Krung Thai Bank

Krung Thai Bank Plc (KTB) 

 

- 2Q15 profit beats projection despite higher reserve. Core business still strong 

KTB announced 2Q15 net profit at B8.44bn, growing 6.6%qoq and 10.9%yoy, which was 24% better than estimated. The core business showed stronger growth; net interest income, NIM, fee income, and Fx gain increased, while operating expense was lower than projected. Bad debt reserve increased significantly to B7.51bn in this quarter; there were B3.6bn extra reserve the bank planned since late May 2015 and B700m/month usual reserve (totaling B5.7bn), while the rest was from KTC. On the other hand, NPL (consolidated financial statement) decreased by B506m in this quarter, improving from an increase of over B10bn from housing and small SME loans (both state and private customers) in 1Q15. However, NPL to total loans rose from 2.82% at the end of 1Q15 to 2.96% at the end of 2Q15. Overall, positive factors from the growing core business could offset negative factors entirely, so 1H15 net profit stood at B16.3bn, advancing 2.9%yoy and making up 55% of our full-year forecast. 

- Profit decline likely in 2H15 

We maintain our earnings forecast, projecting KTB’s net profit to drop 10.7%yoy in 2015 but rebound 17.2%yoy in 2016 from the low base in 2015 and the hope toward better economy in 2016. Earnings in 2H15 are projected to weaken from 1H15. We believe the bank would continue to make additional extra reserve as a precaution for possibly rising NPL amidst the slowing economy since 1Q15, while NIM is projected to decrease to a normal level and operating expense may grow at a faster pace when entering a high season. 

- Fundamental factors not attractive 

Although the share price has undergone substantial correction, we recommend only holding KTB for dividend because its fundamental factors are not good and its asset qualities are more worrying than other big banks.