BANK Sector

BANK Sector

GDP growth forecast gradually slashed as economy signals recession

Thailand’s GDP growth in 2Q13 was announced receding to 2.8%, versus
5.3% in 1Q13. Apparent deceleration was seen from the export volume
that fell 6.4%yoy as a result of the sluggish global economic recovery.
Other leading economic figures also showed recession. Household
consumption grew only 2.4%yoy; private investment rose 1.9%yoy;
only the government spending and investment still showed continuous
growth. As a result, major GDP forecast houses have gradually revised
down their forecasts for 2013-2014. Recently, the National Economics
and Social Development Board (NESDB) slashed the GDP growth
forecast for 2013 to 3.8-4.3% from 4.2-5.2% previously, which is in line
with our new forecast of 4% from 4.9% previously.

2013-2014 norm EPS growth after forecast cut is 15%yoy and 13%yoy

In the case that the domestic economy decelerates, it will affect the net
loan growth in 2013-2014, stymieing it from meeting the target of
12.4%yoy and 12.6%yoy, respectively, which is around 2.5x of the GDP
growth. Consequently, if 2013 - 2014 GDP growth forecast is cut to 4%,
there is a good chance that the net loan growth in 2013 - 2014 would
decrease to 10%yoy, down 2.5% from the previous forecast. According
to our study, every 1% decrease in the net loan growth will depress the
banking sector’s net profit by 0.8% and 1.5%, respectively.
Consequently, in the worst case scenario that the net loan growth drops
2.5% from the forecast, the sector’s net profit in 2013-2014 would fall
as much as 2.5% and 3.9% from the previous forecast, respectively,
resulting in a net profit growth forecast for 2013 – 2014 at 26.5%yoy
and 9.2%yoy, down from 28.5%yoy and 13.1%yoy (while norm profit in
2013-2014 is estimated to decline to 15.2%yoy and 13.1%yoy, from
18.4%yoy and 16%yoy, respectively). We are reviewing earnings
forecasts for single banking stocks, mainly by cutting an assumption for
net loan growth and fee income from loan-related transactions, as
shown in the table on the next page.

Downgrade to Underweight. Buy on weakness
We downgrade the sector from Neutral to Underweight. After the
forecast revision, norm EPS growth in 2013 will be lower than the
market’s EPS growth in 2013 of 18%yoy, but the two figures will be
quite similar in 2014. Since the beginning of the year until now,
SETBank has declined as much as 6.2% from end-2012, still
underperforming the SET. For an investment strategy, we recommend
buying banking stocks when the share prices weaken in order to reduce
a risk from short-term investment amidst the market’s fluctuation.