Krung Thai Bank - Global Alliance Partners
Krung Thai Bank Unrated (15E TP Bt23.50)
Company Update
Close Bt19.90
Banking
Earnings upgrade/Earnings downgrade/Overview unchanged
May 20, 2015
Concerns over asset quality remain
FY15
FY16
Consensus EPS (Bt)
2.454
2.748
KT ZMICO vs. consensus Share data
‐0.2%
‐1.4%
Reuters / Bloomberg
KTB.BK/KTB TB
Paid‐up Shares (m)
13,976.06
Par (Bt)
5.15
Market cap (Bt bn / US$ m)
278.00/8,307.00
Foreign limit / actual (%)
25.00/17.11
52 week High / Low (Bt)
24.50/17.80
Avg. daily T/O (shares 000) NVDR (%)
48,691.00 5.02
Estimated free float (%)
44.93
Beta
1.09
URL
www.ktb.co.th
CGR
Inexpensive valuations will limit further downside risk on share price We trimmed the bank’s earnings to fine‐tune with the latest operating environment. We still like KTB on the bank being a prime beneficiary of the mild economic recovery and its inexpensive valuations with 2015E P/BV of 1.1x (vs. the average of 1.4x for both Thai and regional banks), which will lower the downside risk on its share price. Trim net profit estimates for 15‐17E by 5‐7% Following the weaker‐than‐expected 1Q15 results, we trimmed our net profit (NP) forecasts for KTB by 5‐7% for 2015‐17E mainly to fine‐tune with the bank’s new 2015 guidance and the latest tougher operating environment. We expect the bank to tone down its 2015 guidance in the mid‐year analyst meeting with the likelihood of a lower loan growth target and a higher provision due to higher asset quality risk. Following our earnings revision, we cut our 15E target price estimate for KTB to Bt23.50/share from Bt26.00/share previously. Asset quality needs close monitoring The bank’s NPLs in 1Q15 increased sharply by 18% QoQ to 2.8% of loans from 2.4%. The higher NPLs in 1Q15 came mainly from housing loans, especially from the first‐home buyer scheme, followed by the small SME segment. We expect the degree of the NPL increase to soften in 2H15 as the bank normally does higher write‐offs in the latter half of the year. Expect the transformation to improve balance sheet over the long term Although we are likely to see some asset quality deterioration in the near term following the weak macro recovery, we expect the bank’s balance sheet and especially asset quality to strengthen over the longer term following the recent move regarding its transformation program (loan factory) in all of its lending segments. 2Q15E net profit likely to weaken both YoY and QoQ We expect KTB to show weaker net profit of around Bt7bn in 2Q15E, with a decline by around 7% YoY and 12% QoQ due to the likelihood of a higher provision in 2Q and lower NIM on the rate cut impact. Financials and Valuation FY Ended 31 Dec
Note: KT•ZMICO is a partnership between KTB and ZMICO
2013
2014
2015E
2016E
2017E
PPOP (Btmn)
44,262
46,854
54,116
57,006
61,789
Provision (Btmn)
12,311
13,658
19,482
18,478
17,609
Net Profit (Btmn)
34,511
33,196
34,208
37,828
43,303
2.47
2.37
2.45
2.71
3.10
EPS Growth (%)
EPS (Bt)
47.7%
‐3.8%
3.0%
10.6%
14.5%
Book value (Bt)
14.74
16.60
18.19
20.00
22.14
Dividend (Bt)
0.88
0.90
0.95
1.00
1.15
Prapharas Nonthapiboon
FY Ended 31 Dec
2013
2014
2015E
2016E
2017E
Analyst, no 17836
PER (X)
8.06
8.38
8.13
7.36
6.43
[email protected]
PBV (X)
1.35
1.20
1.09
1.00
0.90
66 (0) 2695‐5872
Div. Yield (%) ROE (%)
4.42 18%
4.52 15%
4.77 14%
5.03 14%
5.76 14.70%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 6
Trim net profit estimates for 15‐17E by 5‐7% Following the weaker‐than‐expected 1Q15 results mainly on higher asset quality risk, we trimmed our net profit (NP) forecasts for KTB by 5‐7% for 2015‐17E, primarily to fine‐tune with the bank’s potential new 2015 guidance and the latest tougher operating environment. We expect the bank to tone down the 2015 guidance in the mid‐year analyst meeting with the likelihood of a lower loan growth target and a higher provision due to higher asset quality risk. Our main revisions are a higher provision and lower loan growth; see Figure 1. Moreover, we also fine‐tune the bank’s earnings with its latest compliance with the TFRS 10 accounting standard, which will require the bank to start combining Krungthai Card Pcl. (KTC) on a consolidated basis (instead of using the equity method as previously) from 1Q15 onwards. Following our NP revision, we cut our 15E target price estimate for KTB to Bt23.50/share for an implied target P/BV of 1.3x from Bt26.00/share previously. Our target price was derived from the Gordon growth model and based on long‐term sustainable ROE of 15% and an L‐T growth rate of 11%. Figure 1: Key changes in our earnings revision 2015E New Previous 34,208 35,990 ‐5% 3% 8% 5% 7% 17% 9% 2.92% 2.76% 45% 45% 19,482 12,185 0.95 0.60
2016E New Previous 37,828 40,464 ‐7% 11% 12% 6% 9% 13% 10% 2.95% 2.81% 45% 45% 18,478 12,000 0.85 0.54
2017E New Previous 43,303 46,353 ‐7% 14% 15% 8% 10% 15% 16% 3.01% 2.83% 45% 44% 17,609 12,174 0.75 0.50
Net profit (Btmn) NP change from previous (%) NP Growth YoY (%) Loan growth Net fee income growth (%) NIM (%) Cost to income ratio (%) Provision for loan loss (Btmn) Provision for loan loss (bps of loans) Source: KT ZMICO Research Note: The new figures for 2015‐17E are based on consolidation of KTC using the consolidated accounting basis instead of the equity method as previously.
Asset quality needs close monitoring The bank’s NPLs increased sharply by 18% QoQ (+Bt10.6bn) to Bt68bn in 1Q15 from Bt57bn, resulting in a higher NPL ratio QoQ to 2.8% from 2.4%. This resulted in a lower reserve‐to‐NPL ratio QoQ to 116% from 132% while the reserve to the BoT’s mandatory reserve fell QoQ to 137% in 1Q15 from 147%. The higher NPLs in 1Q15 (around 60%) came from housing loans, especially from the first‐home buyer scheme as part of the previous government’s populist policies in 2011‐2012. Meanwhile, the remaining increase in NPLs (~40%) came mainly from the small SME segment and partly from the bank’s prudent qualitative NPL assessment. As per the comment in the news from the management of the retail segment, there has been some new NPL formation in the housing loan segment but it will likely be at a smaller degree vs. 1Q15. Note also that the much higher NPLs in 1Q15 were partly because the bank rarely does loan write‐offs during 1Q15 and instead normally does higher write‐offs in the latter quarters of the year, especially in 4Q. Therefore, we expect the degree of the NPL increase to soften in 2H15. Expect the transformation program to improve balance sheet over the long term Although we are likely to see some asset quality deterioration in the near term following the weak macro recovery, we expect the bank’s balance sheet and especially asset quality to improve over the longer term following the recent move regarding its transformation program (loan factory) in all of its lending segments, especially the retail and SME segments. This will help to strengthen the bank’s risk management as well as the efficiency of both the back and front offices. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 6
2Q15E net profit likely to weaken both YoY and QoQ We expect KTB to show weaker net profit of around Bt7bn (+/‐) in 2Q15E, with a decline by around 7% YoY from net profit of Bt7.5bn in 2Q14 and ‐12% QoQ from a net profit of Bt7.9bn in 1Q15. The bank hints that it is likely to set a higher provision in this quarter to cope with its higher asset quality risk. Note that the bank usually sets extra provision expenses in 2Q and 4Q rather than in 1Q as it normally books higher personnel expenses, especially from the performance bonus every 1Q. Moreover, we expect to see weaker NIM QoQ due to the full quarter impact of the rate cut in late 1Q15 as well as its much higher deposit growth vs. lending growth since 2H14.
Figure 2: KTB's P/BV band and sensitivity of market prices based on P/BV at different standard deviation levels (X) 2.0
2015E +1.5 S.D. +1 S.D.
Upside/ Downside
price (Bt)
to current price (%)
+2.0SD
1.8
33
64
+1.5SD
1.6
30
50
+1.0SD
1.5
27
35
+0.5SD
1.3
24
21
Average
1.2
21
6
0.4
-0.5SD
1.0
18
-8
0.2
-1.0SD
0.8
15
-22
-1.5SD
0.7
13
-37
-2.0SD
0.5
10
-51
1.6 1.4
+0.5 S.D. Avg.
1.2
-0.5 S.D. -1 S.D.
1.0 0.8
-1.5 S.D.
0.6
May-15
Jul-14
Dec-14
Feb-14
Apr-13
Sep-13
Nov-12
Jan-12
Jun-12
Aug-11
Oct-10
Mar-11
May-10
Jul-09
Dec-09
Feb-09
Apr-08
Sep-08
Nov-07
Jan-07
Jun-07
-2 S.D.
Source: Bloomberg, KT ZMICO Research
Figure 3: KTB's PER band and sensitivity of market prices based on PER at different standard deviation levels (X) 25
2015E
20
Source: Bloomberg, KT ZMICO Research
May-15
Dec-14
Jul-14
Feb-14
Sep-13
Apr-13
Nov-12
Jun-12
Jan-12
Aug-11
Mar-11
Oct-10
May-10
Dec-09
Jul-09
Nov-07
Jan-07
0
Feb-09
5
-0.5 S.D. -1 S.D. -1.5 S.D. -2 S.D.
Sep-08
10
+1 S.D. +0.5 S.D. Avg.
Apr-08
15
+2 S.D. +1.5 S.D.
Jun-07
PBV (x) Implied market
+2 S.D.
1.8
PER (x)
Implied market
Upside/ Downside
price (Bt)
to current price (%)
+2.0SD
17.5
47
137
+1.5SD
15.6
42
111
+1.0SD
13.7
37
85
+0.5SD
11.8
32
59
Average
9.8
26
33
-0.5SD
7.9
21
7
-1.0SD
6.0
16
-19
-1.5SD
4.0
11
-45
-2.0SD
2.1
6
-71
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 6
Statement of Comprehensive Income (Btmn) Year‐end 31 Dec Total Interest Income Total Interest Expenses Net Interest Income Fee and Service income Gain on exchange Other Income Total Non‐Interest Income Operating Income Personnel Expenses Premises & Equipment Exp. Other Expenses Total Operating Expenses Operating Profit Extraordinary Item Provision for Loan Losses Taxation Minority Interests Net Profit PPOP PPP EPS (Bt)
2013 111,403 46,921 64,481 15,712 4,581 7,263 27,556 92,037 22,785 7,444
2014 118,625 49,323 69,302 16,323 4,827 6,759 27,908 97,210 24,191 8,183
2015E* 135,910 55,631 80,278 19,116 4,971 9,204 33,292 113,570 27,937 9,410
2016E* 145,377 59,815 85,562 21,621 5,220 9,631 36,473 122,035 30,451 9,881
2017E* 161,910 70,441 91,470 24,888 5,637 10,309 40,834 132,304 32,583 10,276
9,357 39,586 52,185 2,294 12,311 7,923 ‐ 34,511 44,262 46,822 2.47
11,259 43,632 53,578 ‐ 13,658 6,725 (0) 33,196 46,854 46,854 2.37
13,242 50,589 62,381 ‐ 19,482 8,265 (1,026) 34,208 54,116 53,690 2.45
14,743 55,074 66,461 ‐ 18,478 9,454 (1,201) 37,828 57,006 56,306 2.71
16,333 59,192 72,613 ‐ 17,609 10,823 (1,378) 43,303 61,789 60,912 3.10
2013
2014
2015E*
2016E*
2017E*
50,690 448,583 ‐ 241,778 1,710,600 4,647 1,715,247 (61,783) 1,653,464 30,666 26,797 62,166 2,514,143
74,770 456,721 ‐ 258,495 1,952,996 5,191 1,958,187 (76,021) 1,882,166 30,733 28,116 58,141 2,789,143
56,077 502,393 ‐ 273,611 2,050,731 5,040 2,055,771 (88,353) 1,967,419 29,811 28,959 89,443 2,947,714
56,638 494,857 ‐ 297,425 2,173,874 4,908 2,178,782 (100,231) 2,078,552 28,917 29,828 95,849 3,082,066
57,205 445,372 ‐ 326,192 2,347,827 4,714 2,352,541 (110,689) 2,241,852 28,049 30,126 95,287 3,224,083
1,883,795 200,989 133,001
2,151,268 167,215 146,971
2,269,588 192,297 138,971
2,383,067 173,067 148,971
2,502,221 155,761 153,971
90,269 2,308,054
87,822 2,553,276
92,468 2,693,324
97,373 2,802,478
102,550 2,914,503
Statement of Financial Position (Btmn) Year‐end 31 Dec Assets Cash Interbank & Money Market REPO Net Investment in Securities Loans Accrued Interest Receivables Loans & Accrued Int.Rec. Less: Loan Loss Reserves Net Loans and Receivables Properties Foreclosed Premises and Equipment, Net Other Assets Total Assets Liabilities & Equity Total Deposits Interbank & Money Market Total Borrowings Other Liabilities Total Liabilities
72,005 72,005 72,005 72,005 72,005 Paid‐up Capital (Bt5.15 Par) 20,834 20,834 20,834 20,834 20,834 Premium on Share Capital Retained Earnings 99,312 119,660 140,685 164,630 193,337 Unrealized Loss on LT Securities ‐ ‐ ‐ ‐ ‐ Other Equity Items 13,939 19,644 20,866 22,119 23,405 206,089 232,142 254,389 279,588 309,581 Total Shareholders' Equity Source: KTZMICO Research *Note: The figures for 2015‐17E are based on consolidation of KTC using the consolidated accounting basis instead of the equity method as previously.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 6
Key Statistics and Ratios Year‐end 31 Dec Per share Data (Bt) EPS DPS BVPS
2013
2014
2015E*
2016E*
2017E*
2.47 0.88 14.74
2.37 0.90 16.60
2.45 0.95 18.19
2.71 1.00 20.00
3.10 1.15 22.14
Valuation analysis PER (X) P/BV (X) Dividend yield (%)
8.06 1.35 4.42
8.38 1.20 4.52
8.13 1.09 4.77
7.36 1.00 5.03
6.43 0.90 5.76
Growth (%) Net Profit EPS Net Interest Income Non Interest Income
47.7% 47.7% 10.1% 18.1%
‐3.8% ‐3.8% 7.5% 1.3%
3.0% 3.0% 15.8% 19.3%
10.6% 10.6% 6.6% 9.6%
14.5% 14.5% 6.9% 12.0%
Net Fee & Service Income Operating Income Operating Expenses Operating Profit PPOP PPP Loans ‐ Net Deposits Gross NPLs
18.9% 12.4% 12.0% 12.9% 15.9% 21.5% 12.2% 13.0% ‐7.5%
3.9% 5.6% 10.2% 2.7% 5.9% 0.1% 14.2% 14.2% 4.5%
17.1% 16.8% 15.9% 16.4% 15.5% 14.6% 5.0% 5.5% 26.4%
13.1% 7.5% 8.9% 6.5% 5.3% 4.9% 6.0% 5.0% 4.9%
15.1% 8.4% 7.5% 9.3% 8.4% 8.2% 8.0% 5.0% 0.7%
Asset Quality Ratio Gross NPLs (Btmn) Gross NPLs/Loans Loan Loss Reserve/NPLs Accrued Interest/Loans Loan Loss Reserve/Loans Property Foreclosed/Loans
55,026 57,489 72,666 76,199 76,764 2.6% 2.4% 2.9% 2.9% 2.8% 112.3% 132.2% 121.6% 131.5% 144.2% 0.3% 0.3% 0.2% 0.2% 0.2% 3.6% 3.9% 4.3% 4.6% 4.7% 1.8% 1.6% 1.5% 1.3% 1.2%
Capital & Liquidity Ratio Equity/Asset Tier I to Risk Assets Capital Adequacy Ratio Loan to Deposit Ratio Loan to Deposit and Borrowing Ratio Profitability Ratio ROA ROE Cost to Income Non Interest Income/Total Income Net Interest Margin (NIM)
8.2% 10.2% 14.8% 90.8% 84.8%
8.3% 10.9% 14.8% 90.8% 85.0%
8.6% 11.3% 14.6% 90.4% 85.1%
9.1% 12.0% 15.1% 91.2% 85.9%
9.6% 12.8% 15.5% 93.8% 88.4%
1.4% 17.9% 43.0% 29.9% 2.83%
1.3% 15.1% 44.9% 28.7% 2.73%
1.2% 14.1% 44.5% 29.3% 2.92%
1.3% 14.2% 45.1% 29.9% 2.95%
1.4% 14.7% 44.7% 30.9% 3.01%
2013 2014 2015E* 2016E* 2017E* Key Assumptions Loan Growth ‐ Net 12.2% 14.2% 5.0% 6.0% 8.0% Cost to Income 43.0% 44.9% 44.5% 45.1% 44.7% Net Interest Margin (NIM) 2.83% 2.73% 2.92% 2.95% 3.01% Provision expenses (Btmn) 12,311 13,658 19,482 18,478 17,609 Provision (% of loans) 0.72% 0.70% 0.95% 0.85% 0.75% Source: KTZMICO Research *Note: The figures for 2015‐17E are based on consolidation of KTC using the consolidated accounting basis instead of the equity method as previously.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 6
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market return over six months period because of specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to below market return over six months period because of specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 6
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KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
Company Update
Close Bt19.90
Banking
Earnings upgrade/Earnings downgrade/Overview unchanged
May 20, 2015
Concerns over asset quality remain
FY15
FY16
Consensus EPS (Bt)
2.454
2.748
KT ZMICO vs. consensus Share data
‐0.2%
‐1.4%
Reuters / Bloomberg
KTB.BK/KTB TB
Paid‐up Shares (m)
13,976.06
Par (Bt)
5.15
Market cap (Bt bn / US$ m)
278.00/8,307.00
Foreign limit / actual (%)
25.00/17.11
52 week High / Low (Bt)
24.50/17.80
Avg. daily T/O (shares 000) NVDR (%)
48,691.00 5.02
Estimated free float (%)
44.93
Beta
1.09
URL
www.ktb.co.th
CGR
Inexpensive valuations will limit further downside risk on share price We trimmed the bank’s earnings to fine‐tune with the latest operating environment. We still like KTB on the bank being a prime beneficiary of the mild economic recovery and its inexpensive valuations with 2015E P/BV of 1.1x (vs. the average of 1.4x for both Thai and regional banks), which will lower the downside risk on its share price. Trim net profit estimates for 15‐17E by 5‐7% Following the weaker‐than‐expected 1Q15 results, we trimmed our net profit (NP) forecasts for KTB by 5‐7% for 2015‐17E mainly to fine‐tune with the bank’s new 2015 guidance and the latest tougher operating environment. We expect the bank to tone down its 2015 guidance in the mid‐year analyst meeting with the likelihood of a lower loan growth target and a higher provision due to higher asset quality risk. Following our earnings revision, we cut our 15E target price estimate for KTB to Bt23.50/share from Bt26.00/share previously. Asset quality needs close monitoring The bank’s NPLs in 1Q15 increased sharply by 18% QoQ to 2.8% of loans from 2.4%. The higher NPLs in 1Q15 came mainly from housing loans, especially from the first‐home buyer scheme, followed by the small SME segment. We expect the degree of the NPL increase to soften in 2H15 as the bank normally does higher write‐offs in the latter half of the year. Expect the transformation to improve balance sheet over the long term Although we are likely to see some asset quality deterioration in the near term following the weak macro recovery, we expect the bank’s balance sheet and especially asset quality to strengthen over the longer term following the recent move regarding its transformation program (loan factory) in all of its lending segments. 2Q15E net profit likely to weaken both YoY and QoQ We expect KTB to show weaker net profit of around Bt7bn in 2Q15E, with a decline by around 7% YoY and 12% QoQ due to the likelihood of a higher provision in 2Q and lower NIM on the rate cut impact. Financials and Valuation FY Ended 31 Dec
Note: KT•ZMICO is a partnership between KTB and ZMICO
2013
2014
2015E
2016E
2017E
PPOP (Btmn)
44,262
46,854
54,116
57,006
61,789
Provision (Btmn)
12,311
13,658
19,482
18,478
17,609
Net Profit (Btmn)
34,511
33,196
34,208
37,828
43,303
2.47
2.37
2.45
2.71
3.10
EPS Growth (%)
EPS (Bt)
47.7%
‐3.8%
3.0%
10.6%
14.5%
Book value (Bt)
14.74
16.60
18.19
20.00
22.14
Dividend (Bt)
0.88
0.90
0.95
1.00
1.15
Prapharas Nonthapiboon
FY Ended 31 Dec
2013
2014
2015E
2016E
2017E
Analyst, no 17836
PER (X)
8.06
8.38
8.13
7.36
6.43
[email protected]
PBV (X)
1.35
1.20
1.09
1.00
0.90
66 (0) 2695‐5872
Div. Yield (%) ROE (%)
4.42 18%
4.52 15%
4.77 14%
5.03 14%
5.76 14.70%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 6
Trim net profit estimates for 15‐17E by 5‐7% Following the weaker‐than‐expected 1Q15 results mainly on higher asset quality risk, we trimmed our net profit (NP) forecasts for KTB by 5‐7% for 2015‐17E, primarily to fine‐tune with the bank’s potential new 2015 guidance and the latest tougher operating environment. We expect the bank to tone down the 2015 guidance in the mid‐year analyst meeting with the likelihood of a lower loan growth target and a higher provision due to higher asset quality risk. Our main revisions are a higher provision and lower loan growth; see Figure 1. Moreover, we also fine‐tune the bank’s earnings with its latest compliance with the TFRS 10 accounting standard, which will require the bank to start combining Krungthai Card Pcl. (KTC) on a consolidated basis (instead of using the equity method as previously) from 1Q15 onwards. Following our NP revision, we cut our 15E target price estimate for KTB to Bt23.50/share for an implied target P/BV of 1.3x from Bt26.00/share previously. Our target price was derived from the Gordon growth model and based on long‐term sustainable ROE of 15% and an L‐T growth rate of 11%. Figure 1: Key changes in our earnings revision 2015E New Previous 34,208 35,990 ‐5% 3% 8% 5% 7% 17% 9% 2.92% 2.76% 45% 45% 19,482 12,185 0.95 0.60
2016E New Previous 37,828 40,464 ‐7% 11% 12% 6% 9% 13% 10% 2.95% 2.81% 45% 45% 18,478 12,000 0.85 0.54
2017E New Previous 43,303 46,353 ‐7% 14% 15% 8% 10% 15% 16% 3.01% 2.83% 45% 44% 17,609 12,174 0.75 0.50
Net profit (Btmn) NP change from previous (%) NP Growth YoY (%) Loan growth Net fee income growth (%) NIM (%) Cost to income ratio (%) Provision for loan loss (Btmn) Provision for loan loss (bps of loans) Source: KT ZMICO Research Note: The new figures for 2015‐17E are based on consolidation of KTC using the consolidated accounting basis instead of the equity method as previously.
Asset quality needs close monitoring The bank’s NPLs increased sharply by 18% QoQ (+Bt10.6bn) to Bt68bn in 1Q15 from Bt57bn, resulting in a higher NPL ratio QoQ to 2.8% from 2.4%. This resulted in a lower reserve‐to‐NPL ratio QoQ to 116% from 132% while the reserve to the BoT’s mandatory reserve fell QoQ to 137% in 1Q15 from 147%. The higher NPLs in 1Q15 (around 60%) came from housing loans, especially from the first‐home buyer scheme as part of the previous government’s populist policies in 2011‐2012. Meanwhile, the remaining increase in NPLs (~40%) came mainly from the small SME segment and partly from the bank’s prudent qualitative NPL assessment. As per the comment in the news from the management of the retail segment, there has been some new NPL formation in the housing loan segment but it will likely be at a smaller degree vs. 1Q15. Note also that the much higher NPLs in 1Q15 were partly because the bank rarely does loan write‐offs during 1Q15 and instead normally does higher write‐offs in the latter quarters of the year, especially in 4Q. Therefore, we expect the degree of the NPL increase to soften in 2H15. Expect the transformation program to improve balance sheet over the long term Although we are likely to see some asset quality deterioration in the near term following the weak macro recovery, we expect the bank’s balance sheet and especially asset quality to improve over the longer term following the recent move regarding its transformation program (loan factory) in all of its lending segments, especially the retail and SME segments. This will help to strengthen the bank’s risk management as well as the efficiency of both the back and front offices. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 6
2Q15E net profit likely to weaken both YoY and QoQ We expect KTB to show weaker net profit of around Bt7bn (+/‐) in 2Q15E, with a decline by around 7% YoY from net profit of Bt7.5bn in 2Q14 and ‐12% QoQ from a net profit of Bt7.9bn in 1Q15. The bank hints that it is likely to set a higher provision in this quarter to cope with its higher asset quality risk. Note that the bank usually sets extra provision expenses in 2Q and 4Q rather than in 1Q as it normally books higher personnel expenses, especially from the performance bonus every 1Q. Moreover, we expect to see weaker NIM QoQ due to the full quarter impact of the rate cut in late 1Q15 as well as its much higher deposit growth vs. lending growth since 2H14.
Figure 2: KTB's P/BV band and sensitivity of market prices based on P/BV at different standard deviation levels (X) 2.0
2015E +1.5 S.D. +1 S.D.
Upside/ Downside
price (Bt)
to current price (%)
+2.0SD
1.8
33
64
+1.5SD
1.6
30
50
+1.0SD
1.5
27
35
+0.5SD
1.3
24
21
Average
1.2
21
6
0.4
-0.5SD
1.0
18
-8
0.2
-1.0SD
0.8
15
-22
-1.5SD
0.7
13
-37
-2.0SD
0.5
10
-51
1.6 1.4
+0.5 S.D. Avg.
1.2
-0.5 S.D. -1 S.D.
1.0 0.8
-1.5 S.D.
0.6
May-15
Jul-14
Dec-14
Feb-14
Apr-13
Sep-13
Nov-12
Jan-12
Jun-12
Aug-11
Oct-10
Mar-11
May-10
Jul-09
Dec-09
Feb-09
Apr-08
Sep-08
Nov-07
Jan-07
Jun-07
-2 S.D.
Source: Bloomberg, KT ZMICO Research
Figure 3: KTB's PER band and sensitivity of market prices based on PER at different standard deviation levels (X) 25
2015E
20
Source: Bloomberg, KT ZMICO Research
May-15
Dec-14
Jul-14
Feb-14
Sep-13
Apr-13
Nov-12
Jun-12
Jan-12
Aug-11
Mar-11
Oct-10
May-10
Dec-09
Jul-09
Nov-07
Jan-07
0
Feb-09
5
-0.5 S.D. -1 S.D. -1.5 S.D. -2 S.D.
Sep-08
10
+1 S.D. +0.5 S.D. Avg.
Apr-08
15
+2 S.D. +1.5 S.D.
Jun-07
PBV (x) Implied market
+2 S.D.
1.8
PER (x)
Implied market
Upside/ Downside
price (Bt)
to current price (%)
+2.0SD
17.5
47
137
+1.5SD
15.6
42
111
+1.0SD
13.7
37
85
+0.5SD
11.8
32
59
Average
9.8
26
33
-0.5SD
7.9
21
7
-1.0SD
6.0
16
-19
-1.5SD
4.0
11
-45
-2.0SD
2.1
6
-71
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 6
Statement of Comprehensive Income (Btmn) Year‐end 31 Dec Total Interest Income Total Interest Expenses Net Interest Income Fee and Service income Gain on exchange Other Income Total Non‐Interest Income Operating Income Personnel Expenses Premises & Equipment Exp. Other Expenses Total Operating Expenses Operating Profit Extraordinary Item Provision for Loan Losses Taxation Minority Interests Net Profit PPOP PPP EPS (Bt)
2013 111,403 46,921 64,481 15,712 4,581 7,263 27,556 92,037 22,785 7,444
2014 118,625 49,323 69,302 16,323 4,827 6,759 27,908 97,210 24,191 8,183
2015E* 135,910 55,631 80,278 19,116 4,971 9,204 33,292 113,570 27,937 9,410
2016E* 145,377 59,815 85,562 21,621 5,220 9,631 36,473 122,035 30,451 9,881
2017E* 161,910 70,441 91,470 24,888 5,637 10,309 40,834 132,304 32,583 10,276
9,357 39,586 52,185 2,294 12,311 7,923 ‐ 34,511 44,262 46,822 2.47
11,259 43,632 53,578 ‐ 13,658 6,725 (0) 33,196 46,854 46,854 2.37
13,242 50,589 62,381 ‐ 19,482 8,265 (1,026) 34,208 54,116 53,690 2.45
14,743 55,074 66,461 ‐ 18,478 9,454 (1,201) 37,828 57,006 56,306 2.71
16,333 59,192 72,613 ‐ 17,609 10,823 (1,378) 43,303 61,789 60,912 3.10
2013
2014
2015E*
2016E*
2017E*
50,690 448,583 ‐ 241,778 1,710,600 4,647 1,715,247 (61,783) 1,653,464 30,666 26,797 62,166 2,514,143
74,770 456,721 ‐ 258,495 1,952,996 5,191 1,958,187 (76,021) 1,882,166 30,733 28,116 58,141 2,789,143
56,077 502,393 ‐ 273,611 2,050,731 5,040 2,055,771 (88,353) 1,967,419 29,811 28,959 89,443 2,947,714
56,638 494,857 ‐ 297,425 2,173,874 4,908 2,178,782 (100,231) 2,078,552 28,917 29,828 95,849 3,082,066
57,205 445,372 ‐ 326,192 2,347,827 4,714 2,352,541 (110,689) 2,241,852 28,049 30,126 95,287 3,224,083
1,883,795 200,989 133,001
2,151,268 167,215 146,971
2,269,588 192,297 138,971
2,383,067 173,067 148,971
2,502,221 155,761 153,971
90,269 2,308,054
87,822 2,553,276
92,468 2,693,324
97,373 2,802,478
102,550 2,914,503
Statement of Financial Position (Btmn) Year‐end 31 Dec Assets Cash Interbank & Money Market REPO Net Investment in Securities Loans Accrued Interest Receivables Loans & Accrued Int.Rec. Less: Loan Loss Reserves Net Loans and Receivables Properties Foreclosed Premises and Equipment, Net Other Assets Total Assets Liabilities & Equity Total Deposits Interbank & Money Market Total Borrowings Other Liabilities Total Liabilities
72,005 72,005 72,005 72,005 72,005 Paid‐up Capital (Bt5.15 Par) 20,834 20,834 20,834 20,834 20,834 Premium on Share Capital Retained Earnings 99,312 119,660 140,685 164,630 193,337 Unrealized Loss on LT Securities ‐ ‐ ‐ ‐ ‐ Other Equity Items 13,939 19,644 20,866 22,119 23,405 206,089 232,142 254,389 279,588 309,581 Total Shareholders' Equity Source: KTZMICO Research *Note: The figures for 2015‐17E are based on consolidation of KTC using the consolidated accounting basis instead of the equity method as previously.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 6
Key Statistics and Ratios Year‐end 31 Dec Per share Data (Bt) EPS DPS BVPS
2013
2014
2015E*
2016E*
2017E*
2.47 0.88 14.74
2.37 0.90 16.60
2.45 0.95 18.19
2.71 1.00 20.00
3.10 1.15 22.14
Valuation analysis PER (X) P/BV (X) Dividend yield (%)
8.06 1.35 4.42
8.38 1.20 4.52
8.13 1.09 4.77
7.36 1.00 5.03
6.43 0.90 5.76
Growth (%) Net Profit EPS Net Interest Income Non Interest Income
47.7% 47.7% 10.1% 18.1%
‐3.8% ‐3.8% 7.5% 1.3%
3.0% 3.0% 15.8% 19.3%
10.6% 10.6% 6.6% 9.6%
14.5% 14.5% 6.9% 12.0%
Net Fee & Service Income Operating Income Operating Expenses Operating Profit PPOP PPP Loans ‐ Net Deposits Gross NPLs
18.9% 12.4% 12.0% 12.9% 15.9% 21.5% 12.2% 13.0% ‐7.5%
3.9% 5.6% 10.2% 2.7% 5.9% 0.1% 14.2% 14.2% 4.5%
17.1% 16.8% 15.9% 16.4% 15.5% 14.6% 5.0% 5.5% 26.4%
13.1% 7.5% 8.9% 6.5% 5.3% 4.9% 6.0% 5.0% 4.9%
15.1% 8.4% 7.5% 9.3% 8.4% 8.2% 8.0% 5.0% 0.7%
Asset Quality Ratio Gross NPLs (Btmn) Gross NPLs/Loans Loan Loss Reserve/NPLs Accrued Interest/Loans Loan Loss Reserve/Loans Property Foreclosed/Loans
55,026 57,489 72,666 76,199 76,764 2.6% 2.4% 2.9% 2.9% 2.8% 112.3% 132.2% 121.6% 131.5% 144.2% 0.3% 0.3% 0.2% 0.2% 0.2% 3.6% 3.9% 4.3% 4.6% 4.7% 1.8% 1.6% 1.5% 1.3% 1.2%
Capital & Liquidity Ratio Equity/Asset Tier I to Risk Assets Capital Adequacy Ratio Loan to Deposit Ratio Loan to Deposit and Borrowing Ratio Profitability Ratio ROA ROE Cost to Income Non Interest Income/Total Income Net Interest Margin (NIM)
8.2% 10.2% 14.8% 90.8% 84.8%
8.3% 10.9% 14.8% 90.8% 85.0%
8.6% 11.3% 14.6% 90.4% 85.1%
9.1% 12.0% 15.1% 91.2% 85.9%
9.6% 12.8% 15.5% 93.8% 88.4%
1.4% 17.9% 43.0% 29.9% 2.83%
1.3% 15.1% 44.9% 28.7% 2.73%
1.2% 14.1% 44.5% 29.3% 2.92%
1.3% 14.2% 45.1% 29.9% 2.95%
1.4% 14.7% 44.7% 30.9% 3.01%
2013 2014 2015E* 2016E* 2017E* Key Assumptions Loan Growth ‐ Net 12.2% 14.2% 5.0% 6.0% 8.0% Cost to Income 43.0% 44.9% 44.5% 45.1% 44.7% Net Interest Margin (NIM) 2.83% 2.73% 2.92% 2.95% 3.01% Provision expenses (Btmn) 12,311 13,658 19,482 18,478 17,609 Provision (% of loans) 0.72% 0.70% 0.95% 0.85% 0.75% Source: KTZMICO Research *Note: The figures for 2015‐17E are based on consolidation of KTC using the consolidated accounting basis instead of the equity method as previously.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 6
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market return over six months period because of specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to below market return over six months period because of specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 6
th
th
th
th
KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
