Krung Thai Bank
ROE rising - and sustainable BUYKrung Thai Bank Plc (KTB)
Optimistic 2013 targets. KTB has set optimistic 2013 targets at 7-10percent for loan
growth (vs.10percent SCBS forecast and 7% in 2012), 12-15percent fee income growth (vs.15%
SCBS forecast and 16% in 2012), sustainable net interest margin, easing NPL ratio
and unchanged normalized provisions at Bt1.5bn/quarter with extra provisions
depending on pre-provision profit.
Public investment play. As a government-owned bank, KTB is in lead position to
finance the government's planned investments, for which SCB EIC estimates
growth of 16.1% in 2013 from 5.2percent for 2012. On this basis, we expect KTB to be the
only bank to see higher loan growth this year than last, at 10percent from 7% in 2012.
KTB has factored rising public investment into its loan growth target but expects
this to be in the form of loans to the private sector, which benefits from rising
government spending (i.e. contractors) rather than direct loans to the
government. It targets corporate & SME loan growth in the high single digits and
retail loans to grow in double digits in 2013.
Rising ROE target. KTB has a goal of keeping ROE at 17.2%, the same level as
2012's adjusted ROE (excluding capital raising). This is higher than our earlier
expectation of 16%. We believe the impressive lift in loan loss reserve (LLR)
coverage to 93% at 4Q12 from 71% at 3Q12 gives the bank room to ease future
provisions and enhance ROE.
Upside risk to 2013F NIM. There is upside to our 2013F NIM for large & medium
banks including KTB, as lower external economic risks and higher domestic
inflation risk have reduced the chance of further cuts in interest rates. We forecast
KTB's NIM to narrow 5 bps in 2013, assuming another 25 bps cut in policy rate and
a rise in the proportion of government loans as a result of rising public
investment. The bank, however, argues that it expects to loan to the portion of
the private sector that gains from rising government spending, i.e. contractors,
rather than loaning directly to government agencies. This will raise its portion of
loans to the private sector and thereby sustain NIM. Its proportion of government
loans decreased to 11% at YE2012 from 18% at YE2011, and it was this that
supplied most of the 36 bps gain in loan yield in 2012.
Outperforming 2013F earnings growth. We expect KTB to outperform its
sector with growth of 40% vs. the sector's average of 24%. Behind this great
difference is a sharp decrease in credit cost and tax rate. We expect lower extra
provisions in 2013, leading to a fall in credit cost to 73 bps (Bt12bn provisions) in
2013F from 99 bps (Bt15bn provisions) in 2012. We also assume a return to a
normal effective tax of 20% in 2013F from an abnormal high of 27percent for 2012 that
arose largely out of the change in the holding structure in its insurance business:
the resultant accounting investment gain did not show up on the consolidation
basis but KTB was charged tax on the gains.
Maintain top Buy with TP hike. We raise target price to Bt26 (1.8x 2013F BVPS)
from Bt24 in response to our 6-10% upward earnings revision, mainly with regards
to provisions, lifting L-T ROE to 17percent from 16%. KTB remains on our list of top buys
on the back of: 1) lower LLR coverage overhang after the big boost in 4Q12 and 2)
the best play on the theme of accelerating public investment in 2013.