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Krungthai Card

Primed for robust business growth

Krungthai Card Plc (KTC)

Investment thesis

We attended KTC's post-results analyst meeting yesterday. The firm now targets 15% loan expansion and some earnings growth for FY14. We forecast an FY14 profit dip of 1% YoY to Bt1.27bn, as we expect investment gains to be lower than last year. But there is scope for upside to our model from: 1) stronger lending growth than modeled (a consumption spending recovery in 2H14), 2) OPEX management (chiefly, faster debt collection) and 3) a fatter NIM, led by loan growth and low interest rates in FY14 and FY15. Our BUY rating stands.

Management's FY14 loan growth aim is 15%, led by personal loans

Following 5% YTD loan expansion in 1H14, Management aims for 15% loan growth for this year, driven by personal loans and credit cards. The firm plans to boost personal loans in 2H14 via both organic and in-organic means. KTC also targets building credit card loans by increasing the number of accounts from 1.69m cards at end-June to about 1.8m cards. We, conservatively, forecast FY14 loan growth of 8% (we previously assumed 5%), driven by personal loans. On the other hand, we have trimmed our FY14 NIM assumption from 22.1% to 20.6%, due to intensifying competition.

2H14 LLP-setting has room to fall, due to better asset quality

KTC guides that it is likely to cut its loan loss provisioning in 2H14, as its loan loss coverage ratio was 134% at end-June. The NPLs/gross loans ratio declined slightly to 2.4% at end-June from 2.9% at end-March. Reducing LLPs would boost earnings in 2H14. However, we maintain our LLP assumptions at Bt3.4bn for FY14 and 3.8bn for FY15. Lighter LLPs would imply bigger earnings.

OPEX will rise in 2H14 as firm seeks to build business

After implementing a cost-cutting program in FY13 and 1H14, KTC plans to increase marketing spending in 2H14 in order to boost loan growth (both organic and in-organic) and credit card spending. Therefore, we have revised up our FY14 OPEX assumption 4% to Bt5.3bn. However, the effect of increased costs should be mitigated or offset by lighter LLPs and stronger loan growth in 2H14. So our FY14 earnings forecast remains unchanged for the moment.

Low D/E ratio enables business growth without need for a cash call

KTC's net debt/equity ratio at end-June was low at 6.5x. This will enable the firm to grow its loan portfolio swiftly without need for a capital increase for at least several years. Note that KTC's D/E ratio ceiling in its creditor covenant is 10x. We do not expect the firm to raise new capital in either FY14 or next year.

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