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Krung Thai Bank

4Q13 earnings beat all estimates, due to lighter LLP-setting than modeled

Krung Thai Bank Plc (KTB)

4Q13 profit was 118% above our estimate

KTB posted 4Q13 earnings of Bt10bn, up by 1,112% YoY and 12% QoQ. The result was 118% above our estimate and 54% higher than the Bloomberg consensus, attributable to lower loan loss provisions (LLP) than modeled. The bank set LLPs of only Bt3.1bn for the quarter, down by 71% YoY and 9% QoQ; we had assumed Bt7.5bn. Pre-provision operating profit was Bt14.9bn, up by 19% YoY and 6% QoQ. FY13 earnings grew 45% YoY to Bt33.9bn, which represents 119% of our FY13 projection.

Results highlights

Lending rose by 1.8% QoQ and 11.9% YoY, lower than our model. Because, the bank lent more heavily to corporate and SME clients than to state agencies/SMEs during the quarter, its 4Q13 NIM was 2.81%, basically flat QoQ. Loan loss provisions plunged by 71% YoY and 9% QoQ to Bt3.1bn. KTB's NPLs/loans ratio declined to 2.58% at YE13 from 2.9% at end-September, while its loan loss coverage ratio increased to 114percent from 108.29% three months earlier.

Fee income rose by 14% YoY and 5% QoQ to Bt5.3bn in 4Q13. OPEX was Bt11.3bn, up by 23% YoY and 20% QoQ. Because OPEX increased faster than fee income, the cost/income ratio jumped to 51.3% in 4Q13 from 43.8% the previous quarter.

Outlook

KTB's loan loss coverage ratio now exceeds 100%, which is management's stated comfort zone (much of its lending is to state agencies, for which LLP requirements are much lower than for any other client category). There is scope for the bank to cut LLPs in FY14, given that lending growth is likely to slow in tandem with the weak economy (aggravated by political turmoil). We currently assume FY14 LLPs of Bt11bn, down from Bt12bn last year.

What's changed?

Our FY14 net profit forecast stands unchanged at Bt33.5bn for FY14, down 1.3% YoY—NIM will decline as competition and there will be less scope for extra gains. We expect an FY14 NIM of 2.65% down from 2.79% in FY13. Note that last year, the bank booked an extra gain of Bt600m (and a Bt1.9bn dividend) from the winding up of Vayupak Fund 1. We would like to meet with management before adjusting our model.

Recommendation

KTB should report moderate core earnings growth for FY14, driven by lending (much of it corporate and SME in late FY14). Its capital adequacy ratio of 14.8% (10.2% Tier-1) will enable it to lend aggressively for at least several years without need for a cash call. The main risk is that political unrest may prompt KTB to raise LLPs in excess of our assumption. Our TRADING BUY rating stands.




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