Krung Thai Bank

Investment thesis

We attended KTB’s 3Q14 post-results meeting on Wednesday. Management guides for slower QoQ lending growth in 4Q14, as the economy hasn’t recovered as quickly as had been expected. We maintain our FY14 loan growth assumption of 7%, led by corporate and state owned businesses. The 2015 economic outlook and upcoming government stimulus could mean scope for upside to our FY15 earnings projection if KTB were to deliver loan growth exceeding 7% for that year. The stock currently trades at a cheap YE15 PBV of 1.3x against a regional mean of 1.5x and its last peak of 1.8x. Our BUY rating stands.

Slow lending growth in 4Q14 but good outlook for next year

KTB’s 9M14 lending growth was 5.3% YTD, which is in-trend with management’s FY14 guidance range of 5-7%. Note that our model assumes loan growth of 7% for both FY14 and FY15. We expect the bank to achieve 7% lending growth this year. As noted above, there could be scope for FY15 lending growth upside, assuming that the government’s stimulus package impacts swiftly. KTB expects its FY15 loan growth to accelerate YoY. Management said that FY14 fee income will fall short of its 15% growth target, due to the unfavorable environment in 1H14. We assume fee income growth of 12% for both FY14 and FY15.

Stable NIM; possible upside next year

Management reiterates an FY14 NIM of 2.6-2.7%, flattish YoY following a NIM of 2.8% in 9M14. KTB expects FY15 NIM to fatten next year. Note that we conservatively assume a NIM of 2.6% in both FY14 and FY15, conditional on the BOT’s policy interest rate remaining at 2% through to YE15. An interest rate up-trend in 2015 would mean scope for upside to KTB’s NIM and profit.

Less need for LLPs in 4Q14 onward—boost to earnings  

The bank is now less aggressive over small SME and retail lending—both categories were impacted by the weak state of the economy in 9M14 and the recovery has yet to build steam. New NPL formation among the two categories has slowed since September, said management. KTB expects the NPLs/loans ratio to be 3% at YE14, flattish QoQ. Management guides for normalized LLPs of Bt2.1bn in 4Q14. Our model assumes LLPs of Bt11bn in FY14, down 11% YoY.

Solid capital base—no concerns over cash call risk

KTB’s capital adequacy ratio was high at end-Sept at 15.9% (Tier-1 of 11.2%). Thus, the bank has considerable room to lend without risking a cash call. As such, we expect it to maintain its dividend payout policy at least 40% for this year and next.