Krung Thai Bank

Krung Thai Bank Plc

FY13 loan growth guidance far below Q1 2013 trend 

Investment thesis
Although KTB stands to benefit more than any other bank from the government’s public infrastructure spending plan, such lending will carry only slim yields. Our FY13 loan growth projection is 14%, which includes some state projects. We, thus, maintain our earnings projections at Bt32bn for FY13, up 32% YoY, and Bt36bn for FY14, up 12.5% YoY. Note that KTB might decide to build its loan loss coverage above its end-March level of 98% (the sector mean is 131%), which would mean heavier provisioning and a lower net profit than we currently assume. Our TRADING BUY rating stands.
FY13 lending growth guidance of just 7-10%
Despite strong 1Q13 lending expansion of 4.6% QoQ, KTB maintains its FY13 loan growth target range at 7-10%, pegged to 1.5x forecast GDP growth. Loan growth was driven by corporate business, up 10% QoQ, followed by retail at 3.5% and SME at 4%. Lending to state agencies and SOEs was flat QoQ at end-March. Management expects loan growth to be driven by corporate business in 2Q13 onward, especially related to public infrastructure (mass transit) projects. Note that its lending growth guidance excludes state flooding protection developments, which are scheduled to start in late 2Q13.
NIM trend will be stable at about 2.7%, assuming no Repo Rate cut
Competition for business and a greater emphasis on corporate lending means little chance for upside to KTB’s NIM, said management. The bank’s 1Q13 NIM was 2.71%, slightly below our FY13 assumption of 2.8%. Furthermore, KTB guides that another cut to the one-day Repo Rate would squeeze its NIM somewhat. The bank targets FY13 deposit growth of 7-10%.
Bank guides for lighter LLPs in FY13 than last year
The loan loss coverage ratio was 98% at end-March. KTB plans to set normal loan loss provisions of Bt1.5bn /quarter. Management claims not to be interested in building the loan loss reserve much above 98% (the sector average is 131%), as 10% of its lending is to state agencies and SOEs, which are very low-risk clients. We assume FY13 LLPs of Bt7.5bn. In the event that KTB were to set heavier LLPs than we assume, we would cut our earnings forecast for FY13.
Fee income growth trend
The bank posted good 1Q13 fee income growth of 17% (driven by banking fees, loan-related fees and bancassurance sales commissions), which was slightly above its guidance of 15%. Management aims to sustain fee growth momentum through the year. We expect FY13 fee income growth of 12%. OPEX should drop back to a normal level after KTB booked an extra one-month employee bonus in 1Q13.