Krung Thai Bank

Krung Thai Bank Plc (KTB)
Slower loan growth in 2H13. KTB expects loan growth to stay positive HoH but to
be slower in 2H13, after achieving 7.9% growth in 1H13. MoM loan growth slowed
down to 1% in July and 0.3% in August. Loan growth in August came primarily from
corporate loans, followed by retail loans, but good loan growth from the private
sector was almost wiped out by repayments from the government sector. We
maintain our 2013F loan growth at 12%.
More extra provisions in 2H13. As expected, KTB reconfirmed additional extra
provisions in 2H13 to further boost its LLR coverage to bring it closer to peers after the
hefty extra provisions in 2Q13 of Bt2.5bn (added to its Bt1.6bn normalized provisions).
This raised LLR coverage to 104% from 95% at 1Q13, but it remains below the sector’s
average of 135%. We maintain our 2013F and 2014F provisions at Bt15bn (Bt6.5bn
normalized provisions plus Bt8.5bn extra provisions), on par with 2012, translating to a
credit cost of 88 bps for 2013F and 80 bps for 2014F vs. 99 bps for 2012. Its excess LLR
(against required LLR) rose to Bt17bn from Bt13bn at 1Q13 and Bt12bn at end-2012,
which was faster than expected. The bank assured us that its asset quality remains
stable and it has seen no impact from high household debt yet.
Sustainable NIM, backed by shifting loan mix. Despite aggressive fund-raising via a
deposit campaign in 3Q13, KTB expect its NIM to be stable in 2H13. This is supported by
improving loan yield on a higher proportion of loans from the private sector.
Redemption of the Vayupak fund to shore up liquidity. Management expects
redemption of the Vayupak fund at the end of maturity in November will help shore up
liquidity. KTB holds 2.94bn units and thus will get at least Bt29.4bn at face value back,
which can be re-deployed into other assets with similar or better risk-adjusted return.
In addition, it will have realized gain, with the amount depending on the Vayupak
fund’s NAV at the maturity date. If the fund is redeemed at yesterday’s NAV of
Bt11.085, it will realize gain of Bt3.2bn. We believe the bank will take any investment
gain from the Yayupak fund to make extra provisions.
Maintain top Buy. There are three reasons to keep KTB on our list of top buys: 1) its
position as a government bank puts it at the top of the list for loans for public
investment – and though this may be delayed, it still proffers more hope than does
consumer loans; 2) improving asset quality from the more rapid rise in LLR than
anticipated; and 3) undervalued position at 1.3x 2014F PBV relative to a 16% 2014F ROE.