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Published on October 2, 2007

The broker has slashed its earnings target for KTB this year 33 per cent to Bt8.5 billion, in order to reflect a sharp rise in provisioning expenses this year, higher non-performing loans (NPLs) and weaker-than-expected loan growth. However, it has maintained its "buy" rating, given that the stock appears to have discounted much of the bad news after falling 21 per cent from its recent high of Bt14 in early July.

Next year, the bank should benefit from stronger credit demand and lower provisioning costs, leading to an 82-per-cent rebound in earnings.

The broker expects KTB to set aside provisioning expenses of Bt16 billion this year, in order to improve its loan-loss coverage and prepare for an increase in NPLs in the second half of the year. This should lift the bank's ratio of loan-loss reserve to NPLs (LLR/NPL) to 45 per cent, from 39.1 per cent at the end of the second quarter.

The broker's assumption of Bt6.6 billion (62-basis points of loans) for provisioning next year is higher than management's guidance of at least Bt3.6 billion.

It expects the bank's net profit to fall 35 per cent year on year to Bt3.3 billion in the third quarter, based on its provisioning-expenses estimate of Bt2 billion. Preprovisioning operating profit is forecast to dip 1.4 per cent quarter on quarter, due to higher costs, but fall 20 per cent year on year from a narrower net-interest margin. Total provisioning for the second half is projected at about Bt8 billion.

The Nation.