Krung Thai Bank
Much heavier OPEX than expected
Krung Thai Bank Plc (KBANK)
Earnings missed all estimates
KTB posted a 1Q13 profit of Bt8.5bn, up by 34% YoY and 856% QoQ. The result was 5.4% below our forecast and 7.7% short of the Bloomberg consensus, mainly due to heavier OPEX than modeled of Bt10.3bn (we had expected Bt9.8bn). However, Its pre-provision operating profit was Bt11.8bn, up 21% YoY (but down 6% QoQ). 1Q13 earnings represent 26.6% of our FY13 projection.
Results highlights
Lending rose by 4.7% QoQ and 7.5% YoY—more than we had modeled for because KTB focused more on corporate business than SME or retail loans during the quarter. As corporate business carries a slimmer yield than other categories, 1Q13 NIM fell by 19 bps QoQ and 3 bps YoY to 2.71%.
Loan loss provisions rose 6% YoY but fell 85% QoQ to Bt1.6bn. KTB’s NPLs/loans ratio declined to 3.01% from 3.22% at YE12, while its loan loss coverage ratio increased to 95.4% at end-March from 92.7% three months earlier.
Fee income jumped 19% YoY (but dipped 2% QoQ) to Bt4.7bn. OPEX was Bt10.3bn, up by 16% YoY and 11% QoQ. Because OPEX increased much more in absolute terms than fee income (and net interest income rose only 11% YoY), KTB’s cost/income ratio expanded to 52.2% from 50.5% 1Q12.
Outlook
2Q13 profit will rise YoY in tandem with loan and fee income growth. We expect KTB’s LLPs for the quarter to be close to the 1Q13 number. Furthermore, the headline corporate tax rate dropped to 20% this year from 23% in 2012.
What’s changed?
We maintain our net earnings projections unchanged at Bt32bn for FY13 (up 35.8% YoY) and Bt36bn for FY14 (up 12.5%).
Recommendation
KTB should demonstrate a strong core operation this year, driven by accelerating loan growth in 2H13 (led by business related to public infrastructure projects). Furthermore, its FY13 loan loss provisioning will plunge to around Bt7.5bn from Bt15bn last year. The bank’s capital adequacy ratio of 14.9% (10% Tier-1) will enable swift loan growth for at least several years without need for a cash call. Our TRADING BUY rating stands.
