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Krung Thai Bank

High risk from increasing NPL Hold

Krung Thai Bank Plc (KTB)

- 1Q14 profit below expectation

KTB’s 1Q14net profit was reported at B8.31bn, falling 17.2%qoq and

2.8%yoy (5.8% below expectation), mainly from higher-than-projected

operating cost (despite after high season). Cost to income ratio increased to

49.12%, making the nine-quarter highest, mainly due to an increase in

personnel expenses (yearly salary raises and bonuses). Overall income

contracted as expected. Net interest income fell by 3.3%qoq because

interest income from debt restructuring recognized in 4Q13 was not booked

in 1Q14. NIM dropped by 16bp to 2.74% (as expected) as a result of the

recent interest rate cut. Still, 1Q14 net loan grew by 3.3%qoq (better than

expected; in line with our FY2014 net loan growth target of 6%yoy). Private

corporate and retails loan increased and SME loan rose slightly, while

government loan stayed flat. Fee income fell by 1.8%qoq (better than

expected). Income from other operations slumped harshly; profit from

selling of investment in Vayupak Fund and dividend income from the fund

was not booked in 1Q14. In terms of asset quality, NPL has surged to

B5.48bn, making up 2.87% of KTB’s total loan, mainly from SME and retail

loan. KTB did not made high provision of the policy level of B500m/month

in 1Q14 after it had made exceedingly high provision in the previous three

quarters. Thus, end-1Q14 NPL coverage ratio contracted to 106.4%, the

year’s lowest.h in the past three quarters, they would not benefit the

earnings in 1Q14.

- Weak provisioning to press 2Q14 profit

We maintain our earnings forecast in 2014-2015, projecting 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. Core businesses are expected to grow, but not enough

to compensate for this. 2Q14 normalized profit is expected to drop qoq as

KTB would raise debt provision for higher coverage ratio.

- Hold for 4-5%p.a dividend yield

FY2014 fair value (1.22x PBV, 13.5% long-term ROE) of B19.50 implies

nearly no upside. However, average dividend yield is expected around 4-

5%p.a in next few years. We recommend holding.




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