Krung Thai Bank

Krung Thai Bank Plc (KTB)

Investment thesis
KTB now targets an FY13 NIM of 2.9%, flat YoY. In order to fine-tune for this guidance, we have revised up our FY13 and FY14 NIM assumptions to 2.84% and 2.87%, respectively, from 2.74% and 2.77%. Thus, our profit forecasts rise by 7% to Bt32bn for FY13 and by 4% to Bt36bn for FY14. The higher FY13 bottom-line projection prompted us to increase our YE13 target price by 16% to Bt26.25, pegged to a justified YE13 PBV of 1.8x. We maintain our TRADING BUY rating.   
KTB targets FY13 lending growth of 7-10%
Management believes that its FY13 loan growth target of 7-10% is achievable, pegged to 1.5x forecast GDP expansion. The drivers will be corporate business, especially related to SOE projects (mass transit), SME lending and retail. KTB has set double-digit growth targets for both SME and corporate business. Note that the bank delivered 14% lending expansion for FY11, far above its target range of 6-7% (its FY12 lending grew only 7.4% because it was in the process of capital-raising). As such, our FY13 loan growth projection is 14%.
FY13 NIM will be sustained YoY
Greater emphasis on SME and retail lending will enable KTB to sustain its FY13 NIM at about the same level as the 2.9% it posted for last year, according to management. We have, therefore, revised up our FY12 and FY13 NIM assumptions to 2.84% and 2.87%, respectively, from 2.74% and 2.77%. KTB expects another 0.25% cut in the one-day Repo Rate this year. The bank targets FY13 deposit growth of 7-10%.
FY13 LLP-setting will normalize
KTB set massive loan loss provisions of Bt15bn for last year in order to build its loan loss coverage ratio to 96% at YE12 from 73% at end-September. Management does not plan to build the loan loss reserve to the sector average of 128%—a substantial proportion of KTB’s lending is to state agencies and SOEs, which are explicitly or implicitly guaranteed by the central government. The bank plans FY13 loan loss provisioning of Bt1.5bn/quarter. We assume FY13 LLPs of Bt7.5bn.
Efficiency enhancements
Lending expansion to corporate and retail clients, rising fee income and well-managed OPEX will maintain the FY13 cost/income ratio at close to last year’s number of 43%, according to management. KTB targets net fee income growth of 12-15% following 21% expansion last year. With regard to the FY13 cost/income ratio, we expect it to rise to 47%, due to higher OPEX and slower fee income growth.