Krung Thai Bank

Krung Thai Bank Plc (KTB)

Remains our top buy, with Q1 2013F to show outstanding growth
To lead the sector in loan growth, with upside
Avoiding surprise by warning of extra provisions in Q4 2013

Outstanding top and bottom lines in Q1 2013. We expect 1Q13F profits to shoot up 60%
YoY and 1074% QoQ to Bt10.2bn, backed by excellent growth in net interest income and
non-interest income. KTB had strong 2M13 loan growth of 3.6% in all segments
(corporate, government, SME and retail) and we expect net interest margin to be
stable QoQ. We forecast a strong growth in non-interest income (+37% YoY, +17%
QoQ), underpinned by seasonal Bt882mn Vayuphak fund dividend and continued strong
fee and forex income in line with its full-year target of 12-15% growth. 1Q13 provisions
will be normalized at Bt1.5bn, following huge extra provisions of Bt10.6bn in 4Q12.
Outperforming loan growth with an upside risk for 2013F. KTB started the year
with the strongest loan growth among peers of 3.6% in 2M13 vs. the sector’s average
of 1.8%. In February, KTB won bids for government loans of Bt27.7bn, of which Bt16.2bn
are two-year loans for mass transit projects (Blue and Green lines) and the rest are
one-month loans to finance the FIDF. In March, KTB won bids for government loans of
Bt26.13bn, which have a very short tenor of only 1-2 months. We expect loans to
government entities to speed up later in the year, particularly since the Bt340bn in
flood protection loans need to be drawn down by the end-June deadline. The
government’s bill to set up financing for Bt2trn in infrastructure projects through 2020
sailed through the lower house and will be prettied up to go to the upper house. If this
passes, as it is expected to do, there will be upside risk for KTB’s loan growth given its
edge in government loans. We expect the acceleration in public investment to pull KTB
above peers in terms of loan growth over the next 1-3 years with forecast loan growth
of 14% for 2013F-2015F.
Extra provisions in Q4 2013. KTB plans to make extra provisions in 4Q13 as a
precautionary and countercyclical cushion, which is not a surprise. To achieve its target
17% ROE, we forecast Bt14bn provisions (0.81% of total loans) in 2013, with Bt8bn of
that made in 4Q13. This will lift its loan loss reserve coverage to 167% by YE2013 from
133% at YE2012.
Maintain top Buy. As a public investment cycle play, KTB is our lead sector pick: 1) an
easing in credit cost after the sharp hike in LLR coverage in 4Q12, 2) its position as a
government bank that puts it at the top of the list for loans for public investment and
3) easing asset quality risk after SSI’s capital call.