Banking
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Preview: 4Q14 quiet, but building up steam in 2015
Banking
Bank 4Q14 profits are expected to reflect modest loan & fee income growth
and stable asset quality, but the end of NIM improvement. We expect a so-so
recovery in banks’ earnings growth in 2015F to 10% from 4% in 2014F. We see
the sector’s recent price weakness as providing a chance to accumulate as
valuation is now inexpensive at 9x PER and 1.2x PBV for 2015.
4Q14F: Easing headwinds. Key guidance reflects: 1) Loan growth: modest recovery QoQ,
driven by SME, housing and government loans; 2) NIM: stable QoQ in general, with the
exception of some slip at banks that actively pursued deposit in 4Q14 such as KTB and BBL;
3) non-interest income (non-NII): up QoQ, mainly on capital market-related fees; 4) cost to
income ratio: up QoQ from seasonally back-end loaded opex; and 5) asset quality: stable QoQ
with provisions taking different paths depending on bank policies, i.e. less at HP-focused
banks on tamer NPLs and more at KTB and KBANK for reasons of prudence. We expect sector
net profit to rise 6% YoY from top line growth but fall 11% QoQ on a seasonal rise in opex.
Lower provisions = strongest 4Q14 earnings recovery at TISCO at +48% YoY and +10%
QoQ, though off a low base, largely from lower provisions as asset quality stabilizes, further
NIM improvement from falling cost of funds and a moderate pick-up in fee income from
capital market-related fees. Loan growth, however, is expected to remain negative.
Gradually building up steam in 2015, with full steam ahead in 2016. We continue to
expect banks to grow earnings, though we have modified our aspirations a bit on
economists’ less optimistic views on Thailand’s 2015 GDP growth; our in-house unit, SCB EIC,
now forecasts growth of ~3% vs. the earlier forecast of >4%. The largest factor for this is the
slower startup of infrastructure projects than earlier anticipated. On this basis, we look for a
good, though less dramatic growth in 2015F profit of 10% from 4% in 2014F, mainly off an
expected pick up in loan growth to 8% from 4% in 2014F and in non-NII to 10% from -6% in
2014F. We expect the hurdles faced by asset quality in 2014 – particularly from auto loans - to
come down in 2015. The impetus from infrastructure projects and consumption (partly
capped by high household debt) is expected to come gradually, mostly in 2H15. 2016 presents
a better picture with infrastructure projects moving ahead full steam, underwriting good
loan growth (10%) and earnings growth (15%).
Valuation inexpensive. SETBANK has retreated by 7% since December 2014, reflecting the
anticipation of a slower recovery in 2015 than earlier expected as 2015 GDP growth forecasts
are revised down. It was also at an unattractive valuation (though not yet overvalued) at
close to +1SD above the historical mean. The sector is now back to historical mean, which
includes the 2009 crisis outlier. SETBANK generally trades at +1SD. We believe a share price
weakness offers an accumulation opportunity in view of the sector’s current inexpensive
valuation at 9x PER and 1.2x PBV for 2015 (excluding BAY and LHBANK).
Reiterate BBL, TISCO as the sector’s top pick as laggard plays. Both stocks are trading
at 1SD below historical means, underperforming the sector, which is trading at historical
mean. With the strongest balance sheet in all respects, BBL continues best positioned in the
coming investment up-cycle triggered by infrastructure projects. TISCO is trading at the
lowest PER of 8x 2015F, a large discount to its superior 18% ROE and strong 2015F earnings
recovery, supported by normalizing credit cost and a turnaround in loan growth.
