Krung Thai Bank

 

Investment thesis

We believe that KTB will deliver solid lending growth in FY15, due in part to the role it plays financing state agency infrastructure and ICT projects. Its capital adequacy ratio of 15.4% (10.4% Tier-1) will allow the bank to lend aggressively for at least several years without need for a cash call. KTB currently trades at inexpensive PBVs of 1.49x for FY14 and 1.37x for FY15 (up 0.5SD); its last peak was 1.7x in 2013 (up 1.5SD). We have a BUY rating on KTB.

Poor August net lending, as expected

KTB’s net lending amounted to Bt1.73trn in August, up just 0.1% MoM,

4.9% YTD and 7.7% YoY. This was due to a big government loan repayment during the month. We expect its lending performance to improve significantly in September onward because the new regime is

moving to accelerate budget disbursements and institute a stimulus package. Note that the numbers for August put KTB’s 8M14 lending growth at 4.9% YTD, which is close to management’s full-year lending growth guidance range of 5-7%.

We assume FY14 loan growth of 7% in our model. Given that the bank

has achieved the swiftest 8M14 loan growth in the sector, we see

scope for upside to our current model. 4Q14 lending growth should

accelerate YoY, driven by improving political and macro-economic

conditions.

Loan loss provisioning will be likely to drop in 2H14 onward

KTB aims to reduce 2H14 LLP-setting to a normal level of about Bt700m/month following heavy provisions of Bt7.1bn for 1H14. At end-

June, its loan loss coverage ratio was 114% and it had a low NPLs/loans ratio of 2.9%. We expect FY14 LLPs of Bt11bn, down 10.5% YoY. We also assume that the bank will set heavier FY15 LLPs of Bt12bn, up 9% YoY in tandem with stronger lending growth, led by retail and corporate business.

NIM expected to be stable in FY14 and FY15

With the fastest loan growth profile for FY14 among the big banks, KTB

should sustain its NIM in the 2.6-2.7% range, according to management. The bank plans to increase its emphasis on high-yield loans (personal loans and SME business). At end-June, its loan composition could be categorized into corporate:SME:retail:state agency in the proportions of 39:20:33:8, respectively. Note that we assume NIMs of 2.65% in FY14 and 2.64% in FY15 in our model. Management expects the one-day Repurchase Rate to stay at 2.00% throughout 2014, then rise late next year.