BANK Sector

BANK Sector

Q2 2013 profit to be blissful qoq despite provision increase, thanks to loan and fee income
All 10 commercial banks under our coverage are projected to have 2Q13 total net profit
of B55.9bn, making new quarterly high, rising 9.5% qoq and 26% yoy, respectively.
TCAP, KK and BAY are projected to have the most significant net profit growth qoq this
quarter, while TISCO, LHBANK and TMB are projected to have lower net profit qoq.
Positive factors in this quarter are as follows: 1) 2Q13 net interest income is
projected to grow by 3.2% qoq and 11.2% yoy, in line with 2Q13 net loan growth
projected at 3% qoq and 12.6% yoy, which is also correspondent to FY2013 net loan
growth projected at 12.8% yoy. Growth has mostly come from all sectors; corporate
loans (most private sector), SME loans (outstanding growth in Bangkok and upcountry)
and retail loans (housing, car hire-purchasing and other retails), benefiting yield. Most
funding cost has remained stable or risen slightly, keeping 2Q13 NIM at 2.95%, in line
with our FY2013 projection at 2.99%. The liquidity of this sector is low, as LDR has
stayed as high as 96.7%. 2) 2Q13 fee income is projected to grow as high as
4.2% qoq and 26.8% yoy, greatly higher than our projection at 18% yoy. Most
commercial banks are predicted to still have outstanding fee income growth, especially
KK, whose fee income from BTSGIF deal was recognized. Other banks still benefit from
growth of fee income from loan and non loan-related businesses of the banks and their
affiliates e.g. Bancassurance and fund selling, as well as brokerage fee income because
total securities trading volume in the market, though decelerated from 1Q13, still stood
above B55bn. 3) Other operating income in 2Q13 (including extraordinary
income from a reversal of provision for NPL debtors that had been transferred
to TAMC) is projected to leap 38% qoq and 64.4% yoy, mostly the extraordinary
income from the provision reversal of TAMC for BAY, KBANK, SCB and TCAP's profit
from selling TLife to Prudential Life recorded this quarter. On the other hand, there are
many factors to press earnings. 2Q13 expense on debt provision is predicted to rise
28.6% qoq and 63.7% yoy as commercial banks that recorded extraordinary income
(e.g. BAY) increased their provision. TCAP had announced clearly to use profit from
TLife sale as the additional provision of B5bn. For asset quality, though NPL increased in
many big commercial banks (BAY, KBANK, BBL), most of them were from debtors
themselves, not the effect of decelerating economy. NPL to total loan of the sector is
projected to stay at 2.51%. Overall, positive factors could still negate negative effects,
so sector’s net profit is still likely to grow. 1H13 net profit is projected to comprise 51%
of FY2013 total profit forecast.
- 2nd half 2013 business and profit likely to grow as projected, loan enters high season
Commercial banks' 2H13 net profit is projected to grow to reach the target due to
upcoming high season of loan and fee income. Though the government’s investment
projects might be delayed, they are not included in our FY2013-2014 net loan growth
projection, so it would be positive to 2Q13 and FY2013 net profit growth, according to
our FY2013-2014 net profit forecast.
- Reiterate "OVERWEIGHT", BBL and KBANK are top picks
We maintain overweight for commercial bank sector. SET Bank has dropped 1.6% from
the beginning of 2013 to present, underperforming SET and contrast to the
fundamental growing in next 2-3 years from big CAPEX cycle, and supported by B2tr
infrastructure project. Top picks are BBL(FV@B280) and KBANK(FV@B237), which
greatly benefit from this big investment.