Krungthai Card

Krungthai Card Plc (KTC) 

4Q14 earnings were 23% above our estimate

KTC reported a 4Q14 profit of Bt425m, up 86% YoY but down 16% QoQ. The result was 23% above our estimate of Bt345m, due mainly to a fatter NIM than expected. KTC posted a NIM of 23.25% for the quarter (we had assumed 22%). Its pre-provision operating profit rose by 7% YoY and 6% QoQ to Bt1.4bn. FY14 earnings jumped 37% YoY to Bt1.76bn, which represents 105% of our projection.

Results highlights

The YE14 gross loan portfolio was up by 7.3% YoY and 6.6% QoQ to Bt50.1bn. Net interest margin fattened by 128 bps YoY to 23.25% in 4Q14, driven by lending (credit card loans rose by 9% QoQ and personal loans by 2% QoQ). OPEX grew by 11% YoY and 8% QoQ to 1.49bn. KTC set net loan loss provisions of Bt889m for 4Q14, down 13% YoY but up 26% QoQ. The NPLs/gross loans ratio declined slightly to 2.4% at YE14 from 2.7% at end-September.

Outlook

We are more positive about KTC’s prospects for 1Q15 onward after it maintained good asset quality, despite the weak economy that prevailed during much of last year. The economy is now recovering. 1Q15 earnings look set to rise YoY and QoQ (led by ongoing loan growth and tighter OPEX management). 

What’s changed? 

Given the improving economic outlook, we have raised our FY15 loan growth assumption to 8.0% from 5.5% formerly. Hence, we have upgraded our FY15 earnings forecast by 6% to Bt1.96bn.

Recommendation

Our TRADING BUY rating stands. Because of our bottom-line projection upgrade, we have increased our target price from Bt81 to Bt88, pegged to a justified PBV of 2.65x (derived from average ROE of 23%, industry growth of 5% and Ke of 11.75%).