Foreign brokers bearish on Thai banks

Citigroup Thailand has lowered its target price for Bangkok Bank (BBL) from Bt140 a share to Bt120, for Kasikornbank (KBank) from Bt85.70 a share to Bt75, for Krung Thai Bank (KTB) from Bt10 a share to Bt8.50 and for Siam Commercial Bank (SCB) from Bt90 a share to Bt77.

BBL, KBank, KTB, and SCB closed yesterday at Bt116, Bt72, Bt8.55 and Bt78.50, respectively.

Morgan Stanley cut its recommendation on Thai stocks from "overweight" to "underweight" and recommended "sell" for SCB.

The foreign broker said inflation had made Thailand, Indonesia and India the most vulnerable markets, while China, Taiwan and Hong Kong were best placed in Asia to face accelerating inflation.

"Under the current economic headwinds and rising political tension, we've incorporated more cautious views into our big-cap Thai banks' earnings. We cut 2008-09 estimates 2-9 per cent, driven mainly by weak loan-growth momentum in the second half of 2008, lower fee-income growth and higher provisions against accelerating new non-performing loans," Citigroup Thailand said in a report released yesterday.

The bank reiterated "sell" for big banks BBL, SCB, KBank and KTB. However, it recommended "buy" for mid-cap banks on their franchise restructuring, new management and earnings improvement from "low-hanging fruit", including Bank of Ayudhya (BAY) with a target price of Bt23.70 per share and TMB Bank with a target price of Bt1.25.

BAY and TMB closed yesterday at Bt23.50 and Bt1.20, respectively.

In addition, Citigroup Thailand said rising inflation and higher interest rates would dampen investment and consumption. Also, the government's pro-growth fiscal policy, including the mega-projects, is being delayed, and a possible Parliament dissolution in the third quarter also puts more downside risk to economic growth. It expects loan-growth momentum to slow in the second half.

This is similar to Morgan Stanley's opinion.

"China is best positioned in the region, given its absorption of record oil prices, decelerating food inflation, strong currency and low core inflation," Morgan Stanley analysts said yesterday in a report.

"Thailand is suffering from high-oil intensity, rapidly accelerating food inflation and rising core inflation."

Citigroup Thailand said that banks with high exposure to small and medium-sized enterprises and consumer lending were more prone to asset-quality deterioration and likely to raise more provisions if the economy slowed down faster than expected.

"We raised average provisions of total loans of the big banks from 69 basis points to 75, in order to reflect our cautious views on the banks' asset quality," it said.

Citigroup Thailand said the big-cap Thai banks' share prices were now trading at the low end of their historic price-per-earnings ratio and price-per-book cycles.

"We remain cautious on the banks' earnings, as we have not seen any clear positive catalysts both on the economy and politics," it said.