Krung Thai Bank

4Q14 earnings may be dull. 2015 more promising BUY

Krung Thai Bank Plc (KTB)

- Profit to shrink acutely in 4Q14. Up provision to increase coverage ratio

We estimate 4Q14 net profit at B7.34bn, shrinking 20.6%qoq and

25.8%yoy because provisioning for doubtful debts is projected to increase

55.8%qoq and 40.3%yoy to B4.40bn, higher than the normalized

provisioning of B700m/month. We believe KTB would make additional

provisioning of B1.60bn, so credit cost is projected to rise to from 63bp to

94bp, without an impact on FY2014 ROE, which is projected at almost 15%.

The core business would weaken slightly. 4Q14 normalized profit is

estimated to decline 2.8%qoq (rising 19.2%yoy though) because NIM is

projected to decrease and operating expense would increase because of a

high season. Overall, FY2014 net profit is estimated at B32.5bn, down

4.2%yoy (because there was no longer dividend income from Vayupak

fund), still in line with our estimate.

- Keep loan growth target in 2015. Government investment is driver

We maintain FY2015 earnings forecast, projecting the net profit to revert to

strong growth of 15.4%yoy under 2015 ROE forecast of 16% on average.

Although the overall business in 2015 still does not have a solid goal, the

bank preliminarily expected net loan growth at 1.5x of the GDP growth,

driven mainly by corporate and SME loans. KTB reiterated that it would

maintain its state and state enterprise customer bases to grab the

opportunity from the upcoming government investment projects; though

the growth would not be as rapid as projected, 2015 would still be a better

year than 2014. Most of loan growth in 1H15 would be of loans approved in

2014, while the loan growth in 2H14 depends on increasing demands from

new investment projects of the government and private sector.

- One of big bank top picks

We recommend buying KTB. 2015 fair value is B29.16, based on 1.67x PBV

(GGM) and long-term ROE forecast of 17.0%. The current share price still

has a discount from the sector’s average and provides a total return of over

36% (dividend yield included).