Krung Thai Bank

Krung Thai Bank Plc (KTB)

2Q14 earnings would remain good because of decreasing operating
expense. Although the core business would strengthen in 2H14,
debt provisioning expense would grow at an accelerated rate. We
downgrade to HOLD as the share price is almost fully valued.

- Good performance foreseen in 2Q14
We project KTB’s 2Q14 net profit at B8.8bn or the growth of 6.2%qoq and
36.6%yoy, mainly because personnel bonus expense would decrease
12%qoq. Cost to income ratio would drop to 41.92% from almost 50% in
1Q14. For the core business, net interest income would grow more than
3.1%qoq and 10.4%yoy, in line with the net loan growth of over 3.0%qoq
and 10.6%yoy, especially corporate loans. 1H14 net loan growth is forecast
at 6.2% from end-2013, already beating our full-year target of 6%yoy. NIM
would stay close to that of 1Q14 at 2.74%, while fee income would also
stabilize qoq. Overall, 1H14 net profit is estimated at B17.1bn, growing
14.1%yoy and accounting for 58% of FY2014 forecast.
- Growth may not continue in 2H14
We maintain our earnings forecast for 2014-2015. 2014 net profit is
projected to contract 12.3%yoy because there is not extraordinary income
from a sale of its investment in Vayupak fund like in 2013 and also no
longer dividend income from the fund, which could not be compensated by
the growth of core business. In addition, earnings in 2H14 might weaken
from 1H14 because of increasing debt provisioning expense to increase the
coverage ration.
- Downgrade to HOLD for dividend
We downgrade our recommendation from BUY to HOLD for its dividend. The
current share price barely provides upside from 2014 fair value, based on
1.34x PBV and long-term ROE forecast of 14.1%, of B21.25.