Krungthai Card

Krungthai Card Plc (KTC) 

 

Investment thesis

We attended KTC’s analyst meeting yesterday at which management maintained its loan-growth target of 10% and earnings growth objective of 10-15% for FY15. Given KTC’s well managed asset quality and the better economic outlook in 2H15, we have cut our FY15 net loan-loss provision (LLP) by 5% to Bt3.7bn. Hence, we have raised our FY15 earnings forecast 7% to Bt2.2bn. As we have elevated our bottom-line projection, we pushed our target price from Bt97 to Bt109, pegged to a justified PBV of 3.2x (derived from average ROE of 25%, industry growth of 5% and Ke of 11.25%). Our TRADING BUY rating stands.

Reaffirm FY15 loan growth of 10%, led by personal loans …

After 7.4% YoY loan growth in FY14, management reiterated its 10% goal for FY15, driven by personal loans and credit cards. KTC plans for personal-loan growth of 15% and credit-card loan growth of 5-10% in FY15. Meanwhile, the firm aims to raise its credit-card numbers by 400,000 cards to 2.2m at YE15 and expand its personal loans by 146,000 accounts to 850,000 at YE15. KTC has set aside marketing budget of Bt1bn for both activities. Note that our FY15 loan projection is 10%, close to management’s guidance. Its 1Q15 loans grew 7.6% YoY.

… while its well managed asset quality allows LLP trim

KTC guides that the firm has more room to lower its FY15 LLP than it had last year as its loan-loss-coverage ratio was 3.8x of NPL amounts at 1Q15. Its 1Q15 NPL/gross-loan ratio was 2.4% close to YE14. Given the high loan-loss-coverage ratio and the better economic outlook in 2H15, we have cut our FY15 net LLP setting by 5% to Bt3.7bn from its former Bt3.9bn. Note that KTC hired Win Performance to handle debt-collection services on May 1, 2015. This outsourcing activity could allow KTC to have more effective bad-debt recovery and lower LLPs.  However, the firm expects rising OPEX of Bt20m per month. We expect its FY15 cost/income at 48%, down from 50% last year.

Low D/E ratio equals L/T expansion, stable dividend payment

The lender’s net debt/equity ratio at 1Q15 was low at 5.6x. This will enable the firm to boost loan growth without the need for a capital increase for at least several years. Note that its D/E ratio in its creditor covenant is 10x. We do not expect KTC to raise capital this year or next. Given that its D/E ratio is the lowest it has been for the past couple of years, we believe the lender is able to deliver a dividend payout of 40% in both FY15 and FY16.