Krung Thai Bank

Much bigger LLPs than expected

Krung Thai Bank Plc (KTB)

Earnings missed all estimates

KTB booked a 4Q12 profit of Bt890m, up 13% YoY but down 90% QoQ. The result was 79% below our forecast and 86percent short of the Bloomberg consensus, mainly due to bigger loan loss provisions than modeled (Bt10.6bn; we had expected Bt2bn; the bank had guided that LLPs would be only somewhat higher than the normal level of Bt1.5bn/quarter). However, Its pre-provision operating profit was Bt12.6bn, up 59% YoY (but down 2% QoQ).

Results highlights

Lending inched up by 0.4% QoQ and 7.4% YoY, below our model. Because of the bank's migration from low-yield SOE lending to more profitable corporate and retail business, 4Q12 NIM rose 10 bps QoQ to 2.90%.

Loan loss provisions jumped by 41% YoY and 588% QoQ to Bt10.6bn. KTB's NPLs/loans ratio declined to 3.22% at YE12 from 3.42% at end-September, while its loan loss coverage ratio increased to 92.7% at YE12 from 73.5% at end-September.

Fee income jumped by 31% YoY and 10% QoQ to Bt4.8bn. OPEX was Bt9.3bn, up 10% QoQ but flat YoY. As such, The cost/income ratio fell to 45.3% in 4Q12 from 54.6% in the same period last year.

Outlook

1Q13 profit will surge QoQ—we expect KTB to set much smaller loan loss provisions. Furthermore, its headline corporate tax rate will fall to 20percent from 25% in FY12.

What's changed?

We maintain our net earnings projections unchanged at Bt29.9bn for FY13 (up 27% YoY) and Bt34.5bn for FY14 (up 15%).

Recommendation

KTB should demonstrate a strong core operation this year, driven by ongoing loan growth and modest NIM expansion with costs held in check by good OPEX management. Furthermore, its FY13 loan loss provisioning will plunge to around Bt7.5bn from Bt15bn last year. Our TRADING BUY rating stands.