Krung Thai Bank

 - 3Q15 profit falls, weakened by SSI  

3Q15 net profit made the lowest quarterly earnings in three year at B5.34bn, plunging 36.7%qoq and 42.2%yoy, which was 10% worse than expected, because bank made additional B6bn provision for SSI debt and another B0.7bn for other minor NPLs. NPL increased from 2.96% of total loans at end-2Q15 to 4.0% at end-3Q15, depressing NPL coverage ratio from 124.5% at end-2Q15 to 100.6% at end-3Q15. Unlike TISCO and SCB, KTB did not downgrade SSI UK debt to NPL at the end of 3Q15 yet. Excluding the aforementioned extraordinary items, KTB's normalized stayed flat from 2Q15. Net loans fell and net interest income dropped as expected (income from investment was high in 2Q15), but NIM remained unchanged. Fee income grew better than projected mainly from bancassurance and credit card transactions. 

- Negative factors in 4Q15, 2016  

We maintain our 2015-2016 earnings forecast. KTB's net profit is projected to contract 33.2%yoy in 2015 due to debt provision for SSI and then leap from the low base by 36.3%yoy in 2016 as debt provision expense would return to normal (KTB may increase its coverage ratio rapidly; this is not included in our forecast yet) and the economy is expected to revive. KTB's profit is still projected to remain low in 4Q15. The company would make higher debt provision to improve its coverage ratio as the economic recovery would be sluggish in the short term. Also, NIM would start to drop and operating expense would grow at a faster rate near the end of the year. 

- Unattractive fundamental factors 

Although the share price has significantly undergone correction, we reiterate to hold for 4%p.a. dividend yield since the fundamental factors have still been unattractive. We switch to use 2016 fair value of B20 (GGM, based on 1.07x PBV and 13.0% long-term ROE).