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Krung Thai Bank

Improving asset quality

Krung Thai Bank Plc (KTB)

Event

- KTB after the market close on 21 January reported 4Q13 net profit of Bt10.1bn (EPS

Bt0.72), up 13% QoQ and 981% YoY. The result was above market consensus and

our forecasts by more than 30% on non-interest income, provisions and investment

gains from the Vayupak Fund (Bt2.9bn). Overall asset quality improved QoQ with

better NPL ratio and coverage. The company will hold an analyst meeting on 22

January.

Impact

- Loan growth slightly below our forecast. 4Q13 gross loans went up 2% QoQ

and 12% YoY, slightly below our full-year forecast of 13%. Key loan growth drivers

were corporate and retail loans.

- NIM in line. 4Q13 NIM was flat QoQ at 2.84%. Asset yield improved 7bps QoQ

while funding cost was also higher by 7bps QoQ. The better asset yield might have

been due to the successful debt restructuring of big corporate loans. which we

observed at other banks in 4Q13. Both LDR and LDR + borrowing declined by 3-

4ppt, to 91% and 85%, respectively.

- Strong non-interest income offset by high OPEX. KTB's non-interest income

grew strongly in 4Q13, up 11% QoQ and 28% YoY, 17% higher than our forecast.

However, OPEX also rose strongly, up 22% QoQ and 24% YoY of which major

increases were from personnel and other expenses. The higher personnel expenses

(up 21% QoQ and 30% YoY) might have been due to the accrual of performance

bonus which KTB normally accrues in 1Q. Due to high OPEX, PPOP declined 8% QoQ

and up only 3% YoY.

- Improving asset quality. KTB set aside Bt3.1bn loan loss provisions in 4Q13,

equivalent to 73bps of total loans vs our forecast of 80bps and company guidance of

Bt1.5bn. The extra provisions were made possible due to the extra gains from the

Vayupak Fund (Bt2.9bn), which was redeemed in 4Q13. Total NPLs declined 7% QoQ

to Bt55bn due to write-offs (Bt5.4bn). NPL ratio dropped to 3.2percent from 3.5% in 3Q13

with higher NPL coverage of 112% (vs 108% in 3Q13).

Earnings and target price revision

- No change. We will revisit our forecasts after a fuller review of the results.

Price catalyst

- 12-month price target: Bt29.00 based on a DDM methodology.

- Catalyst: 1Q14 results, monthly loan growth

Action and recommendation

- Maintain OP and TP of Bt29.00.


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