Krung Thai Bank
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4Q14 earnings missed estimate, due to heavy loan loss provisions
Krung Thai Bank Plc (KTB)
Investment thesis
Profit was 9.1% below our forecast
KTB posted 4Q14 earnings of only Bt8bn, down by 23% YoY and 13% QoQ. The result was 9.1% below our estimate and 10% short of the Bloomberg consensus, attributable to heavier loan loss provisioning than modeled (we had assumed 4Q14 LLPs of only Bt2.1bn; the bank set Bt3.7bn). Pre-provision operating profit was Bt13.2bn, up 2% YoY but down by 6% QoQ. FY14 earnings dropped 4% YoY to Bt33.2n, which represents 98% of our earlier projection.
Results highlights
Lending rose by 4.4% QoQ and 10.9% YoY—above our forecast—driven by corporate and state agency/SOE business. 4Q14 NIM was 2.76%, down by 9 bps QoQ and 15 bps YoY, due to a greater proportion of low-yield state agency and corporate loans in the lending mix. Loan loss provisions shot up by 19% YoY and 31% QoQ to Bt3.7bn (we had assumed only Bt2.1bn). KTB’s NPLs/loans ratio dropped to 2.41% at YE14 from 3.1% at end-September (due to accelerated troubled debt restructuring and swift lending growth during the quarter). KTB’s loan loss coverage ratio rose to 127% at YE14 from 108% three months earlier.
Fee income grew by 5% YoY and 8% QoQ to Bt5.6bn in 4Q14. OPEX was Bt11.5bn, up by 6% YoY and 12%QoQ. The 4Q14 cost/income ratio increased to 50.1% from 45.6% previous quarter and 47.9% in 4Q13.
Outlook
We expect KTB’s 1Q15 earnings to increase moderately QoQ and YoY on lighter LLP-setting. Note that its NPLs declined 17% QoQ to Bt56bn at YE14. As such, there may be scope for upside to earnings from lighter YoY loan loss provisions.
What’s changed?
Our FY15 earnings forecast stands unchanged at Bt37bn, up 11.5% YoY.
Recommendation
KTB’s FY15 profit growth will be driven by lending growth of 7% and lighter loan loss provisions. The stock looks cheap at a PBV of 1.2x (its long-term mean) compared with a sectoral mean of 1.4x (KTB’s last PBV peak was 1.8x). Besides, its capital adequacy ratio of 15.7% (11.4% Tier-1) will enable the bank to lend aggressively in FY15 without need for capital-raising. Our BUY rating stands.
