Krung Thai Bank

Krung Thai Bank Plc (KTB)

- 1Q14 profit below expectation
KTB's 1Q14net profit was reported at B8.31bn, falling 17.2%qoq and
2.8%yoy (5.8% below expectation), mainly from higher-than-projected
operating cost (despite after high season). Cost to income ratio increased to
49.12%, making the nine-quarter highest, mainly due to an increase in
personnel expenses (yearly salary raises and bonuses). Overall income
contracted as expected. Net interest income fell by 3.3%qoq because
interest income from debt restructuring recognized in 4Q13 was not booked
in 1Q14. NIM dropped by 16bp to 2.74% (as expected) as a result of the
recent interest rate cut. Still, 1Q14 net loan grew by 3.3%qoq (better than
expected; in line with our FY2014 net loan growth target of 6%yoy). Private
corporate and retails loan increased and SME loan rose slightly, while
government loan stayed flat. Fee income fell by 1.8%qoq (better than
expected). Income from other operations slumped harshly; profit from
selling of investment in Vayupak Fund and dividend income from the fund
was not booked in 1Q14. In terms of asset quality, NPL has surged to
B5.48bn, making up 2.87% of KTB's total loan, mainly from SME and retail
loan. KTB did not made high provision of the policy level of B500m/month
in 1Q14 after it had made exceedingly high provision in the previous three
quarters. Thus, end-1Q14 NPL coverage ratio contracted to 106.4%, the
year's lowest.h in the past three quarters, they would not benefit the
earnings in 1Q14.
- Weak provisioning to press 2Q14 profit
We maintain our earnings forecast in 2014-2015, projecting FY2014 net
profit to shrink 11.4%yoy because there is not a non-recurring profit from
selling of investment in Vayupak Fund while dividend income from the fund
would also decrease. Core businesses are expected to grow, but not enough
to compensate for this. 2Q14 normalized profit is expected to drop qoq as
KTB would raise debt provision for higher coverage ratio.
- Hold for 4-5%p.a dividend yield
FY2014 fair value (1.22x PBV, 13.5% long-term ROE) of B19.50 implies
nearly no upside. However, average dividend yield is expected around 4-
5%p.a in next few years. We recommend holding.