Earnings Results
22 April 2016
Banking
Krung Thai Bank
KTB Current
Previous
Close
2016 TP
Exp Return
Anti-corrupt
CGR 2015
HOLD
BUY
17.80
19.50
+ 9.6%
4
5
Consolidated earnings BT (mn)
2014
2015
2016E
2017E
Loans (Bt bn)
1,953
2,027
2,109
2,214
11
4
4
5
59,905
65,689
67,354
69,575
9
10
3
3 34,660
Growth (%) PPOP (Bt m) Growth (%) Net profit (Bt m)
33,191
28,492
30,483
EPS (Bt)
2.37
2.04
2.18
2.48
EPS (Bt) -Full dilution
2.37
2.04
2.18
2.48
-4
-14
7
14
7.5
8.7
8.2
7.2
Growth (%) PE (x) PE (x) - Fully diluted DPS (Bt) Yield (%)
7.5
8.7
8.2
7.2
0.90
0.76
0.80
0.85
5.1
4.3
4.5
4.8
16.88
17.91
19.30
20.98
P/BV (x)
1.1
1.0
0.9
0.8
Par (Bt)
5.15
5.15
5.15
5.15
BVPS (Bt)
Source: Company data, FSS estimates
Net profit beats estimate, but asset quality risk increases 1Q16 net profit up 11.4% Q-Q, but down 4.9% Y-Y KTB's 1Q16 net profit comes in at Bt7.5bn (+11.4% Q-Q, -4.9% Y-Y). It's higher than both our estimate and street forecasts. In the January-March quarter, loan loss provision of Bt8.6bn (-2.6% Q-Q, +131% Y-Y) is higher than expected. It comprises general reserve of Bt3bn, extra reserve of Bt4bn, and reserve at its subsidiaries amounting to Bt1.6bn. However, the bank was able to control operating expense well, making it possible for cost-to-income ratio to decrease to 40% from its normal rate of 45%. Such loss is made possible by a decline in other expense, whose realization is expected to be postponed to the next quarter. Loan decreases most in banking sector; NPL surges by 18% Q-Q In 1Q16, loans amounted to about Bt2tn. It implies a loss of 1.83%, the largest the banking sector. The decrease is seen in all customer segments thanks to seasonal repayment and lower loan demand. NPL stood at Bt90bn, implying a rise of 18% Q-Q or about Bt15bn. Given that, NPL ratio increased to 3.7% from 3.2% of total loans in 4Q15. Note the higher NPL is due mostly to wholesale and large SME customers, while retail and medium- to small-sized SME customers did not give better signal from last year. This implies higher asset quality risk and should be more negative for investment in the banking sector in the next quarter. Coverage ratio decreased to 101% from 112% in 4Q15. Lower rating to HOLD from BUY Although KTB's 1Q16 net profit is higher than expected, the bank seems to face rising asset quality risk, while loan loss provision looks set to remain high throughout the year. We stand by our 2016E net profit of Bt30.5bn (+7% Y-Y). Such forecast assumes loan loss provision of Bt28bn, implying credit cost of Bt1.35%. Similarly, we stand by our 2016 TP of Bt19.5 (PBV 1x). Finally, we lower our rating on KTB to HOLD from BUY. Note the bank has announced DPS of 0.76, implying dividend yield of 4.3%. The counter will go XD on May 10, 2016.
1Q16 Earnings Results (Bt mn)
Comment 1Q16
4Q15
%Q-Q
1Q15
%Y-Y
Interest income
32,666
33,749
-3.2
33,048
-1.2
Interest expense
11,325
12,350
-8.3
13,710
-17.4
Net interest income
21,341
21,399
-0.3
19,338
10.4
Non interest income
9,382
9,241
1.5
7,749
21.1
Operating income
30,723
30,640
0.3
27,087
13.4
Operating expenses
12,464
13,370
-6.8
13,166
-5.3
PPOP
17,921
17,255
3.9
13,644
31.4
Provision charges
8,623
8,849
-2.6
3,724
131.5
Tax expense
1,775
1,382
28.4
1,978
-10.2
Net Profit
7,540
6,768
11.4
7,929
-4.9
Net interest margin
3.15%
3.22%
-0.07%
2.87%
0.28%
Operating cost/income
40.6%
43.6%
-3.07%
48.6%
-8.04%
NPL ratio 3.7% Source: Company and FSS Research
3.20%
0.50%
2.82%
0.88%
In 1Q16, loan loss provision amounted to Bt8.6bn (-2.6% Q-Q, +131% Y-Y), higher than expected. It comprises general reserve of Bt3bn, extra reserve of Bt4bn, and reserve at its subsidiaries amounting to Bt1.6bn.
NPL stood at Bt90bn. It implies a gain of 18% Q-Q or about Bt15bn. As a result, NPL ratio increased to 3.7% from 3.2% of total loans in 4Q15. The gain is due mostly to wholesale and large SME customers.
Cost-to-income ratio decreased to 40% from its normal rate of 45%. Such loss is made possible by a decline in other expense.
Analyst : Sunanta Vasapinyokul, CFA Register No.: 019459 Tel.: +662 646 9680 email:
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Recommendation Definitions BUY HOLD SELL TRADING BUY OVERWEIGHT NEUTRAL UNDERWEIGHT
The The The The The The The
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Note: The expected return may change as market risks increase or decline. DISCLAIMER: This report has been prepared by Finansia Syrus Securities Public Company Limited (FSS). The information herein has been obtained from sources believed to be reliable and accurate; however FSS makes no representation as to the accuracy and completeness of such information. Information and opinions expressed herein are subject to change without notice. FSS has no intention to solicit investors to buy or sell any security in this report. In addition, FSS does not guarantee returns nor price of the securities described in the report nor accept any liability for any loss or damage of any kind arising out of the use of such information or opinions in this report. Investors should study this report carefully in making investment decisions. All rights are reserved. This report may not be reproduced, distributed or published by any person in any manner for any purpose without permission of FSS. Investment in securities has risks. Investors are advised to consider carefully before making investment decisions. Finansia Syrus Securities Public Company Limited may act as market maker and issuer of DWs. The company may prepare the research reports on those underlying securities. Investors should carefully read the details of the derivative warrants in the prospectus before making investment decisions.
Thai Institute of Directors Association (IOD) – Corporate Governance Report Rating 2015
Sc ore Range
Rating
Desc ription
100-90
Excellent
80-89
Very Good
70-79
Good
60-69
Satisfactory
50-59
Pass
<50
no logo given
n/a
IOD (IOD Disclaimer) The Corporate Governance Report (CGR) of Thai listed Companies is based on a survey and assessment of information which companies listed on the Stock Exchange of Thailand and the Market for Alternative Investment (“listed companies”) disclose to the public. The CGR is a presentation of information from the perspective of outsiders on the standards of corporate governance of listed companies. It is not any assessment of the actual practices of the listed companies, and the CGR does not use any non-public information. The CGR is not therefore an endorsement of the practices of the listed companies. It is not a recommendation for investment in any securities of any listed companies or any recommendation whatsoever. Investors should exercise their own judgment to analyze and consider any information relating to the listed companies presented in this CGR report. No representation or warranty is made by the Institute of Directors or any of its personnel as to the completeness or accuracy of the CGR report or the information used.
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Anti-corruption Progress Indicator Level 5
Extended
Extension of the anti-corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases
Level 4
Certified
Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.)
Level 3
Established
Carrying out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes
- Level 3A
Established by Declaration of Intent
- Level 3B
Established by Internal Commitment and Policy
Level 2
Declared
Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives
Level 1
Committed
Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws
Anti-corruption Progress Indicator from Thaipat Institute (as of November 6, 2015)
