Krung Thai Bank

Krung Thai Bank Plc (KTB)
3Q13 profit to recover fiercely. Robust core business, lower
expense, Vayupak dividend
We estimated KTB’s 3Q13 net profit at B9.77bn, growing 51.5%qoq and 6.6%yoy.
Bad debt provision expense in 3Q13 has normalized to B1.5bn/quarter from B4.15bn
in 2Q13 that resulted from extra provision of B2.50bn for future economic
fluctuation not for vulnerable asset quality. NPL in 3Q13 has been normal. Moreover,
in this quarter there would not be losses on investment of more than B900m like it
was in 2Q13 (one-time losses), while the bank usually books a dividend income from
Vayupak fund in the third quarter of every year, 2.5% this quarter or around
B700m. All these factors are beneficial to the net profit in 3Q13. Excluding the
items, the core business could also grow robustly from the following supporting
factors. 1) Net interest income growth in 3Q13 is projected at 3.2%qoq and
7.4%yoy, in line with the net loan growth forecast of 2%qoq and 10.4%yoy,
especially from corporate loans with increasing private loans for long-term
investment and short-term working capital. For the government loans, continuous
debt repayment has made the government loans to total loans ratio drop to 7% at
present. SME and retail loans have shown surprising growth, especially retail loans
that have already made 30% of total loans, mostly housing and personal loans
(particularly government servant loans, which have low risk). Overall, total net loans
in 9M13 would grow aggressively by 9.7% from end-2012, very high when
compared with the bank’s target of 7-10%yoy and our target of 10%yoy. NIM in
3Q13 is anticipated to contract 4bp to 2.63% due to rising funding cost as a result of
the bank’s deposit raising campaign “Jad Nak” that offers 3.3% and 3.7% interest
for 14-months and 37-month fixed deposits, respectively, which could gather deposit
of more than B36bn during July – August 2013. 2) Fee income growth in 3Q13 is
expected as high as 3.1%qoq and 21.2%yoy, so fee income growth in 9M13
would be as much as 22.8%yoy, very high comparing with FY2013 target of
15%yoy, thanking to the growth of fee income from loan and other retail
transactions.
- 4Q13 earnings might stumble on increasing debt provision
We maintain our earnings forecast for FY2013. Although 9M13 net profit would
comprise as much as 85% of our full-year forecast, there is a good chance that KTB
would make additional provision in 4Q13, as reflected from ROE in 9M13 that is
projected at 19.7%, higher than the long-term sustainable ROE at 12-14%.
Coverage ratio (LLR/NPL) also dropped below the sector’s average of 136.3%, as
shown on the next page. For FY2014 outlook, the net profit would continue growing
by 10.6%yoy, which has still not included a benefit from the government investment
projects according to the B2tr loan bill, which are a key turning point for us to
reconsider the earnings forecast again when the details of the investments are clear.
- Hold to receive dividend. Limited upside, share price gets near
2013 fair value
We still recommend holding KTB for its dividend yield that is expected at around 4%
p.a. The share price has surged to stand close to 2013 fair value based on 2013 PBV
of 1.47x and under long-term ROE forecast of 14.8%, implying almost no upside.