Krung Thai Bank eyes 15% fee income growth for 2013

It will benefit from the government’s THB2t infrastructure spending over the next seven years.

According to Maybank Kim Eng, an extra dose of heavy provisioning in 4Q12 has helped consolidate its balance sheet, setting the stage for aggressive growth.

Here's more from Maybank Kim Eng:

Importantly, KTB will be the prime beneficiary of government infrastructure investment projects. We reiterate our BUY call with the TP unchanged at THB25.00. However, as the share price has skyrocketed, we would recommend investors to accumulate on weakness.

2013 targets. KTB is eyeing growth of 7-10% for loans and 12-15% in fee income for 2013, while maintaining NIM at 2.9% and a normalised provisioning of THB1.5b per quarter (extra provisioning is an option in case of strong core earnings growth). Reducing NPLs is still a key target.

Beneficiary of infrastructure investment plan. KTB will be a major beneficiary of the government’s THB2.0t infrastructure spending over the next seven years. We expect the momentum for budget disbursements to accelerate from 2H13F onwards.

In addition, we are bullish about KTB’s prospects in the provinces where it has the largest branch network among peers, given the pace of urbanisation in the provincial centres and the ensuing economic growth. In our view, these factors will fuel the expansion of KTB’s loan business, deposit base and fee income.

Expect outstanding earnings growth. We expect KTB to again stand out for its loan growth performance in FY13F-14F, thanks to government agency loan demand. Shrinking credit cost following the large extra provisioning in 4Q12 will be a key driver for earnings growth. We expect net profit to grow 46% YoY in FY13F (EPS: +24%) and another 18% YoY in FY14F. ROE will thus go up to 18.6% in FY14F from 15.2% last year.

Strong rally narrows valuation discount. We have upgraded KTB to be our top banking pick, based on the public spending theme and an undeserved P/BV valuation discount of 26%. The recent share price rally has caused P/BV to fall to 1.6x, which is just a 6% discount to the  SETBANK Index. Nevertheless, we think KTB deserves to trade at the same valuation as peers, given its expected outstanding earnings growth and in-line ROE.