Krung Thai Bank
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Good profit foreseen in 3Q 2014 BUY
Krung Thai Bank Plc (KTB)
- Strong profit rebound expected in 3Q14. Bad debt provision almost normalizes
We project KTB’s 3Q14 net profit at B9.37bn or the growth of 23.0%qoq
and 5.3%yoy, mainly because bad debt provision expense has decreased
significantly. In terms of asset quality, NPL has increased a bit from housing
loans, not worrying though. A slight decline will be seen from the core
business since net interest income is projected to drop and operating
expense is projected to rise from the business expansion. Accordingly, cost
to income ratio is estimated to increase slightly to 42.55%. Fee income is
projected to grow from the prior quarter, thanks to bancassurance business
and brokerage fee that have improved as a result of the reviving capital
market. Overall, net loan growth in 3Q14 would start to decline against
notable growth in 1H14, but this is not worrying since the growth remains in
line with our FY2014 net loan growth forecast of 6%yoy. 3Q14 NIM is
projected to stabilize close to 2.84% of the previous quarter. Rising funding
cost from increasing long-term deposit and bonds raising would be negated
by a slight increase in loan yield.
- 2014-2015 ROE increase to 15-16%
We maintain our earnings forecast for 2014-2015. Net profit is projected to
contract 4.2%yoy in 2014 (because there is no longer dividend income from
the Vayupak fund) but recover aggressively by 15.4% in 2015, under
average long-term ROE forecast of 15-16% in 2014 and 2015. Since
domestic political problems have subsided, the transportation infrastructure
projects can proceed since 2015 onward, boosting the economic growth.
- One of big bank top picks
We recommend buying KTB. Fair value is B26.70 in 2014 and B29.16 in
2015, based on 1.67x PBV (GGM) and long-term ROE forecast of 17.0%.
The current share price provides a total return of over 17% (dividend yield
included).
