Krung Thai Bank

Krung Thai Bank Plc (KTB)

Investment thesis
Although KTB should benefit from government spending plans, its emphasis on SOE/state agency business will keep its NIM slim. There is also some risk, of it having to set heavier loan loss provisions. KTB’s coverage ratio at YE12 was 93% against a sector mean of 128%. At this stage, we maintain our earnings forecasts unchanged at Bt32bn for FY13 and Bt36bn for FY14. KTB currently trades at an inexpensive YE13 PBV of 1.8x compared with a regional mean of 2x. Thus, our TRADING BUY rating stands.
Good lending activities for 1Q13, led by Government/corporate
During 2M13, its net lending grew by 3.7%, driven by corporate and state agency/SOE business. Management guides for FY13 loan growth of 7-10% as easily achievable. The drivers will be corporate business (especially related to public infrastructure projects) and SME lending. 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 raised new capital that year). As such, our FY13 loan growth projection is 14%.
1Q13 NIM will be sustained QoQ
Swift lending growth in 2M13 and beyond to corporates and government projects could squeeze its FY13 NIM (mostly in 2H13), as such business typically pays only low yields. However, management claims that the bank can manage its funding costs better than last year because other big state-controlled banks (such as the Government Saving Bank) have pared back deposit mobilization efforts since 2012. Thus, its FY13 NIM will be about 2.9%, KTB guides—the number it posted for last year. We maintain our FY13 NIM assumption at 2.84%. 
FY13 LLP-setting will normalize
Management says that loan loss provisions will remain at Bt1.5bn/quarter, or Bt6bn for FY13. However, the bank does not rule out the possibility of heavier LLPs in the event that its ROE beats its target range of 14-15%. We, thus, assume 1Q13 LLPs of Bt1.5bn, but for the year as a whole we model for LLPs of Bt7.5bn, not Bt6bn.
Expect 1Q13 profit to jump 41%
We expect KTB to deliver strong 1Q13 earnings of Bt9bn, up by 41% YoY and 911% QoQ, led by loan growth of 4.5% QoQ, a stable NIM of 2.9%, a Bt1bn dividend payout from the Vayupak Fund 1 and a well-managed cost/income ratio of 47.9%.