Krung Thai Bank

Krung Thai Bank Plc (KTB) 

 

Profit for 1Q15 was 13.5% below our forecast

KTB posted 1Q15 earnings of only Bt7.9bn, down 5% YoY and flat QoQ. The result was 13.5% below our estimate and 8.0% below the Bloomberg consensus, attributable to heavier loan-loss provisions (LLPs) than were modeled (we expected 1Q15 LLPs of Bt2.1bn; the bank set Bt3.7bn). Pre-provision operating profit was Bt13.6bn, up 2% YoY and 16% QoQ. The earnings for the quarter represent 21% of our FY15 earnings projection.

Results highlights

Lending was flat QoQ but up 10% YoY—poorer than our forecast. NIM for the quarter came in at 2.79%, up 40 bps QoQ, caused by greater emphasis on corporate and SOE sectors and well managed funding cost from the previous quarter. LLPs skyrocketed 24% YoY and 52% QoQ to Bt3.7bn. It should be noted that we expected its 4Q14 LLPs to reach Bt2.1bn. KTB’s NPL/loan ratio jumped to 2.82% at the end of March from 2.42 at YE14 (from small SME and retail sectors). Its loan-loss-coverage ratio slid to 115% at end-March from 127% at YE14. Fee income inched up 5% YoY and 14% QoQ to Bt5.8bn in 1Q15. OPEX was Bt13.2bn, an increase of 5% YoY and 26% QoQ. The bank’s 1Q15 cost/income ratio rose moderately to 52.3% in 1Q15 from 50.1% in the previous quarter and 50.7% in the same period last year.

Outlook

We expect KTB’s 2Q15 earnings to increase moderately QoQ and YoY on lower LLP-setting. Note that NPLs had risen 18% QoQ to Bt68bn at the end of March. In this case, there is downside risk for earnings from bigger LLP setting this year compared to last year.

What’s changed? 

Given rising NPLs and big LLP setting in 1Q15, we have raised our FY15 LLP forecast to Bt15bn from the prior estimate of Bt12.5bn. Also, we have cut KTB’s FY15 earnings projection by 6% to Bt34.8bn.

Recommendation

Given the earnings cut, we have trimmed our YE15 KTB target price by 7%, pegged to a justified PBV of 1.44x (based on Ke of 11.6%, average ROE of 14.5% and growth of 5%). However, the stock looks very cheap at a PBV of 1.27x (long-term mean) compared to a sectoral mean of 1.4x (KTB’s last PBV peak was 1.8x). Meanwhile, its capital adequacy ratio of 14.7% (11.4% for Tier-1) will enable KTB to lend aggressively in FY15 and FY16 without capital-raising. Our BUY rating stands.