Krung Thai Bank
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Big provisions to squeeze 1Q16 profit HOLD
Krung Thai Bank Plc (KTB)
Investment thesis
We attended KTB’s meeting yesterday at which management
provided guidance on its rather conservative lending growth target of
3%, amid its grave concerns over NPLs. Given the fragile economy,
the bank intimated that it was exercising a more prudent policy in
FY16, and thus we maintain our loan-loss provisioning (LLP) at
Bt21bn in FY16. This is to reflect KTB’s objective to bring its loanloss-
coverage ratio to 130% from 113% in 4Q15. Besides that, our
FY16 bank loan growth forecast of 5%, which factors in likely public
infrastructure demand, could have a downside should such projects
fail to materialize. We keep our target price at Bt19.60, pegged to fair
YE16 PBV of 1.0x due to its cheap valuation with YE16 PBV of 0.8x
(versus its mean of 1.2x) and a supportive dividend yield of 5.1% in
FY16. Our HOLD rating stands.
Poor earnings to emerge in first quarter on greater LLP
Feedback gained from management was that it anticipates 1Q16 loans
to be flat YTD, with expected NIM of 2.9-3.0%. We calculate that KTB will
post poor 1Q16 earnings of Bt6.5bn, a decline of 18% YoY and 4% QoQ.
However, the bank could sustain its NIM at over 3.0% during 1Q16
onwards from well managed funding costs. We estimate its 1Q16 preprovision
operating profit to rise 27% YoY but be flat QoQ. Given the
sustainable NIM and good fee income growth of 10%, we forecast that its
1Q16 cost/income ratio should dip to 48.6% from the 53.2% it recorded
in the same period last year.
Prudent lending estimate belies full-year potential
Management reiterated a very prudent FY16 loan growth rate of 3%,
driven by medium SME and corporate sectors (both lending yields are
higher than the government and SOE sectors). The bank’s 1Q16 loan
view is flat on slow economic conditions and the bank sets its NIM target
close to 3%, as it did for FY15. Note that KTB excludes probable
government infrastructure loan demand to emerge in 2H16. Its FY16
cost/income ratio is set at 45-46% from progress in its cost effectiveness
program. We view that the bank looks more conservative than our
model. We expect its loans to grow 5% in both FY15 and FY16, with
conservative NIM of 2.9% for both years.
Expanded provisioning responds to trend of slightly rising NPL
Although, KTB was quite guarded over any exact LLP guidance for 1Q16
and FY16, we gathered that management expects to increase
provisioning due to the slower economy and qualitative reasons. The
high LLP in FY16 should remain to build up its loan-loss-coverage ratio
to 130% from 113% at YE15. As such, we expect KTB to set aside FY16
LLP of Bt21bn, down 33% YoY. We also forecast that its 1Q16
provisioning will rise 155% YoY
