Krung Thai Bank

Up forecast and 2013's FV to B27. Provision thins out; accelerate main business

Krung Thai Bank Plc (KTB)

Mega domestic investment cycle boosts loan and fee income

KTB's management gave the vision for the business outlook in 2013 at the

analyst meeting yesterday with a goal for the growth in every business. The

bank has targeted the loan growth in 2013 at 7-10%yoy, but the actual

growth is usually higher than the target (except for 2012 in which the bank

adjusted its strategy to focus on high yield loans, including private corporate

loans and SME loans, as well as penetrate retail loans, so there were

substantially repayments of the government loans, while the government had

not seriously started an investment in mega projects as anticipated). A

significant change in the loan portfolio at end-2012 was a decrease of the

government loans to 11percent from 13%, which were replaced by an increase in

SME and retail loans to 50% of total loans, beneficial for NIM. Accordingly, the

bank has targeted NIM to stand high close to that of the previous year at

2.92%. Moreover, KTB's strong point over the past 2 years is the remarkable

growth of fee income, particularly in 2012 at 16.2%yoy. The bank has

targeted for the fee income growth in 2013 at 12-15%yoy, supported by

income from loan related transaction fees such as cash management and nonloan

related fees from an increase of cross-selling transactions such as

Bancassurance and fund. All these factors will have a benefit on ROE in 2013;

the bank has targeted ROE at not lower than the past year's average (adjusted

ROE, considering the effects from extraordinary items and capital increase) or

around 16-17%, which is the record high in past several years.




Up 2013-2014's forecast to reflect lower provision

We revise up our net profit forecast for 2013-2014 respectively by 9.2% and

11.5%, making EPS growth forecast in 2013-2014 stand high at 33.8%yoy

and 15.1%yoy, respectively. The forecast revision is made in order to reflect

cuts in the key assumption as follows. Debt provision is projected to decrease

20% and 26.3%, respectively, from the previous forecast as credit cost is

anticipated to drop to 80bp and 70bp from 100bp and 95bp, respectively, as

concluded in the table on the next page. This is because we received new

information about the bank's debt provision policy that it will not have to

increase the debt provision significantly in 2013 like it did in 2012 because the

bank is satisfied with the asset quality (NPL has been decreasing continuously

to only 3.19% of total loans at end-2012, and is projected to decrease further

in 2013). At the same time, coverage ratio (LLR/NPL) at end-2012 is 95.6%,

rising significantly from an average of 70% in 9M12 and an average of only

63% in 2011. Consequently, we believe this will substantially help decrease

pressure from a concern about the debt provision on 2013-2014's net profit.

After the forecast revision, ROE in 2013-2014 is projected to make a new high

since after the financial crisis in 1997 at 16.7% and 17.5% respectively.




Buy. Up 2013's fair value to B27, based on 1.91x PBV

We reiterate our BUY recommendation. New fair value after the forecast revision and long-term ROE forecast of 17% (from 16%) is B27/share (from B23.60), implying 15% upside from the current share price. We believe 2013 is a golden year of KTB in which the bank will accelerate their business growth fully under stronger asset quality and most outstanding profitability among peers.