banks neutral (from underweight) · 2014. 4. 29. · see important disclosures at the end of this...

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Billion & Below, 28 April 2014

Banks Neutral (from Underweight)

A play on the economic recovery Macro

Risks

Growth

Value

Veena Naidu License No. 24418, 66 2862 9752 [email protected]

Source: Company data, RHB estimates

We upgrade our banking sector call to NEUTRAL (from Underweight). Thailand’s GDP is expected to bottom out in 1Q14 and the THB600bn in BOI investments to be approved over 2Q14 should kick-start the private investment climate. The policy rate remains low on benign inflationary pressure. A compromise solution to the political impasse will be an added catalyst. We have upgraded Kasikornbank, Krung Thai Bank and Kiatnakin Bank to BUYs.

♦ Economic indicators are expected to bottom out in 1H14. After the 2014 GDP growth was revised to 1.9%, our economist forecasted on a y-o-y growth of 0.2% and 1.8% for 1Q and 2Q respectively. Subsequently, 3Q and 4Q is expected to see +2.7% and +3.1% y-o-y GDP growth respectively. We expect no contraction in y-o-y GDP growth. In q-o-q terms, however, GDP is expected to contract 0.7% in 1Q and 3.0% in 2Q before stabilising to +0.5% in 3Q and accelerating to 6.4% in 4Q. We are forecasting GDP growth of 4% for 2015 and 4.5% for 2016.

♦ The Government has approved the appointment of the Board of Investment of Thailand (BOI). The BOI is expected to expedite the processing of nearly 400 pending projects with a combined value of THB660bn. This is expected to improve the investment climate and contribute to the country's economy. The BOI's THB800bn-900bn total investment value target for 2014 can likely be achieved.

♦ The Bank of Thailand's (BOT) monetary policy committee (MPC) has kept the 1-day bilateral repurchase rate unchanged at a 3-year low of 2.00%. This was announced on 23 April and came after a 25bps cut from the last meeting, which was held on 12 March. The BOT is of the opinion that the prolonged political uncertainties are the main cause for the higher downside risk to growth while financial conditions remain accommodative and are conducive to domestic spending. We maintain our expectations of a further 25-50bps reduction in the policy rate for the rest of this year.

♦ An additional catalyst could be a compromise solution to the ongoing political problem. A constructive solution would be for the calling of a new general election, which would be held around the third week of June with the new government being formed 45 days after the election. The Shinawat family has indicated that its members, including current Prime Minister Yingluck Shinawatra, may take a break from their involvement in Thai politics for a while and may not stand for election. Under this scenario, this could mean Thailand could have a functional government by the fourth quarter of 2014.

P/E (x) P/B (x) Yield (%) Dec-14F Dec-14F Dec-14F

Bangkok Bank THB188 THB215 9.6 1.1 4.2 BUY Kasikornbank THB187 THB220 10.1 1.8 2.0 BUY Kiatnakin Bank THB45 THB57 10.6 1.0 4.7 BUY Krung Thai Bank THB18 THB21 7.2 1.1 6.3 BUY Siam Commercial Bank THB164 THB177 10.4 2.0 3.6 NEUTRAL Thanachart Capital PCL THB34 THB34 8.5 0.9 - SELL TISCO Financial Group PCL THB42 THB41 8.0 1.4 - SELL

Company Name Price Target Rating

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Banks 28 April 2014

See important disclosures at the end of this report 2

Following 1Q14 banking earnings results, which totalled THB50bn, or 25% of our FY14 forecasts, we maintain our banking earnings but upgrade Kasikornbank (KBANK TB, TP: THB220.00), Krung Thai Bank (KTB TB, TP: THB25.50) and Kiatnakin Bank (KKP TB, TP: THB56.90) to BUYs.

We upgraded Kasikornbank after a resilient 1Q14. The new TP is pegged to a 2.2x P/BV (+1.5SD to its mean P/BV). The bank’s 1Q14 net profit of THB11.9bn was above our and consensus projections, at 27% of our FY14 earnings forecast. Our economist estimates 2015 GDP growth to rebound to 4% from the low of 1.9% in 2014. This rebound could lead to higher loans and fee income growth, with an upside risk to 2015 earnings.

Kiatnakin Bank’s new TP is pegged at +2SD to its 1.3x long-term mean P/BV. The bank is trading at a cheap 1.0x P/BV valuation with a 5% dividend yield and its business operations are highly geared to the turnaround in Thailand’s economy and stock market. We expect higher brokerage income and investment bank business to be Kiatnakin Bank’s main earnings turnaround driver starting 2H14.

Krung Thai Bank’s new TP is pegged at 1.25x P/BV. Despite the worsening economic conditions, the bank is expected to deliver 14-15% ROEs. The stock is trading at extremely cheap valuations, which is a 10% discount to its 2014 P/BV and 10% below its mean P/Es of 7.3x and 6.7x for its earnings in 2014F and 2015F.

At the microeconomic level, Thai banks’ earnings are expected to bottom out in 1H14. Net profit in 1Q14 totalled THB49.85bn, representing 24.8% of our FY14 forecast. We are forecasting for 2.1% earnings growth in 2014 for the banks under our coverage. Thus, earnings this year are expected to be resilient. NPL coverage ratio remains high at 134%, with NPL at a controllable level of 3% of total loans. We expect earnings to rebound in 2015, growing 8% y-o-y on the back of: i) a pick-up in loans growth in the 8-9% range, ii) fee income growth of 10%, and iii) lower credit costs of about 100 bps.

♦ Loan growth was dismal in 1Q14, expanding just 0.6% YTD. Loan demand will remain weak in 2Q14, but should post a moderate rebound in 2H14 following the BOI’s approvals of private investment projects over the next 3-4 months. Y-o-y loan growth in 1Q14 was 8.8%. We are forecasting for FY14’s loan growth of 5-6% vs 10.5% in 2013.

♦ The Thai banking sector’s net interest margin in 1Q14 remained healthy at 3.1% vs 3.33% in 2013. Following the policy rate cut by the BOT, Thai banks were able to reduce both lending and savings rates, which helped cushion their margins.

♦ The banking sector’s ROE bottomed out at 16.5% in 1Q14 vs FY13’s ROE of 17.7%. We expect Thai banks’ ROEs to average around 14-16% in 2014.

♦ Non-interest income declined 12% y-o-y in 1Q14 and should continue to be weak in 1H14 as fees related to loans are modest. Thai banks have been cautious in lending to the housing and auto sectors, while corporate loan demand was weak. However, we expect fees to grow, in line with the anticipated higher loan demand in 2H14.

♦ The NPL level was manageable at 3% as at 1Q14 vs 2.9% at the end of last year.

♦ Credit cost averaged 82bps in 1Q14. We are forecasting for credit costs in the 105-110bps range for FY14 vs 2013’s 110bps. Thus, we estimate that provisions could move higher over the next two quarters.


Company Update, 28 April 2014

Bangkok Bank (BBL TB) Buy (Maintained) Financial Services - Banks Target Price: THB215 Market Cap: USD11,144m Price: THB189

Buffer From High NPL Coverage Macro

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Bangkok Bank (BBL TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

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Source: Bloomberg

Avg Turnover (THB/USD) 1,123m/34.6m Cons. Upside (%) 15.3 Upside (%) 13.8 52-wk Price low/high (THB) 166 - 230 Free float (%) 63 Share outstanding (m) 1,909 Shareholders (%) Thai NVDR CoLtd 31.1 State Street Bank And Trust 4.4 Share Performance (%) YTD 1m 3m 6m 12m Absolute 6.2 8.0 6.2 (7.8) (15.6) Relative (3.3) 2.6 (2.0) (4.8) (7.1) Shariah compliant Veena Naidu License No. 24418, 66 2862 9752 [email protected]

Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15FNet interest income (THBm) 52,696 54,953 55,879 69,010 72,223Reported net profit (THBm) 27,338 33,021 35,906 37,465 39,759Net profit growth (%) 11.2 20.8 8.7 4.3 6.1Recurring net profit (THBm) 26,123 33,021 35,906 37,465 39,759Recurring EPS (THB) 13.7 17.3 18.8 19.6 20.8DPS (THB) 6.07 6.50 7.52 7.85 8.33Recurring P/E (x) 13.8 10.9 10.0 9.6 9.1P/B (x) 1.48 1.32 1.22 1.14 1.06Dividend Yield (%) 3.2 3.4 4.0 4.2 4.4Return on average equity (%) 11.5 12.8 12.6 12.2 12.1Return on average assets (%) 1.3 1.5 1.4 1.4 1.4Our vs consensus EPS (adjusted) (%) 0.0 0.0


Despite short-term headwinds from deteriorating economic activities and lower loan growth, we believe Bangkok Bank’s strong capital base (14.4% tier-1 ratio), THB300bn excess liquidity (one-third of assets and extra THB56bn in provisions over Bank of Thailand’s requirements), 21% NPL coverage and low 2.2% NPL ratio will cushion the downside. Maintain BUY, TP fine-tuned to THB215 pegged to 1.3x FY14F P/BV.

♦ Bangkok Bank reported 1Q14 net profit of THB8.9bn +16.6% q-o-q, -0.5% y-

o-y. Net interest margin (NIM) of 2.48%, remains flat q-o-q. The bank expects FY14 net interest margin to decline slightly to 2.4%. Provisions totalled THB2.1bn, +20.8% y-o-y. This is in tandem with the rise in NPLs to 2.5% (from 2.4%). Expense to operating income ratio dropped 6ppts q-o-q to 46% from 52%, due to seasonality. The bank maintains its FY14 target cost to income ratio of 42%, similar to 2013’s level.

♦ Operations are stable q-o-q on all fronts. Loans and deposits remained flat q-o-q, with the loan-deposit ratio (LDR) steady at 90.3%. There was demand for working capital loans in the corporate sector, while loans for investments remain muted. Bangkok Bank maintains its FY14 loan growth target at 5%, but expects 3% loan growth under the worst-case scenario.

♦ Fee income flat q-o-q. Bangkok Bank targets fee income growth of 10% for FY14, as it expects fees to pick up in 2H14. In 1Q14, fees grew 3.9% q-o-q, due to bank assurance and mutual funds-related fees. Loans-related fees were weak in 1Q14. Trade finance fees picked up in line with improving exports, while forex income saw a substantial increase of 48.3% y-o-y, a one-time gain.

♦ NPLs increased slightly to 2.5% of total loans. The bank keeps FY14 total provisions at THB8bn-8.5bn or about THB2bn-2.1bn a quarter. It expects credit cost to be maintained at 40bps to total loans. Its NPL coverage remains stable at 216% of NPLs.

♦ Bangkok Bank will see stable earnings in 2014 supported by 4-5% loan growth, 10% fee income growth and stable credit cost at 40bps due to stable NPLs. Due to its higher NPL coverage of over 200%, we expect Bangkok Bank will be able to handle the slowdown in economic activities without any severe impact to its earnings. We maintain BUY, target price fine-tuned to THB215 (from THB212) pegged to 1.3x FY14F P/BV.

http://www.efa.biz/

Bangkok Bank (BBL TB) 28 April 2014


Figure 1: BBL’s Forward PE Figure 2: BBL’s Forward P/BV

Source: RHB estimates Source: RHB estimates

Figure 3: BBL’s quarterly performance % chg % chg

Unit: THBm 1Q13 2Q13 3Q13 4Q13 1Q14 q-o-q y-o-y FY12 FY13 % chgRevenue 35,431 36,379 35,105 35,167 36,305 3.2% 2.5% 113,598 142,082 25.1% Interest income - net 24,624 24,857 25,230 25,694 25,834 0.5% 4.9% 76,631 100,405 31.0% Non-interest income 10,807 11,755 10,248 9,937 10,610 6.8% -1.8% 36,967 42,748 15.6% Gain (loss) on investments 1,070 916 556 53- 485 -1017.2% -54.7% 1,140 2,489 118.2% Fees and service income 7,121 7,358 7,037 6,876 7,145 3.9% 0.3% 25,625 28,393 10.8% Gain on exchanges 1,280 1,396 1,491 1,629 1,899 16.5% 48.3% 5,001 5,796 15.9% Other income 1,337 2,085 1,163 1,485 1,082 -27.1% -19.1% 5,201 6,070 16.7%Non-interest expense 11,514 9,776 11,512 12,314 11,352 -7.8% -1.4% 44,020 45,116 2.5% Personnel expenses 5,343 5,057 5,231 5,189 5,421 4.5% 1.5% 18,897 20,821 10.2% PP&E expenses 2,114 2,380 2,049 2,371 2,143 -9.6% 1.3% 7,341 8,913 21.4% Taxes and duties 841 805 858 813 904 11.1% 7.5% 4,967 3,318 -33.2% Fees and service expenses 1,902 1,667 1,830 1,755 1,939 10.5% 1.9% 6,520 7,154 9.7% Other expenses 1,313 133- 1,544 2,185 945 -56.8% -28.0% 6,295 4,909 -22.0%

Pre-provision profit 23,917 26,836 23,966 23,318 25,093 7.6% 4.9% 69,578 98,037 40.9%Provision (reverse) 1,741 3,379 1,736 1,737 2,103 21.1% 20.8% 7,248 8,593 18.6%Income tax 2,387 2,252 2,209 2,034 2,222 9.2% -6.9% 7,493 8,882 18.5%Minority interest 27 34 30 39 36 -8.8% 30.4% 68 130 90.9%Net profit 9,014 10,250 8,955 7,686 8,965 16.6% -0.5% 33,090 35,906 8.5%EPS (THB/sh) 4.7 5.4 4.7 4.0 4.7 16.6% -0.5% 17.3 18.8 8.5%No. of common share (m share) 1,909 1,909 1,909 1,910 1,911 Book value (THB/sh) 149 148 150 155 157

Key figures & ratios Total loan (THBm) 1,596,303 1,670,712 1,688,653 1,757,915 1,750,257 1,608,726 1,757,915 - grow th - y-o-y (%) 5.4% 8.1% 8.6% 9.3% 9.6% 9.0% 9.3% - grow th - q-o-q (%) -0.8% 4.7% 1.1% 4.1% -0.4%

Deposit grow th 1,931,001 1,975,338 1,975,298 2,075,420 2,071,522 1,943,412 2,075,420 - grow th - y-o-y (%) 9.5% 12.9% 5.2% 6.8% 7.3% 14.0% 6.8%

- grow th - q-o-q (%) -0.6% 2.3% 0.0% 5.1% -0.2%

NPL (THBm) 43,393 44,524 46,002 42,653 43,870 42,325 42,653 NPLs/Loans (%) 2.7% 2.7% 2.7% 2.43% 2.51% 2.6% 2.4%NPL coverage (%) 203% 206% 204% 217% 216% 206.9% 217.1%Credit cost 44 81 41 40 48 62 40

Net interest margin (NIM) 2.47% 2.45% 2.41% 2.50% 2.48% 2.5% 2.5%Cost to income ratio 47% 38% 47% 52% 46% 52.6% 51.7%LDR (including borrow ing) 81% 84% 85% 85% 85% 82.1% 85.4%ROAA (%) 2.3% 2.7% 2.1% 0.5% 0.6% 1.9% 0.5%ROAE (%) 13.4% 15.3% 13.1% 12.0% 13.3% 12.8% 12.0%

Source: RHB estimates, Company data



Kasikornbank (KBANK TB) Buy (from Neutral) Financial Services - Banks Target Price: THB220 Market Cap: USD13,835m Price: THB187

Earnings Outperform Peers Macro

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Kasikornbank Plc (KBANK TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

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Source: Bloomberg

Avg Turnover (THB/USD) 1,161m/35.7m Cons. Upside (%) 10.2 Upside (%) 18.0 52-wk Price low/high (THB) 146 - 221 Free float (%) 69 Share outstanding (m) 2,393 Shareholders (%) Thai NVDR Co Ltd 28.7 State Street Bank and Trust 7.9 State Street Bank Europe 4.5 Share Performance (%) YTD 1m 3m 6m 12m Absolute 19.6 9.1 6.3 0.3 (10.3) Relative 11.2 5.1 (0.8) 3.5 0.3 Shariah compliant Veena Naidu License No. 24418, 66 2862 9752 [email protected]



After a resilient 1Q14, we upgrade Kasikornbank to a BUY. Our new THB220 TP is pegged to a 2.2x P/BV (+1.5SD to its mean P/BV). Its 1Q14 net profit of THB11.9bn was above our and consensus projections, at 27% of our FY14F earnings. Our economist forecasts 2015 GDP growth to rebound to 4% from the low of 1.9% in 2014. The rebound in GDP will lead to higher loan and fee income growth, with an upside risk to 2015 earnings.

♦ 1Q14 earnings rose 18% y-o-y, supported by 13% and 18% annual increases in net interest income and non-interest income respectively. Despite weak loan-related fees, the bank continued to see strong growth in fees recorded by its forex and bancassurance business. The bank forecasts fee income growth of 12-13% vs 15% previously, due to weakened loan growth and economic activities.

♦ Loans grew 0.8% in 1Q14 with NIM at 3.6% vs 3.7% as at Dec 2013. Its net interest margin (NIM) remained strong as high funding costs were replaced by lower-yield deposits. Also, due to excess liquidity in the system, there was no intense competition for deposits amongst banks.

♦ NPLs remain stable at 2.3% of total loans. Asset quality has deteriorated marginally but is expected to be within 2.2-2.3% of total loans vs non-performing loans (NPL)’ 2.13% at end-2013. However, the bank increased its credit costs to 100 bps in 1Q14 to provide for the rise in special mention loans. It still expects credit costs for FY14 to be at 85 bps. NPL coverage ratio rose to 138% from 135% as at 1Q14.

♦ Kasikornbank is one of the strongest banks in terms capital ratios and ROE. Its Tier-1 ratio is high, at 12.5%, with its total capital adequacy ratio (CAR) at 16.7%. ROE in 1Q14 stood at 22.3%.

♦ Upside risks to our FY15F earnings. Our economist is forecasting GDP growth for 2015 to rebound to 4% from the low of 1.9% in 2014. The rebound in GDP will lead to higher loan growth and fee income growth. Our current 2015 earnings estimate is based on a conservative assumptions, ie loan growth of 6-7% and fee income growth of 10%.

http://www.efa.biz/

Kasikornbank (KBANK TB) 28 April 2014


Figure 1: KBANK’s quarterly performance




Kiatnakin Bank (KKP TB) Buy (from Neutral) Financial Services - Banks Target Price: THB56.90 Market Cap: USD1,161m Price: THB44.80

Capital Market Key To Recovery In 2H14 Macro

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Kiatnakin Bank (KKP TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

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Source: Bloomberg

Avg Turnover (THB/USD) 53.8m/1.66m Cons. Upside (%) 8.7 Upside (%) 27.2 52-wk Price low/high (THB) 35.0 - 70.5 Free float (%) 66 Share outstanding (m) 840 Shareholders (%) Watanavakin Family 23.6 PHATRA's mgt and employee 10.3 Share Performance (%) YTD 1m 3m 6m 12m Absolute 20.1 5.9 20.1 2.9 (34.4) Relative 10.6 0.5 11.9 5.9 (25.9) Shariah compliant Veena Naidu License No. 24418, 66 2862 9752 [email protected]

Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15FNet interest income (THBm) 6,476 7,113 8,347 8,089 8,459Reported net profit (THBm) 2,859 3,391 4,418 3,534 4,301Net profit growth (%) 0.7 18.6 30.3 (20.0) 21.7Recurring net profit (THBm) 2,859 3,391 4,418 3,534 4,301Recurring EPS (THB) 4.76 4.62 5.29 4.21 5.13DPS (THB) 0.00 0.00 0.00 2.11 2.56Recurring P/E (x) 9.4 9.7 8.5 10.6 8.7P/B (x) 1.19 1.13 1.07 1.04 0.97Dividend Yield (%) 0.0 0.0 0.0 4.7 5.7Return on average equity (%) 12.8 11.9 13.0 9.9 11.5Return on average assets (%) 1.7 1.6 1.8 1.1 1.0Our vs consensus EPS (adjusted) (%) 0.0 0.0


We upgrade Kiatnakin Bank to a BUY with a new THB56.90 TP pegged at +2SD to its 1.3x long-term mean P/BV. The bank is trading at a cheap 1.0x P/BV valuation with a 5% dividend yield and its business operations are highly geared to the turnaround in Thailand’s economy and stock market. We expect higher brokerage income and investment bank business to be the main earnings turnaround driver starting 2H14.

♦ Kiatnakin Bank’s investment portfolio size is THB10bn. It comprises of around THB2.5bn in direct investment and about THB5bn in systematic trading. The improving capital market conditions are expected to lift investment gains. Thus, Kiatnakin Bank’s investment banking business is expected to pick up in 2H14. Note that Investment and brokerage fee incomes accounted for 34% and 37% of the capital market’s business respectively.

♦ Toning down auto loans growth. Kiatnakin Bank’s focus has shifted away slightly from auto loans. It is now looking at investment banking-linked corporate and small and medium enterprise (SME) loans. Management has revised downwards its 2014 loan growth target to 9% from 21%. Excluding corporate banking loans, Kiatnakin Bank expects loan growth to come in at 4-5%. The commercial banking and capital market segments accounted for 81% and 19% of total revenue respectively.

♦ Non-performing loans (NPL) continues to trend up. 1Q14’s NPL rose to 4.2% from 3.8% as at Dec 2013, jumping 13.7% q-o-q and 45% y-o-y. Accordingly, provisions spiked up 40% q-o-q and 30% y-o-y. The bank’s NPL are mainly from the auto and real estate segments, with loans to the former being the biggest drag on revenue and provisions. We expect NPL to peak in 1H14, as there are signs of improving presales in the residential property market. The domestic car sales market should also bottom out in 1H14. Car sales in 2012 and 2013 stood at 1.4m and 1.3m respectively. In 2014, sales of 700,000-800,000 are expected.

♦ Our earnings forecast is based at the bottom end of the 10% ROE. Kiatnakin Bank is forecasting on 13%. Hence, with GDP growth expected to rebound to 4% in 2015, our earnings forecast for next year have upside risks.

http://www.efa.biz/

2

Figure 1: KKP’s quarterly performance

% chg % chg % chg Unit : THB m 1Q13 2Q13 3Q13 4Q13 1Q14 q-o-q y-o-y 2012 2013 y-o-y Interest income-net 1,904 2,198 2,144 2,101 2,183 4% 15% 7,113 8,348 17%Non-interest income 2,082 1,908 1,127 1,526 926 -39% -56% 4,697 6,644 41% Gain (loss) disposal/investment 644 247 119 70 171 145% -73% 669 1,079 61% Gain (loss) on revaluation 186 39 188- 207 291- -241% -256% 1,224 245 -80% Fees and services income 1,141 1,466 1,056 1,175 930 -21% -18% 2,573 4,838 88% Other income 110 157 140 75 115 54% 4% 231 482 108%Non-interest expenses 1,947 1,850 1,708 1,855 1,628 -12% -16% 6,222 7,360 18% Personnel expenses 1,143 1,022 930 936 919 -2% -20% 3,035 4,031 33% Premises and equipment exp. 276 279 282 288 258 -10% -6% 1,026 1,126 10% Taxes and duties 78 85 79 105 79 -25% 1% 292 347 19% Fee expenses 126 131 120 104 114 10% -9% 288 481 67% Directors’ remuneration 8 3 3 3 11 242% 37% 19 18 -3% Other expenses 316 329 293 419 246 -41% -22% 1,561 1,357 -13%Pre-provision profit 2,039 2,257 1,564 1,772 1,480 -16% -27% 5,588 7,632 37%Provision 596 747 343 554 777 40% 30% 1,555 2,240 44%Income tax 277 264 226 185 1- -100% -100% 605 951 57%Minority interest 3.8 8.4 4.8 4.7 4.2 -11% 10% 36 22 -41%Net income 1,162 1,237 990 1,029 700 -32% -40% 3,391 4,418 30%EPS(THB) 1.39 1.48 1.18 1.23 0.83 -32% -40% 4.60 5.29 15%

Key figures and ratios

No. of share (m share) 834 835 836 839 839 833 839 Book value (THB) 41.0 40.5 40.5 41.7 42.9 39.5 41.7

Unit : THBbn 1Q13 2Q13 3Q13 4Q13 1Q14 2012 2013

NPLs-gross 5,727 6,362 6,459 7,283 8,276 5,628 7,283 NPLs-gross/Loans (%) 3.23% 3.47% 3.44% 3.80% 4.17% 3.3% 3.8%NPL coverage 115% 111% 110% 100% 91% 110% 100%Credit cost 1.3% 1.6% 0.7% 1.2% 1.6% 1.0% 1.2%

Asset yield (%) 6.9% 6.9% 6.6% 6.7% 6.6% 7.2% 6.8%Funding cost 4.10% 3.79% 3.77% 3.90% 3.70% 4.4% 3.9%NIM 3.9% 4.2% 4.0% 4.0% 3.8% 3.9% 4.0%

Cost to income ratio (%) 49% 45% 52% 51% 52% 53% 49%LDR 109% 108% 112% 114% 113% 65% 61%Effective tax rate 19% 17% 18% 15% 0% 15.2% 17.6%ROA (%) 2.1% 2.1% 1.6% 1.7% 1.1% 1.7% 1.9%ROE (%) 15.7% 16.8% 11.7% 12.0% 7.9% 12.9% 14.1%




Krung Thai Bank (KTB TB) Buy (from Neutral) Financial Services - Banks Target Price: THB25.5 Market Cap: USD7,932m Price: THB18.3

Valuations Have Factored In Poor 2014 Outlook Macro

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Krung Thai Bank Plc (KTB TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

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Source: Bloomberg

Avg Turnover (THB/USD) 680m/20.9m Cons. Upside (%) 55.2 Upside (%) 39.3 52-wk Price low/high (THB) 15.5 - 25.0 Free float (%) 39 Share outstanding (m) 13,976 Shareholders (%) Financial Institutions Dev 55.1 Thai NVDR 5.8 Share Performance (%) YTD 1m 3m 6m 12m Absolute 10.9 (0.6) 8.3 (9.9) (25.6) Relative 2.2 (3.7) (2.7) (7.2) (14.7) Shariah compliant Veena Naidu License No. 24418, 66 2862 9752 [email protected]



We are upgrading Krung Thai Bank to a BUY with a new TP of THB25.5, pegged at 1.25x P/BV. Despite the worsening economic conditions, Krung Thai Bank is expected to deliver 14-15% ROE. The stock is trading at extremely cheap valuations, which is a 10% discount to its 2014 P/BV and 10% below its mean P/Es of 7.3x and 6.7x for its earnings in 2014 and 2015. ♦ 1Q14 net profit at THB8.3bn down 3% y-o-y, representing 23.3% of

our forecast. 1Q14 saw reduced income from the selling of its investment in the Vayupak Fund and dividend income from the fund.

♦ Loans grew 3.2% YTD from all sectors, ie corporate, small-medium enterprises (SME) and retail loans. The bank’s 2014 loan growth estimate is 4-5%. Government loans, which account for 8% of total loans, is expected to be weak due to delays in budget disbursements as a result of the ongoing political uncertainties.

♦ NIM stood at 2.76% in 1Q14, a 28bps reduction from 3.04% in 2013. NIM is under pressure mainly from lower loan yields arising from weaker demand and rising non-performing loans (NPLs). The bank expects a reduction of 20bps in NIM for FY14.

♦ NPLs increased to 3.4% of total loans in 1Q14 vs 3.2% as at Dec 2013. The bank expects provisions to remain high in 2014. It forecasts 2014 total provisions at THB13bn vs THB12.3bn in 2013. As 1Q14 provisions are at THB1.7bn, provisional charges will accelerate in the coming quarters – which we have already incorporated into our forecast. Its NPL coverage declined to 105% in 1Q14 vs 112% of total loans as at Dec 2013.

♦ Valuations have factored in poor 2014 outlook. Despite expecting weak business operations from the lack of income from the Vayupak Fund, a slowdown in lending and higher provisions in 2014, we believe that the current valuations have factored in all the bad news.

♦ A functional government will help boost government-related loans. We expect this to be a positive risk to our 2015’s earnings forecast.

http://www.efa.biz/

Krung Thai Bank (KTB TB) 29 April 2014


Figure 1: KTB’s quarterly performance % chg % chgUnit : THBm 1Q13 2Q13 3Q13 4Q13 1Q14 Q-o-Q Y-o-Y FY12 FY13 % chgInterest income - net 15,024 15,704 16,368 17,386 16,820 -3% 12% 58,569 64,481 10%Non-interest income 7,787 6,168 7,552 10,000 6,967 -30% -11% 24,812 31,506 27% Gain (loss) on investmen 259 892- 97 3,096 84 -97% -67% 351 2,560 629% Fees and service income 4,047 4,555 4,231 4,535 4,334 -4% 7% 14,702 17,369 18% Gain on exchanges 1,047 1,021 1,175 1,338 1,225 -8% 17% 3,917 4,581 17% Other income 1,569 687 1,317 186 597 221% -62% 4,064 3,758 -8%Non-interest expense 10,694 9,635 9,725 11,916 11,904 0% 11% 36,789 41,970 14% PP&E expenses 1,748 1,843 1,853 1,999 1,856 -7% 6% 7,184 7,444 4% Taxes and duties 850 934 966 1,024 1,067 4% 25% 3,439 3,774 10% Fees and service expens 384 381 320 572 434 -24% 13% 1,485 1,657 12% Other expenses 970 1,200 1,326 1,989 1,349 -32% 39% 4,519 5,485 21%

Pre-provision profit 12,116 12,237 14,195 15,469 11,882 -23% -2% 46,592 54,017 16%Provision (Reverse) 1,619 4,146 3,409 3,136 1,776 -43% 10% 15,163 12,311 -19%Income tax 1,951 1,645 1,873 2,309 1,796 -22% -8% 7,863 7,778 -1%Net profit 8,546 6,447 8,912 10,024 8,310 -17% -3% 23,566 33,929 44%EPS (THB) 0.61 0.46 0.64 0.72 0.59 -17% -3% 2.09 2.43 16%No. of common share (mn s 13,976 13,976 13,976 13,976 13,976 Book value (THB) 13.74 13.67 13.54 14.26 14.85

Key figures & ratios Total loan (Bt mn) 1,608,112 1,657,383 1,691,176 1,723,381 1,778,529 Loan grow th - yoy (%) 7.5% 9.9% 10.5% 12.2% 10.6%Loan grow th - QoQ (%) 4.7% 3.1% 2.0% 1.9% 3.2%NPL (THBm) 59,534 57,800 59,211 55,026 55,026 NPLs/Loans (%) 3.7% 3.5% 3.5% 3.2% 3.1%NPL coverage (%) 95% 106% 108% 112% 116%Provision/loan (credit cost) 40 100 81 73 40

Asset yield 5.79% 5.84% 5.9% 6.8% 6.4%Funding cost 2.24% 2.27% 2.27% 2.70% 2.49%Net interest margin 2.81% 2.89% 2.90% 4.12% 3.87%

Cost to income ratio 46.9% 44.0% 40.7% 43.5% 50.0%Effective tax rate 18.6% 20.3% 17.4% 18.7% 17.8%LDR (%) 90.3% 93.6% 91.1% 87.8% 87.0%LDR (including S-T borrow in 84.0% 85.3% 84.6% 82.7% 83.7%ROAA (%) 1.8% 1.9% 2.1% 2.5% 1.8%ROAE (%) 20.8% 15.7% 20.2% 22.7% 18.8%




Siam Commercial Bank (SCB TB) Neutral (Maintained) Financial Services - Banks Target Price: THB177.00 Market Cap: USD17,680m Price: THB169.00

Focus On Cost Reduction In 2014 Macro

Risks

Growth

Value

86

88

90

91

93

95

97

98

100

102

120

130

140

150

160

170

180

190

200

210

Siam Commercial Bank (SCB TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

5

10

15

20

25

30

Apr

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13

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Oct

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Dec

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14

Vol m

Source: Bloomberg

Avg Turnover (THB/USD) 893m/27.5m Cons. Upside (%) 21.3 Upside (%) -13.9 52-wk Price low/high (THB) 132 - 198 Free float (%) 68 Share outstanding (m) 3,394 Shareholders (%) Vayupak Fund I 23.2 Crown Property Bureau 21.3 Thai NVDR Co Ltd 5.8 Share Performance (%) YTD 1m 3m 6m 12m Absolute 17.4 9.1 7.7 5.3 (8.7) Relative 7.8 4.5 (1.1) 7.6 (0.6) Shariah compliant Veena Naidu License No. 24418, 66 2862 9752 [email protected]



Following our sector upgrade to Neutral (from Underweight), we fine-tune Siam Commercial Bank's TP to THB177.00, pegged at +1SD to its mean P/BV of 2.2x FY14F earnings. We maintain our NEUTRAL call on the bank, as 2014 will be a consolidation year with the main focus on managing costs. Among the big banks, we prefer Kasikornbank (resilient earnings) and Krung Thai Bank (distressed valuations).

♦ Siam Commercial Bank reported 1Q14 earnings of THB13.1bn. This was flat y-o-y, which was supported by stable net interest margin (NIM) and well-managed asset quality. NIM averaged 3.27% in 1Q14 vs 3.28% as at Dec 2013. The bank was able to reduce funding costs at a greater extent than the lending rate cushioned margins. NIM is forecasted to remain more stable from lower cost of funds.

♦ Siam Commercial Bank’s main focus for 2014 will be to lower cost of funding. The bank plans to reduce its cost of funding to below 2% from 2.44%. This will make it more in line with the other big banks, whose cost of funds are 1.99%. Siam Commercial Bank will no longer raise deposits aggressively and will try to increase the proportion of low cost current account, savings account (CASA).

♦ Net interest income (NII) up 12% y-o-y while non-NII broadly declined. This did not include bancassurance, which performed better (+10% q-o-q; +20% y-o-y). Loans were flat YTD. By segment: i) housing (flat), ii) hire-purchase (-2.5%), iii) small and medium enterprise or SME (-1%), and iv) corporate (+2%).

♦ Non-performing loans (NPL) stable at 2.2% of total loans. Siam Commercial Bank raised its target credit cost to 80-85bps vs 65-70bps on December analyst’s meeting. Credit cost was 74bps in 1Q14.

♦ The bank will not focus on loan growth in 2014. The double-digit loan growth seen over the last four years was achieved by increasing Siam Commercial Bank’s exposure to the retail and SME market. SMEs now accounts for 20.5% of the bank's total loans portfolio while retail stood at 43.6%. By comparison, it was 16.7% and 39.6% respectively as at Dec 2010. Siam Commercial Banks expects 6% loan growth for 2014 vs 2013’s 12.1%.

http://www.efa.biz/

Siam Commercial Bank (SCB TB) 28 April 2014


Figure 1: Siam Commercial Bank’s quarterly performance % chg % chg

Unit: Bt mn 1Q13 2Q13 3Q13 4Q13 1Q14 q-o-q y-o-y FY12 FY13 % y-o-y Interest income 28,519 30,099 30,789 31,284 30,581 -2.2% 7% 103,399 120,691 17%Interest expense 11,282 12,185 11,934 12,281 11,213 -8.7% -1% 41,295 47,683 15%Interest income - net 17,237 17,913 18,855 19,003 19,369 1.9% 12% 62,104 73,008 18%Non-interest income 23,092 21,644 25,747 24,010 23,014 -4.1% 0% 45,250 94,493 109% Gain (loss) on investments 428 330 114 1,401 117 -91.6% -73% 1,293 2,273 76% Fees and service income 7,305 6,973 7,456 7,841 7,678 -2.1% 5% 24,826 29,574 19% Gain on exchanges 2,028 2,572 2,298 2,181 1,882 -13.7% -7% 7,511 9,079 21% Bancassurance fee-net 2,322 2,707 2,638 2,523 2,780 10.2% 20% 9,319 10,190 9% Other income 1,536 565 2,104 303 441 45.2% -71% 2,300 4,508 96%Non-interest expense 12,138 12,589 13,624 14,180 12,412 -12.5% 2% 46,771 52,531 12% - Personnel expenses 5,037 5,271 5,841 5,242 5,236 -0.1% 4% 18,736 21,391 14% - PP&E expenses 2,232 2,412 2,411 2,500 2,354 -5.8% 6% 9,148 9,555 4% - Taxes and duties 960 993 1,022 1,051 1,150 9.4% 20% 3,682 4,026 9% - Fees and service expenses 1,314 1,276 1,236 1,388 1,388 0.0% 6% 4,370 5,214 19% - Other expenses 2,551 2,631 3,090 3,976 2,260 -43.1% -11% 10,730 12,247 14%Pre-provision profit and tax 28,190 26,968 30,979 28,833 29,970 3.9% 6% 60,583 114,970 90%Recurring profit (ex. cap gain) 27,762 26,638 30,865 27,432 29,853 8.8% 8% 59,291 112,697 90%Corporate income tax 2,979 2,990 2,791 3,062 3,341 9.1% 12% 10,682 11,821 11%Provision (reverse) 2,518 2,687 4,191 4,245 3,207 -24.5% 27% 9,396 13,641 45%Net profit 13,116 12,644 12,721 11,636 13,128 12.8% 0% 40,256 50,117 24%EPS (THB) 3.86 3.72 3.74 3.42 3.86 12.8% 0% 11.84 14.74 24%

Key financial figture and RatiosNo. of common share (m share) 3,399 3,399 3,399 3,399 3,399 3,399 3,399 Book value (THB) 67.53 67.65 69.73 72.97 77.24 55.07 64.47

Total loan (THBm) 1,598,063 1,655,878 1,683,502 1,739,414 1,738,565 1,550,949 1,739,414 - grow th Y-o-Y (%) 18.1% 16.8% 12.7% 12.2% 8.8% 20% 12% - grow th Q-o-Q (%) 3.0% 3.6% 1.7% 3.3% 0.0%

Deposit + borrow ing (THBm) 1,784,744 1,841,128 1,847,040 1,917,923 1,883,921 1,746,636 1,917,923 - grow th Y-o-Y (%) 18.5% 17.4% 9.3% 9.8% 5.6% 21% 10%

- grow th Q-o-Q (%) 2.2% 3.2% 0.3% 3.8% -1.8% NPLs-gross (THBm) 36,823 38,300 38,300 38,300 38,699 35,873 38,300 NPL ratio 2.3% 2.3% 2.3% 2.2% 2.2% 2.3% 2.2%NPL coverage (%) 145% 144% 150% 157% 153% 145% 157%Credit cost 63 65 100 98 74 92 98 NIM (%) 3.31% 3.33% 3.38% 3.28% 3.23% 3.35% 3.28%

Cost to income ratio 30% 32% 31% 33% 29% 45.4% 33.0%LDR (%) 91% 91% 92% 91% 92% 91.5% 90.8%ROA (%) 2.4% 2.3% 2.2% 2.3% 2.4% 2.0% 2.3%ROE (%) 24.5% 23.5% 22.9% 22.0% 23.4% 20.4% 22.0%




Thanachart Capital PCL (TCAP TB) Sell (Maintained) Financial Services - Banks Target Price: THB34.00 Market Cap: USD1,363m Price: THB34.50

1Q14 Results Slump Macro

Risks

Growth

Value

79

85

91

97

103

109

28

33

38

43

48

53

Thanachart Capital (TCAP TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

5101520253035

Apr

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Vol m

Source: Bloomberg

Avg Turnover (THB/USD) 85.6m/2.63m Cons. Upside (%) 7.5 Upside (%) -13.0 52-wk Price low/high (THB) 30.0 - 49.0 Free float (%) 82 Share outstanding (m) 1,278 Shareholders (%) MBK Plc 9.7 Group of management 8.4 Share Performance (%) YTD 1m 3m 6m 12m Absolute 7.0 (5.5) 10.4 (0.7) (21.2) Relative (2.6) (10.1) 1.6 1.6 (13.1) Shariah compliant Veena Naidu License No. 24418, 66 2862 9752 [email protected]

Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15FNet interest income (THBm) 24,315 24,234 27,584 30,082 34,665Reported net profit (THBm) 5,002 5,482 9,513 5,346 8,275Net profit growth (%) (11.3) 9.6 73.5 (43.8) 54.8Recurring net profit (THBm) 5,002 5,482 3,660 5,346 8,275Recurring EPS (THB) 3.75 4.20 2.86 4.18 6.48Recurring P/E (x) 9.2 8.2 12.0 8.2 5.3P/B (x) 1.20 1.03 0.91 0.84 0.75Return on average equity (%) 13.5 13.5 20.8 10.6 14.8Return on average assets (%) 0.6 0.6 0.9 0.5 0.7Our vs consensus EPS (adjusted) (%) 0.0 0.0


We maintain our SELL call on Thanachart Capital but revise upwards the TP to THB34.00. This is pegged to 0.9x P/BV, a 10% discount to book value. Going forward, rising non performing loans (NPL) and weaker core earnings, post divestment of its life insurance business, will hurt the company’s outlook and valuations. Kiatnakin Bank is our Top Pick amongst the smaller banks.

♦ Thanachart Capital’s 1Q14 net profit was in line with our expectations at THB1.32bn (-14% q-o-q; -32% y-o-y). The result accounted for 24.7% of our FY14 forecast. Provisions expenses of THB1.65bn dropped 19% q-o-q but grew 21% y-o-y. 1Q14 provisions accounted for 20% of our full-year provisions forecast. Credit cost dropped to 84 bps.

♦ 1Q14 NPL amounted to THB38bn. This accounted for 4.9% of total loans vs Dec 2013's 4.7%. NPL coverage remains low at 81% vs the industry’s average NPL coverage ratio of 130%. Credit cost in 1Q14 stood at 77bps. By comparison, credit cost increased to 0.73% in 2013 from 2012’s 0.36%. Management had earlier guided for lower 2014 credit cost of 0.60%, as Thanachart Capital believes that losses on used cars peaked in 2013 and will gradually decline this year. It said that prices of second-hand cars have stabilised. We forecast for credit costs of 95bps for Thanachart Capital this year.

♦ Loan growth slipped 0.1% YTD. Loan to deposit ratio rose slightly to 96%. Net interest margin stood at 2.56% in 1Q14 vs 2.61% as at end-Dec 2013 due to slow growth in auto loans and deterioration in asset quality.

♦ Fee income declined 2% q-o-q (-17% y-o-y). Non-interest income, excluding capital gains from investment, still performed well at +13% q-o-q.

♦ Provisions will remain high from further deterioration in asset quality. Thanachart Capital is in a weak position given its lower NPL coverage. Going forward, rising NPL and weaker core earnings – post divestment of its life insurance business – will hurt the company’s outlook and valuations.

http://www.efa.biz/

Thanachart Capital PCL (TCAP TB) 28 April 2014


Figure 1: Thanachart Capital's quarterly performance Unit: THBm 1Q13 2Q13 3Q13 4Q13 1Q14 % chg % chg FY12 FY13 % chg

q-o-q y-o-y y-o-yRevenue 10,849 22,525 11,053 10,856 10,533 -3% -3% 39,181 55,284 41% Interest income - net 6,311 6,564 6,678 7,005 6,772 -3% 7% 24,234 26,557 10% Non-interest income 4,538 15,961 4,376 3,852 3,761 -2% -17% 14,947 28,727 92%Non-NII(ex.cap gain) 4,328 3,543 4,201 3,062 3,459 13% -20% 14,095 15,135 7% Gain on investment 210 12,418 175 790 302 -62% 44% 852 13,592 1495% Equity income 405 - 250 145 61 -58% -85% 283 800 183% Fees and Service income 2,246 2,270 2,139 2,136 2,078 -3% -7% 5,720 8,791 54% Fee from life insurance 568 735 585 394 398 1% -30% 3,874 2,282 -41% Others 797 394 1,060 196 725 269% -9% 3,158 2,447 -23%Non-interest expense 5,608 6,251 5,717 5,791 5,539 -4% -1% 24,061 23,366 -3% Personnel exp 2,668 2,794 2,623 2,515 2,733 9% 2% 10,709 10,600 -1% PP&E exp 732 749 755 801 707 -12% -3% 3,225 3,037 -6% Taxes and duties 231 215 221 233 212 -9% -8% 946 899 -5% Expense on insurance busine 1,116 1,053 1,053 1,219 1,177 -3% 5% 12,186 4,442 -64% Others 1,977 2,493 2,118 2,243 1,887 -16% -5% 9,181 8,830 -4%Pre-provision profit 5,241 16,274 5,337 5,065 4,994 -1% -5% 15,120 31,917 111%Provision (Reverse) 1,365 6,415 1,687 2,043 1,657 -19% 21% 2,906 11,511 296%Income tax 710 2,189 682 707 671 -5% -6% 2,463 4,288 74%Net profit 1,953 4,078 1,661 1,538 1,324 -14% -32% 6,277 9,230 47%EPS (THB) 1.5 3.2 1.3 1.2 1.0 -14% -32% 4.82 7.22 50%No. of share (m share) 1,278 1,278 1,279 1,278 1,279 1,333 1,278 Book value (THB) 35.75 35.12 35.80 29.48 30.31 30.3 35.1

Key figures and ratiosTotal loan (THBm) 771,512 788,285 787,712 791,175 790,604 702,886 787,712 - H/P 420,372 432,181 437,383 420,374 420,374 358,581 437,383 - Non-H/P 351,140 356,104 350,329 370,801 370,230 344,305 350,329 Loan grow th - y-o-y 14.5% 12.1% 4.3% 4.7% 2.5% 10.2% 4.3% - H/P 28% 32% 22% 6.0% 0.0% 36.2% 22.0% - Non-H/P 1.5% 2.9% 1.7% 3.3% 5.4% -8.1% 1.7%Loan grow th - q-o-q 2.1% 2.2% -0.1% 0.4% -0.1% - H/P 6.0% 2.8% 1.2% -3.9% 0.0% - Non-H/P -2.1% 1.4% -1.6% 5.8% -0.2%

NPLs-gross 33,584 36,615 37,337 37,540 38,358 36,244 37,337 NPLs-gross/Loans (%) 4.4% 4.6% 4.7% 4.7% 4.9% 5.2% 4.7%NPL coverage 75% 83% 83% 82% 81% 73% 83%Credit cost (bps) 65.5 301.5 79.4 95.7 77.7 36 149

Net interest margin (NIM) (%) 2.47% 2.51% 2.54% 2.61% 2.56% 2.5% 2.5%Effective tax rate 18% 22% 19% 23% 20% 21.5% 19.7%LDR - including borrow ing (%) 106% 105% 105% 103% 108% 102% 105%Cost to income ratio (%) 52% 28% 52% 53% 53% 62.7% 43.7%ROA (%) 0.8% 1.6% 0.6% 0.6% 0.5% 0.6% 1.0%ROE (%) 18.5% 38.2% 15.3% 14.1% 11.2% 14.6% 24.0%




TISCO Financial Group PCL (TISCO TB) Sell (Maintained) Financial Services - Banks Target Price: THB41.00 Market Cap: USD1,042m Price: THB42.0

A Feeble Start To The Year Macro

Risks

Growth

Value

72

77

82

87

92

97

102

33

38

43

48

53

58

63

TISCO Financial Group (TISCO TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

2468

101214

Apr

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Jun-

13

Aug

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Oct

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Dec

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Mar

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Vol m

Source: Bloomberg

Avg Turnover (THB/USD) 54.8m/1.69m Cons. Upside (%) 7.6 Upside (%) -2.4 52-wk Price low/high (THB) 35.3 - 57.1 Free float (%) 65 Share outstanding (m) 801 Shareholders (%) Thai NVDR CoLtd 29.7 State Street Bank And Trust 4.9 Share Performance (%) YTD 1m 3m 6m 12m Absolute 9.1 5.0 11.3 (4.0) (24.8) Relative 0.7 1.0 4.2 (0.8) (14.2) Shariah compliant Veena Naidu License No. 24418, 66 2862 9752 [email protected]

Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15FNet interest income (THBm) 6,914 7,044 8,968 8,388 8,166Reported net profit (THBm) 3,266 3,705 4,249 4,199 4,533Net profit growth (%) 13.1 13.4 14.7 (1.2) 8.0Recurring net profit (THBm) 3,266 3,705 4,249 4,199 4,533Recurring EPS (THB) 4.49 5.09 5.31 5.24 5.66Recurring P/E (x) 9.36 8.25 7.91 8.01 7.42P/B (x) 1.89 1.68 1.46 1.43 1.31Return on average equity (%) 21.1 21.5 20.6 18.1 18.4Return on average assets (%) 1.7 1.4 1.3 1.2 1.2Our vs consensus EPS (adjusted) (%) 0.0 0.0


We maintain SELL on TISCO Financial Group (TISCO), but raise our TP to THB41, pegged to a mean P/BV of 1.4x. Amongst the smaller banks, we prefer Kiatnakin Bank (KKP TB, THB41.0) due to its cheap valuation, as it is trading at a 1.0x P/BV. TISCO’s valuations are expensive vs peers. To play a rebound on the economic and capital market recovery, Kiatnakin Bank is more leveraged in terms of an upside to earnings.

♦ TISCO posted 1Q14 earnings of THB935m (+16% q-o-q, -19% y-o-y), in line with our forecast, but below the consensus estimate by 9%. The significant q-o-q improvement came mainly from no major losses from selling repossessed cars (vs a c.THB1.0bn loss booked in 4Q13), while the y-o-y decline came from a sharp pull-back on loan-related fees (-22%) which dragged down its topline by 11% y-o-y.

♦ Loans growth decreases. Loans declined by 2.6% q-o-q. By segment, non-hire purchase loans growth dipped by 3% q-o-q, while auto loans declined 2.4% q-o-q. We estimate TISCO to see zero loan growth in FY14.

♦ LDR goes up to 111%. Given the deposits outflow (-9% q-o-q), its loan-to-deposit ratio rose to 111% in 1Q14 from 106% in 4Q13. The decline in deposits may indicate weaker loan growth momentum over the coming quarters.

♦ Asset quality deteriorates further. Absolute non-performing loans (NPL) increased 8% q-o-q and 57% y-o-y, from both auto and non-auto loans in 1Q. Meanwhile, credit costs remained high at 164bps (vs the full-year 2013 figure of 140bps). However, despite huge provisioning expenses, NPL coverage deteriorated further to 121%, vs 128% in 4Q13 and 167% in 1Q13), implying the inflow of new NPL remains high.

♦ Another disturbing trend is that, despite the doubling of provisions in 2013 and continued increase in provisions, NPL coverage dropped significantly to 121% in 1Q14 vs 167% in 1Q13 – which implies a real formation of NPL. This is also another indication that provisioning will continue to be high into 2014, as asset quality deteriorates in line with the weakening economic conditions.

♦

http://www.efa.biz/

TISCO Financial Group PCL (TISCO TB) 28 April 2014


Figure 1: TISCO’s quarterly performance Unit: THBm 1Q13 2Q13 3Q13 4Q13 1Q14 2012 2013 % Chg

Q-o-Q Y-o-Y Y-o-YInterest income 4,467 4,766 4,944 5,095 4,998 -2% 12% 15,211 19,272 27%Interest expense 2,364 2,537 2,627 2,776 2,692 -3% 14% 8,166 10,304 26%Interest income - net 2,103 2,229 2,317 2,319 2,306 -1% 10% 7,044 8,968 27%Non-interest income 2,218 1,732 1,534 674 1,526 126% -31% 6,417 6,159 -4% Gain (loss) on investments 166 87 14 87 5 -97% 121 354 194% Fees and service income 1,639 1,268 1,275 1,233 1,284 4% -22% 4,408 5,416 23% Other income 413 377 244 645- 237 -137% -43% 1,889 389 -79%Non-interest expense 1,909 1,664 1,616 377 1,467 289% -23% 6,726 5,566 -17% Personnel expenses 1,000 949 926 574 818 42% -18% 3,224 3,449 7% Premises and equipment expenses 229 224 228 235 221 -6% -3% 843 916 9% Taxes and duties 3 55 56 102 54 -47% 1541% 175 216 24% Fees and service expenses 66 59 54 47 48 3% -27% 279 226 -19% Other expenses 611 378 352 581- 324 -156% -47% 2,205 759 -66%Pre-provision profit 2,413 2,297 2,235 2,617 2,365 -10% -2% 6,736 9,561 42%Provision (reverse) 940 810 778 1,613 1,170 -27% 24% 1,922 4,141 115%Income tax 284 303 293 185 238 29% -16% 1,081 1,064 -2%Net profit 1,153 1,159 1,132 805 935 16% -19% 3,705 4,249 15%EPS (THB) 1.59 1.60 1.56 1.11 1.17 5% -27% 5 6 15%Book value (THB) 26.52 27.76 29.35 31.58 29.91 -5% 13% 94 115 22%

Key figures and ratiosMoney market lending 4,163 32,376 41,605 53,242 29,554 31,196 53,242 Investment 6,703 7,640 9,991 11,490 16,354 7,016 11,490 Total loan (THBm) 267,136 280,952 285,239 292,687 285,064 248,668 292,687 Loan grow th Y-o-Y (%) - H/P 176,184 183,140 187,260 188,337 183,853 163,697 188,337 - Non-H/P 90,952 97,812 97,979 104,350 101,211 72,598 104,350 H/P Growth - Q-o-Q 7.6% 3.9% 2.2% 0.6% -2.4% - Y-o-Y 25.3% 33.1% 24.5% 15.1% 4.4% 31% 15%

Non-H/P Growth - Q-o-Q 0.0% 7.5% 0.2% 6.5% -3.0% - Y-o-Y 41% 24% 52% 44% 11% 25% 44%

NPL (THBm) 3,404 4,069 4,197 4,966 5,366 3,099 4,966 NPL (%) 1.27% 1.45% 1.47% 1.70% 1.88% 1.2% 1.7%NPL coverage (%) 167% 145% 136% 128% 121% 165% 128%Credit cost (bps) 141 115 109 220 164 77 141

Net interest margin (NIM) (%) 3.03% 2.98% 2.82% 2.66% 2.78% 2.8% 2.9%

LDR (including S-T borrow ing) 109% 113% 108% 104% 111% 110% 104%Cost to income ratio (%) 44% 42% 42% 13% 38% 50% 37%Effective tax rate 19% 20% 20% 18% 20% 22% 20%ROA (%) 1.7% 1.7% 1.5% 1.0% 1.5% 1.6% 1.5%ROE (%) 25.1% 25.3% 23.2% 15.5% 19.7% 22.6% 22.3%

%chg


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Thai Institute of Directors Association (IOD) – Corporate Governance Report Rating 2013

ADVANC BCP CPF ERW IVL NKI PS ROBINS SCB SNC TCAP TMB UV AOT BECL CPN GRAMMY KBANK NOBLE PSL RS SCC SPALI THAI TNITY VGI ASIMAR BKI CSL HANA KKP PAP PTT S&J SCSMG SPI THCOM TOP WACOAL BAFS BROOK DRT HEMRAJ KTB PG PTTEP SAMART SE-ED SSI THRE TRC BANPU BTS DTAC ICC LPN PHOL PTTGC SAMTEL SIM SSSC TIP TRUE BAY CIMB EASTW INTUCH MCOT PR QH SAT SIS SVI TASCO TTW BBL CK EGCO IRPC MINT PRANDA RATCH SC SITHAI SYMC TKT TVO

2S AYUD CNT GL KKC MBK OISHI SABINA STANLY TK TTCL zZMICO ACAP BEC CPALL GLOW KSL MBKET PB SAMCO STEC TLUXE TUF AF BFIT CSC GOLD KWC MFC PDI SCCC SUC TMILL TWFP AHC BH DCC GSTEL L&E MFEC PE SCG SUSCO TMT TYM AIT BIGC DELTA GUNKUL LANNA MODERN PF SEAFCO SYNTEC TNL UAC AKP BJC DTC HMPRO LH MTI PJW SFP TASCO TOG UMI AMANAH BLA ECL HTC LHBANK NBC PM SIAM TCP TPC UMS AMARIN BMCL EE IFEC LHK NCH PPM SINGER TF TPCORP UP AMATA BWG EIC INET LIVE NINE PPP SIRI TFD TPIPL UPOIC AP CCET ESSO ITD LOXLEY NMG PREB SKR TFI TRT UT APCO CENTEL FE JAS LRH NSI PRG SMT THANA TRU VIBHA APCS CFRESH FORTH JUBILE LST NWR PT SNP THANI TSC VIH ASIA CGS GBX KBS MACO OCC PYLON SPCG THIP TSTE VNG ASK CHOW GC KCE MAJOR OFM QTC SPPT TICON TSTH VNT ASP CM GFPT KGI MAKRO OGC RASA SSF TIPCO TTA YUASA *** PHATRA was voluntarily delisted from the Stock Exchange of Thailand effectively on September 25,2012

A BCH CRANE FPI IT MBAX PICO SGP TBSP TPP WIN AAV BEAUTY CSP FSS JMART MDX PL SIMAT TCCC TR WORK AEC BGI CSR GENCO JMT PRINC POST SLC TEAM TTI AEONTS BLAND CTW GFM JTS MJD PRECHA SMIT TGCI TVD AFC BOL DEMCO GJS JUTHA MK PRIN SMK TIC TVI AGE BROCK DNA GLOBAL KASET MOONG Q-CON SOLAR TIES TWZ AH BSBM DRACO HFT KC MPIC QLT SPC TIW UBIS AI CHARAN EA HTECH KCAR MSC RCI SPG TKS UEC AJ CHUO EARTH HYDRO KDH NC RCL SRICHA TMC UOBKH AKR CI EASON IFS KTC NIPPON ROJNA SSC TMD UPF ALUCON CIG EMC IHL KWH NNCL RPC STA TMI UWC ANAN CITY EPCO ILINK LALIN NTV SCBLIF SUPER TNDT VARO ARIP CMR F&D INOX LEE OSK SCP SVOA TNPC VTE AS CNS FNS IRC MATCH PAE SENA SWC TOPP WAVE BAT-3K CPL FOCUS IRPC MATI PATO SF SYNEX TPA WG *** CIMBI was voluntarily delisted from the Stock Exchange of Thailand effectively on September 25, 2012.

IOD (IOD Disclaimer)

การเปิดเผลผลการส ารวจของสมาคมส่งเสริมสถาบันกรรมการบรษิัทไทย (IOD) ในเรื่องการก ากับดูแลกิจการ (Corporate Governance) นี้เป็นการด าเนินการตามนโยบายของส านักงานคณะกรรมการก ากับหลักทรัพย์และตลาดหลักทรัพย์ โดยการส ารวจของ IOD เป็นการส ารวจและประเมินจากข้อมูลของบรษัทจดทะเบียนในตลาดหลักทรัพย์แห่งประเทศไทยและตลาดหลกัทรัพย์เอ็มเอไอ ที่มีการเปิดเผยต่อสาธารณะและเป็นข้อมูลที่ผูล้งทุนทั่วไปสามารถเข้าถงึได้ ดังนั้นผลส ารวจดังกล่าวจึงเป็นการน าเสนอในมุมมองของบุคคลภายนอกโดยไม่ได้เป็นการประเมินการปฏิบัติและมิได้มีการใช้ข้อมูลภายในในการประเมิน

อนึ่ง ผลการส ารวจดังกล่าว เป็นผลการส ารวจ ณ วนัที่ปรากฎในรายงานการก ากับดแูละกิจการบริษัทจดทะเบียนไทยเท่านั้น ดังนั้นผลการส ารวจจึงอาจเปลี่ยนแปลงได้ภายหลังวันดังกล่าว ทัง้นี้บริษัทหลักทรัพย์ อาร์เอสบี โอเอส เค จ ากัด (มหาชน) มิได้ยืนยันหรือรับรองถึงความถูกต้องของผลการส ารวจดงักล่าวแต่อย่างใด

banks neutral (from underweight) · 2014. 4. 29. · see important disclosures at the end of this...

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