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Krung Thai Bank

FY14-15 earnings forecasts cut

Krung Thai Bank Plc (KTB)

Investment thesis

Prevailing political unrest and domestic economic weakness prompted us to cut our FY14 and FY15 loan growth forecasts from 10percent for both years formerly to 8% (for both years). Hence, we have revised down our earnings projections by 3percent for FY14 to Bt33.5bn and by 5% to Bt36.5bn for FY15. As such, our YE14 KTB target price declines to Bt21.25 (from Bt24), pegged to an unchanged justified PBV of 1.33x. There would be scope for upside to our FY14 projection if political unrest were to clear before mid-year (in which case, lending tied to state infrastructure projects could go ahead). Our TRADING BUY rating stands.

FY14-15 lending growth forecasts cut

Management affirms an FY14 loan growth target range of 5-7%. KTB will focus on big SME and retail business. Note that its lending to state agencies has declined (8% of total loans at end-Sept, down from 18% at YE12). The bank does not expect much credit demand among state agencies in FY14, due to the political chaos. As noted above, we have cut our FY14 and FY15 loan growth projections to 8percent for both years from 10percent for both years formerly.

NIM will be stable at 2.7%, assuming no Repo Rate cut in 2014

KTB anticipates a 4Q13-FY14 NIM of about the same level as in 9M13. The bank doesn't expect the November Repo Rate cut of 25 bps to impact materially on its 4Q13 NIM because it cut its lending, saving and term deposit rates in response. Note that its 9M13 NIM was 2.76%, slightly below our FY13 assumption of 2.8%. Management doesn't expect any more cuts to the BOT's policy interest rate in 2014.

LLP-setting will rise in 4Q13 onward

Although KTB had a high loan loss coverage ratio of 112% at end-September, it plans to build the ratio to 150% within a couple of years. The implication is that in FY14 and FY15 the bank will set extra loan loss provisions in addition to its normal level of Bt6bn/year. Note that its 9M13 LLPs totaled Bt9.2bn, up 99% YoY. We anticipate LLPs of Bt17bn in FY13 and Bt11bn in FY14.

Fee income could rise 14-15% next year

Management guides that fee income will expand 15% YoY in FY13. KTB also targets FY14 fee income growth of 14-15%, driven by commissions on sales of bancassurance and mutual fund products, trade finance and remittances. The bank guides that its fee income expansion would exceed its current expectation if government projects, such as flood protection systems and other developments, were to make substantial progress. Note that we currently assume FY14 fee income growth of only 12% in our model.

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