Krung Thai Bank
Krung Thai Bank Unrated (16E TP Bt21.00)
Earnings Review
Close Bt17.70
Banking
Beat forecast/Below forecast/In line
October 21, 2015
3Q15 earnings below forecasts on higher extra provision Price Performance (%)
Source: SET Smart Consensus EPS (Bt) KT ZMICO vs. consensus Share data Reuters / Bloomberg
FY15
FY16
2.047
2.320
5%
0.4%
KTB.BK/KTB TB 13,976.06
Paid‐up Shares (m)
5.15
Par (Bt) Market cap (Bt bn / US$ m)
247.00/6,986.00
Foreign limit / actual (%)
25.00/14.72
52 week High / Low (Bt)
24.40/16.60
Avg. daily T/O (shares 000)
51,355.00 4.49
NVDR (%) Estimated free float (%)
44.93
Beta
1.13
URL
www.ktb.co.th
CGR
Level 4 (Certified)
Anti‐corruption
Appealing valuation with P/BV already near the five‐year low band We view that the bank’s action taken on the SSI case should remove the long overhanging concern. Going forward, we view that KTB’s solid core earnings should help to reduce the impact of a potential high provisioning level. Moreover, we see KTB being one of the prime gainers from the modest economic recovery. The bank’s inexpensive valuation with current P/BV almost near its five‐year low band is another appeal. 3Q15 NP below forecast but core profit was slightly above forecast KTB’s 3Q15 net profit (NP) of Bt5.3bn was below both our forecast (Bt6.0bn) and the street estimate (Bt6.2bn), mainly on a higher‐than‐ expected extra provision as the bank set an additional extra provision of Bt700mn for NPLs in the retail segment vs. its earlier guidance of setting an extra provision of Bt6bn in 3Q15. Meanwhile, core profit before tax was slightly above forecast by 4%, driven mainly by stronger‐than‐ expected net fee income and income from trading and FX transactions. 3Q15 net profit stood at Bt5.3bn (‐42% YoY, ‐37% QoQ) The sharp drop in NP both YoY and QoQ was due largely to the bank’s move to set a huge extra provision (total of Bt6.7bn) on top of its normal level of ~Bt2.1bn/quarter, with the aim of bringing its reserve‐to‐NPL ratio above 100% after the negative impact of the SSI case. Meanwhile, NIM was slightly ahead of the forecast. Loans grew 0.2% QoQ and 1.6% YTD vs. our forecast of +3% for 2015E. NPLs excluding SSI Group increased just slightly QoQ The bank’s NPLs in 3Q15 hiked sharply QoQ to 4.03% from 2.96% due mainly to the classification of loans to SSI and SSI‐UK (~Bt23bn) as NPLs in 3Q15. However, the NPL ratio excluding the SSI Group was up just slightly QoQ to 3.05% vs. 2.96% in 2Q15. The bank’s reserve‐to‐NPL ratio in 3Q15 was lower QoQ to 103% from 125% after the SSI case. Meanwhile, its reserve to the BoT’s required reserve declined QoQ to 135% from 145%, which is still a more comfortable level in our view when compared with other banks with loan exposure to the SSI Group (i.e., SCB at 113% and TISCO at 122%). Maintain earnings forecast The 9M15 net profit of Bt21.7bn (‐14% YoY) represented 72% of our FY15 NP forecast; thus, we maintain our earnings forecast for 2015E. 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
52,032
55,249
56,149
61,008
Provision (Btmn)
12,311
18,643
25,547
23,013
22,385
Net Profit (Btmn)
34,511
33,191
30,019
32,624
37,940
2.47
2.37
2.15
2.33
2.71
EPS Growth (%)
47.7%
‐3.8%
‐9.6%
8.7%
16.3%
Book value (Bt)
21.24
EPS (Bt)
14.74
16.60
17.89
19.38
Dividend (Bt)
0.88
0.90
0.90
0.90
0.95
FY Ended 31 Dec
2013
2014
2015E
2016E
2017E
Prapharas Nonthapiboon
PER (X)
6.81
7.08
7.82
7.20
6.19
Analyst, no 17836
PBV (X)
1.14
1.01
0.94
0.87
0.79
[email protected]
Div. Yield (%) ROE (%)
5.24 17.9%
5.36 15.1%
5.36 12.4%
5.36 12.5%
5.65 13.4%
66 (0) 2695‐5872
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 4
Figure 1: 3Q15 earnings results Statement of comprehensive income (Btmn) Fiscal Year-Ended Dec.
3Q14
2Q15
3Q15 % YoY % QoQ
9M14
9M15
% YoY
2015E % YoY % 9M to 15E
Net Interest Income
20,033
20,895
20,407
2%
-2% 59,197
60,641
2%
81,214
2%
Non Interest Income
7,050
8,728
8,867
26%
2% 21,305
25,344
19%
32,701
14%
75% 78%
Operating Income
27,083
29,624
29,274
8%
-1% 80,502
85,985
7%
113,915
5%
75%
Operating Expenses
11,480
12,166
12,233
7%
1% 35,416
37,565
6%
50,653
5%
74%
Provision (Reversal)
3,984
7,515
10,453
162%
39% 13,586
21,693
60%
25,547
37%
85%
Tax expenses (Reversal)
2,110
1,259
990
-53%
-21%
5,656
4,226
-25%
6,713
-7%
63%
Net Profit
9,255
8,449
5,347
-42%
-37% 25,172
21,725
-14%
30,019
-10%
72%
13,338
15,871
16,401
23%
3% 39,010
43,813
12%
55,249
6%
79%
0.66
0.60
0.38
-42%
1.55
-14%
2.15
-10%
72%
PPOP-after tax EPS (Bt) Key Statistics & Ratios Gross NPLs (Btmn) Gross NPLs/Loans Loan Loss Reserve/NPLs
-37%
1.80
3Q14
2Q15
3Q15
9M14
9M15
68,858
67,551
91,532
68,858
91,532
3.07%
4.03%
3.49%
112.6% 102.5%
100.7%
3.07%
2.96%
4.03%
112.6%
125.2%
102.5%
2015E 81,666
Tier I to Risk Assets
11.2%
10.6%
11.7%
11.2%
11.7%
11.8%
C apital Adequacy Ratio
15.9%
14.4%
15.5%
15.9%
15.5%
14.7%
Loan to Deposit Ratio
97.4%
95.0%
95.7%
97.4%
95.7%
95.9%
Loan to Deposits & Borrowings
89.5%
90.4%
90.6%
89.5%
90.6%
90.0%
Provision to loans
0.86%
1.52%
2.11%
0.98%
1.46%
1.27%
C ost to Income
42.4%
41.1%
41.8%
44.0%
43.7%
44.5%
Non Interest Inc./Total Inc.
26.0%
29.5%
30.3%
26.5%
29.5%
28.7%
Net Interest Margin
3.21%
3.10%
3.11%
3.18%
3.02%
3.06%
Tax rate
18.2%
12.7%
15.0%
17.9% 15.09%
17.8%
Loan growth -YoY
10.2%
6.4%
7.1%
10.2%
7.1%
Loan growth -QoQ
-0.4%
1.3%
0.2%
-0.4%
0.2%
3.0%
Source: KTZMICO Research
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
PBV (x) Implied market
+2 S.D.
1.8
+1.5 S.D. +1 S.D.
1.6 1.4
+0.5 S.D. Avg. -0.5 S.D.
1.2
Upside/ Downside
price (Bt)
to current price (%)
+2.0SD
1.8
31
80
+1.5SD
1.6
29
64 48
+1.0SD
1.5
26
-1 S.D.
+0.5SD
1.3
23
33
-1.5 S.D.
Average
1.1
20
17
0.4
-0.5SD
1.0
18
1
0.2
-1.0SD
0.8
15
-14
-1.5SD
0.7
12
-30
-2.0SD
0.5
9
-46
1.0
Source: Bloomberg, KT ZMICO Research
Oct-15
Apr-15
Jun-14
Nov-14
Jul-13
Jan-14
Feb-13
Sep-12
Oct-11
Apr-12
May-11
Jul-10
Dec-10
Jan-10
Aug-09
Oct-08
Mar-09
Apr-08
Nov-07
-2 S.D.
Jan-07
0.6
Jun-07
0.8
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 4
Figure 3: KTB's PER band and sensitivity of market prices based on PER at different standard deviation levels (X) 2.0
2015E
PER (x)
Implied market
Upside/ Downside
+2.0SD
17.4
price (Bt)
to current price (%)
37
+1.5SD
113
15.5
33
90
+1.0SD
13.6
29
67
-1 S.D.
+0.5SD
11.7
25
44
-1.5 S.D.
Average
9.8
21
21
0.4
-0.5SD
7.9
17
-3
0.2
-1.0SD
6.1
13
-26
-1.5SD
4.2
9
-49
-2.0SD
2.3
5
-72
+2 S.D.
1.8
+1.5 S.D. +1 S.D.
1.6 1.4
+0.5 S.D. Avg. -0.5 S.D.
1.2 1.0 0.8 0.6
Source: Bloomberg, KT ZMICO Research
Oct-15
Apr-15
Jun-14
Nov-14
Jul-13
Jan-14
Feb-13
Sep-12
Oct-11
Apr-12
May-11
Jul-10
Dec-10
Jan-10
Aug-09
Oct-08
Mar-09
Apr-08
Nov-07
Jan-07
Jun-07
-2 S.D.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 4
Note: KT ZMICO is a partnership between KTB and ZMICO. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, KBS, PSL, SVH, VNG, ZMICO, CPI . KT ZMICO is a financial advisor for U, LOXLEY, SUTHA, ZMICO, MAKRO, CPALL, PLE, SAFARI, PACE, TPOLY, TFG. KT ZMICO is a co‐underwriter of KOOL, ORI, SCI, SR.
Anti‐corruption Progress Indicator
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes 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 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 Insufficient or not clearly defined policy Data not available / no policy
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 returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to 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 4 of 4
Earnings Review
Close Bt17.70
Banking
Beat forecast/Below forecast/In line
October 21, 2015
3Q15 earnings below forecasts on higher extra provision Price Performance (%)
Source: SET Smart Consensus EPS (Bt) KT ZMICO vs. consensus Share data Reuters / Bloomberg
FY15
FY16
2.047
2.320
5%
0.4%
KTB.BK/KTB TB 13,976.06
Paid‐up Shares (m)
5.15
Par (Bt) Market cap (Bt bn / US$ m)
247.00/6,986.00
Foreign limit / actual (%)
25.00/14.72
52 week High / Low (Bt)
24.40/16.60
Avg. daily T/O (shares 000)
51,355.00 4.49
NVDR (%) Estimated free float (%)
44.93
Beta
1.13
URL
www.ktb.co.th
CGR
Level 4 (Certified)
Anti‐corruption
Appealing valuation with P/BV already near the five‐year low band We view that the bank’s action taken on the SSI case should remove the long overhanging concern. Going forward, we view that KTB’s solid core earnings should help to reduce the impact of a potential high provisioning level. Moreover, we see KTB being one of the prime gainers from the modest economic recovery. The bank’s inexpensive valuation with current P/BV almost near its five‐year low band is another appeal. 3Q15 NP below forecast but core profit was slightly above forecast KTB’s 3Q15 net profit (NP) of Bt5.3bn was below both our forecast (Bt6.0bn) and the street estimate (Bt6.2bn), mainly on a higher‐than‐ expected extra provision as the bank set an additional extra provision of Bt700mn for NPLs in the retail segment vs. its earlier guidance of setting an extra provision of Bt6bn in 3Q15. Meanwhile, core profit before tax was slightly above forecast by 4%, driven mainly by stronger‐than‐ expected net fee income and income from trading and FX transactions. 3Q15 net profit stood at Bt5.3bn (‐42% YoY, ‐37% QoQ) The sharp drop in NP both YoY and QoQ was due largely to the bank’s move to set a huge extra provision (total of Bt6.7bn) on top of its normal level of ~Bt2.1bn/quarter, with the aim of bringing its reserve‐to‐NPL ratio above 100% after the negative impact of the SSI case. Meanwhile, NIM was slightly ahead of the forecast. Loans grew 0.2% QoQ and 1.6% YTD vs. our forecast of +3% for 2015E. NPLs excluding SSI Group increased just slightly QoQ The bank’s NPLs in 3Q15 hiked sharply QoQ to 4.03% from 2.96% due mainly to the classification of loans to SSI and SSI‐UK (~Bt23bn) as NPLs in 3Q15. However, the NPL ratio excluding the SSI Group was up just slightly QoQ to 3.05% vs. 2.96% in 2Q15. The bank’s reserve‐to‐NPL ratio in 3Q15 was lower QoQ to 103% from 125% after the SSI case. Meanwhile, its reserve to the BoT’s required reserve declined QoQ to 135% from 145%, which is still a more comfortable level in our view when compared with other banks with loan exposure to the SSI Group (i.e., SCB at 113% and TISCO at 122%). Maintain earnings forecast The 9M15 net profit of Bt21.7bn (‐14% YoY) represented 72% of our FY15 NP forecast; thus, we maintain our earnings forecast for 2015E. 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
52,032
55,249
56,149
61,008
Provision (Btmn)
12,311
18,643
25,547
23,013
22,385
Net Profit (Btmn)
34,511
33,191
30,019
32,624
37,940
2.47
2.37
2.15
2.33
2.71
EPS Growth (%)
47.7%
‐3.8%
‐9.6%
8.7%
16.3%
Book value (Bt)
21.24
EPS (Bt)
14.74
16.60
17.89
19.38
Dividend (Bt)
0.88
0.90
0.90
0.90
0.95
FY Ended 31 Dec
2013
2014
2015E
2016E
2017E
Prapharas Nonthapiboon
PER (X)
6.81
7.08
7.82
7.20
6.19
Analyst, no 17836
PBV (X)
1.14
1.01
0.94
0.87
0.79
[email protected]
Div. Yield (%) ROE (%)
5.24 17.9%
5.36 15.1%
5.36 12.4%
5.36 12.5%
5.65 13.4%
66 (0) 2695‐5872
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 4
Figure 1: 3Q15 earnings results Statement of comprehensive income (Btmn) Fiscal Year-Ended Dec.
3Q14
2Q15
3Q15 % YoY % QoQ
9M14
9M15
% YoY
2015E % YoY % 9M to 15E
Net Interest Income
20,033
20,895
20,407
2%
-2% 59,197
60,641
2%
81,214
2%
Non Interest Income
7,050
8,728
8,867
26%
2% 21,305
25,344
19%
32,701
14%
75% 78%
Operating Income
27,083
29,624
29,274
8%
-1% 80,502
85,985
7%
113,915
5%
75%
Operating Expenses
11,480
12,166
12,233
7%
1% 35,416
37,565
6%
50,653
5%
74%
Provision (Reversal)
3,984
7,515
10,453
162%
39% 13,586
21,693
60%
25,547
37%
85%
Tax expenses (Reversal)
2,110
1,259
990
-53%
-21%
5,656
4,226
-25%
6,713
-7%
63%
Net Profit
9,255
8,449
5,347
-42%
-37% 25,172
21,725
-14%
30,019
-10%
72%
13,338
15,871
16,401
23%
3% 39,010
43,813
12%
55,249
6%
79%
0.66
0.60
0.38
-42%
1.55
-14%
2.15
-10%
72%
PPOP-after tax EPS (Bt) Key Statistics & Ratios Gross NPLs (Btmn) Gross NPLs/Loans Loan Loss Reserve/NPLs
-37%
1.80
3Q14
2Q15
3Q15
9M14
9M15
68,858
67,551
91,532
68,858
91,532
3.07%
4.03%
3.49%
112.6% 102.5%
100.7%
3.07%
2.96%
4.03%
112.6%
125.2%
102.5%
2015E 81,666
Tier I to Risk Assets
11.2%
10.6%
11.7%
11.2%
11.7%
11.8%
C apital Adequacy Ratio
15.9%
14.4%
15.5%
15.9%
15.5%
14.7%
Loan to Deposit Ratio
97.4%
95.0%
95.7%
97.4%
95.7%
95.9%
Loan to Deposits & Borrowings
89.5%
90.4%
90.6%
89.5%
90.6%
90.0%
Provision to loans
0.86%
1.52%
2.11%
0.98%
1.46%
1.27%
C ost to Income
42.4%
41.1%
41.8%
44.0%
43.7%
44.5%
Non Interest Inc./Total Inc.
26.0%
29.5%
30.3%
26.5%
29.5%
28.7%
Net Interest Margin
3.21%
3.10%
3.11%
3.18%
3.02%
3.06%
Tax rate
18.2%
12.7%
15.0%
17.9% 15.09%
17.8%
Loan growth -YoY
10.2%
6.4%
7.1%
10.2%
7.1%
Loan growth -QoQ
-0.4%
1.3%
0.2%
-0.4%
0.2%
3.0%
Source: KTZMICO Research
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
PBV (x) Implied market
+2 S.D.
1.8
+1.5 S.D. +1 S.D.
1.6 1.4
+0.5 S.D. Avg. -0.5 S.D.
1.2
Upside/ Downside
price (Bt)
to current price (%)
+2.0SD
1.8
31
80
+1.5SD
1.6
29
64 48
+1.0SD
1.5
26
-1 S.D.
+0.5SD
1.3
23
33
-1.5 S.D.
Average
1.1
20
17
0.4
-0.5SD
1.0
18
1
0.2
-1.0SD
0.8
15
-14
-1.5SD
0.7
12
-30
-2.0SD
0.5
9
-46
1.0
Source: Bloomberg, KT ZMICO Research
Oct-15
Apr-15
Jun-14
Nov-14
Jul-13
Jan-14
Feb-13
Sep-12
Oct-11
Apr-12
May-11
Jul-10
Dec-10
Jan-10
Aug-09
Oct-08
Mar-09
Apr-08
Nov-07
-2 S.D.
Jan-07
0.6
Jun-07
0.8
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 4
Figure 3: KTB's PER band and sensitivity of market prices based on PER at different standard deviation levels (X) 2.0
2015E
PER (x)
Implied market
Upside/ Downside
+2.0SD
17.4
price (Bt)
to current price (%)
37
+1.5SD
113
15.5
33
90
+1.0SD
13.6
29
67
-1 S.D.
+0.5SD
11.7
25
44
-1.5 S.D.
Average
9.8
21
21
0.4
-0.5SD
7.9
17
-3
0.2
-1.0SD
6.1
13
-26
-1.5SD
4.2
9
-49
-2.0SD
2.3
5
-72
+2 S.D.
1.8
+1.5 S.D. +1 S.D.
1.6 1.4
+0.5 S.D. Avg. -0.5 S.D.
1.2 1.0 0.8 0.6
Source: Bloomberg, KT ZMICO Research
Oct-15
Apr-15
Jun-14
Nov-14
Jul-13
Jan-14
Feb-13
Sep-12
Oct-11
Apr-12
May-11
Jul-10
Dec-10
Jan-10
Aug-09
Oct-08
Mar-09
Apr-08
Nov-07
Jan-07
Jun-07
-2 S.D.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 4
Note: KT ZMICO is a partnership between KTB and ZMICO. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, KBS, PSL, SVH, VNG, ZMICO, CPI . KT ZMICO is a financial advisor for U, LOXLEY, SUTHA, ZMICO, MAKRO, CPALL, PLE, SAFARI, PACE, TPOLY, TFG. KT ZMICO is a co‐underwriter of KOOL, ORI, SCI, SR.
Anti‐corruption Progress Indicator
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes 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 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 Insufficient or not clearly defined policy Data not available / no policy
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 returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to 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 4 of 4
