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Krung Thai Bank

Cut loan target from unfavorable economic conditions HOLD

Krung Thai Bank Plc (KTB)

- 1Q14 profit lacks stimulus as Vayupak Fund expires

We estimate 1Q14 net profit at B8.82bn, contracting 12.1%qoq (yet

growing 3.2%yoy) due to decreasing income. Net interest income is

projected to drop 3.6%qoq because there would not be a return from

interest income from debt restructuring like in 4Q13. At the same time, NIM

would decrease 17bp to 2.73% because of the recent loan and deposit rate

cuts although net loan is projected to grow over 2%qoq (mainly corporate

and retail loans, followed by SME loans, whereas the government loans

would stay flat). Fee income is projected to decline 5.2%qoq along with

slack loan transactions. Other operating income would also decrease

significantly in this quarter because in 4Q13 the company recognized a

profit from selling of investment in Vayupak Fund. Moreover, as the

Vayupak Fund has expired, the company's profit would lack supporting

factor like before (income from the fund was usually recognized in 1Q and

3Q). Even though operating expense would decrease after passing the high

season and debt provision would decrease because the company already

made high provision of over the policy level of B500m a month in the past

three quarters, they would not benefit the earnings in 1Q14.

- Limited downside for 2014 forecast

We maintain our earnings forecast in 2014-2015, projecting the net loan

growth in 2014 at 6%yoy, versus the bank's new target of 4.5%yoy (under

GDP growth forecast of 2.7% in 2014) which was revised down from 5-

7%yoy. As 1Q14 net loan growth is already expected at 2%qoq, there is a

good chance that the net loan growth would exceed the bank's target and in

line with our full year forecast. We project FY2014 net profit to shrink

11.4%yoy because there is not a non-recurring profit from selling of

investment in Vayupak Fund while dividend income from the fund would

also decrease. We also anticipate NIM to drop 4bp to 2.74% as a result of

the interest rate downtrend.

- Attractive dividend yield of 5-6% p.a. on average

We reiterate to hold KTB for dividend. Whereas 2014 ROE would be

depressed by lower net profit forecast, average dividend yield is still

attractive at around 5-6%p.a. in the next few years. 2014 fair value is

B19.50, at 1.22x PBV and long-tern ROE forecast of 13.5%, implying 3%

upside from the current share price.


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