Krung Thai Bank

Krung Thai Bank Plc (KTB)

2Q14 earnings were much weaker than projected; KTB has
significantly increased its debt provision for many recently quarters.
Profit is expected to continue dropping in 2H14. The current share
price barely provides upside.

-  2Q14 profit weaker than expected due to provision
KTB's 2Q14 net profit was reported at B7.54bn (14.4% below expectation),
dropping 9.1%qoq. Debt provision increased significantly; KTB has
determined to increase its monthly normalized provision from B500m to
B700m and set additional provision of B3bn, thus raising NPL coverage ratio
to 113.1% at end-2Q14 (still lower than the sector's average coverage ratio
of over 130%). KTB's income from core business (net interest income, fee
income and non-interest income) grew at the faster rate than expected.
Meanwhile, operating expense dropped at a slower rate than expected,
negated by rapid growth in overall income. As a result, 2Q14 cost to income
ratio was 41.6% (mainly thanks to lower personnel expense). 2Q14 net loan
growth was 2.5%qoq (as expected), thanks to rebound in every type of
loans. 2Q14 NIM rose to 2.83%, thanks to higher loan yield and lower
funding cost.
- Profit to weaken in 2H14
We maintain our earnings forecast for 2014-2015. FY2014 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 ratio.
- HOLD for dividend
We reiterate HOLD for dividend. The current share price barely provides
upside from FY2014 fair value (1.34x PBV, 14.1% long-term ROE forecast)
of B21.25.