KTB

KTB Plc

Investment thesis
We attended KTB’s post-results analyst meeting on Tuesday. The bank’s FY14 outlook is good—we expect moderate loan growth, led by SME and retail business, a stable NIM, fee income expansion and lighter loan loss provisioning. Our earnings forecasts stand unchanged at Bt28.5bn for FY13 and Bt34.5bn for FY14. There would be scope for upside to our FY14 projection if KTB were to deliver loan growth exceeding 10% next year (boosted by business tied to state infrastructure projects). Our TRADING BUY rating stands.
FY14 loan growth guidance of 7-8%
Following strong 9M13 lending expansion of 9.5% YTD, KTB modestly guides for FY13 growth in the 9-10% range, which should be easily achieved. Demand for credit among corporate and big SME clients remains strong, especially related to public infrastructure projects. Management has also set an FY14 loan growth target of 7-8% (equal to 1.5x of expected 2014 GDP growth). The dual focuses will be small SME and retail business. Note that lending to state agencies has declined (8% of total loans at end-Sept, down from 18% at YE12). However, the bank expects credit demand among state agencies to rise again by late FY14.
NIM will be stable at 2.7%, assuming no Repo Rate cut
Management anticipates a 4Q13-FY14 NIM of about the same level as in 9M13. Stiffer competition for business limits the scope for upside to net interest margin, according to the bank. Note that KTB’s 9M13 NIM was 2.76%, slightly below our FY13 assumption of 2.8%. It doesn’t expect any more cuts to the policy interest rate in 4Q13 or in FY14.
LLP-setting will normalize in FY14
Because KTB had a high loan loss coverage ratio of 112% at end-September, it plans to scale down its FY14 LLP-setting to a normal level of about Bt1.5bn/quarter. Hence, we expect significantly lighter LLPs next year. Note that its 9M13 LLPs totaled Bt9.2bn,up 99% YoY. We anticipate LLPs of Bt12bn in FY13 and Bt10bn in FY14.
Fee income has room to rise next year
Fee income will grow 15% YoY in FY13, according to management. The bank guides that its fee income expansion would exceed its current expectation if government projects, such as flood protection systems and other developments, were to make substantial progress. Note that we assume FY14 fee income growth of only 12%.
expectation if government projects, such as flood protection systems and other developments, were to make substantial progress. Note that we assume FY14 fee income growth of only 12%.