Krung Thai Bank

BUY

Krung Thai Bank Plc (KTB)

Strong profit rebound in 3Q14. Debt provision almost normalizes

3Q14 net profit was reported at B9.26bn, growing 21.5%qoq and 3.2%yoy

(2% lower than expected). Debt provision expense decreased by 44.1%qoq

and 12.0%yoy to B2.82bn, still higher than the normalized provisioning of

B700m/month but already decreasing after an extraordinary increase of as

much as B3bn in 2Q14. In terms of asset quality, 3Q14 NPL increased

mainly from housing loans, but this is not worrying though. Core business

weakened slightly: net interest income dropped while operating expense

rose due to business expansion, resulting in a slight increase in cost to

income ratio. 3Q14 fee income dropped. KTB's net loans decreased in 3Q14

after growing remarkably in 1H14. 3Q14 NIM slipped from 2Q14 slightly;

funding cost rose as a result of long-term deposit and bonds raising.

- 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).