Krung Thai Bank

Krung Thai Bank Plc (KTB)

nly B868m as a result of massive debt provision in the previous quarter to
increase coverage ratio (LLR/NPL) to rival peers. The debt provision has normalized
to B1.61bn/quarter, close to the policy level, which is usual for KTB in the first half
of every year and it will be considered again in the second half to be consistent
with the bank’s profitability. Moreover, the bank booked dividend income from
Vaupak fund in 2H12 at 3% of the investment, while there was also dividend
income from other investments, totaling B981m. Fee income in 1Q13 has grown
5.8%qoq and 20%yoy, which was better than expected and quite high compared
with our projection for FY2013 at 15%yoy. However, pressuring factors in this
quarter were as follows. 1) Net interest income contracted 4.6%qoq but still
grew 10.6%yoy – worse than expected. Net loan in 1Q13 has grown 4.7%qoq
and 7.3%yoy as projected, mainly from the growth in every type of loans including
corporate (long-term investment loans and short-term working capital loans),
which was considered as a positive sign along with the industry and was very high
comparing to our target for FY2013’s net loan growth at 12%yoy. However, NIM
shrank significantly 23bp from the prior quarter to only 2.70% because yield
declined beyond decreasing funding cost and thus pressured NIM in this quarter. 2)
Operating expense shifted 12.1%qoq and 16.2%yoy – substantially higher
than expected. Cost to income ratio rose to 46.05% from 42.36% in the previous
quarter, due mainly to a significant increase in employee expenses by 38.6%qoq
and 22.6%yoy, which we did not included in our forecast and still did not clearly
know the source of the item. All these factors made 1Q13’s net profit lower than
expected.
- Maintain forecast. To benefit from loan act in next 1-2 years
We maintain our earnings forecast for 2013-2014. Although 1Q13’s net profit
comprises 27% of our FY2013’s earnings forecast, debt provision is still projected
to be high in the end of the year, so the earnings will still be in line with our
forecast. We project net profit in 2013-2014 to grow notably by 34%yoy and
15.1%yoy, respectively, with a support from loan growth that would remain strong
at 12% p.a. according to our assumption. Furthermore, there will be a positive
factor from corporate loans (50% of total loans) that would benefit from the
government’s mega projects according to the B2.2tr-worth infrastructure projects
act in the next 7 years. Although the plan has still not reached a clear conclusion,
we believe a support from private investments that have progressed in advance will
help boost demands for this type of loan. In addition, the bank’s strategy switch to
focus on high-yield loans, including private corporate, SME, and retail, will greatly
benefit NIM. Fee income growth outlook is also promising, particularly from loanrelated
transactions such as cash management and non-loan-related such as cross
selling like Bancassurance and fund sales, which will benefit ROE in 2013-2014 that
we have estimated at 16.7% and 17.5%, respectively.
- Buy Downgrade to HOLD. Share price rises until there is only 6% upside left
We downgrade our recommendation for KTB from “buy” to “hold to receive
dividend” because the share price has risen until there is only 6% upside left from
2013’s fair value (GGM) under long-term ROE forecast of 17% at B27.