three reasons. 1) Its recapitalization gives it the cash to engage in expansion and also
build up LLR coverage to cushion against any downturn. 2) Worries about its asset
quality risk are lessened by SSI’s capital raising. 3) KTB is the best play on the theme of
accelerating public investment in 4Q12 and 2013. We raise target price (TP) to Bt23
(1.6x 2013F BVPS) from Bt21 upon moving our valuation base to YE2013 from mid-2013.