Broker Name: CGS International
Date: October 21, 2024
Q3 2024 Financial Performance
Krung Thai Bank (KTB) reported a net profit of THB11.1 billion for Q3 2024, showing an 8.0% year-over-year (yoy) increase but a slight 0.8% decline quarter-over-quarter (qoq). This performance was in line with both CGS International’s and Bloomberg’s consensus forecasts. For the first nine months of 2024, the bank’s net profit reached THB33.4 billion, a 9.4% increase compared to the same period last year, accounting for 83% of the FY24 forecast by CGS International.
Loan Growth and Asset Quality
KTB’s loan portfolio showed a decline, with an overall growth rate of -2.8% yoy and 0% qoq. This drop was driven by loan repayments in the large corporate and SME sectors, despite growth in loans to the government and state enterprises. Housing and unsecured personal loans grew at a slower rate due to more stringent lending criteria. The bank’s Non-Performing Loan (NPL) ratio remained stable at 3.83%, while the NPL coverage ratio slightly improved to 184% in Q3 2024, up from 181% in Q2 2024.
Income Growth Driven by Investments
KTB experienced a notable rise in non-interest income, which grew by 15.7% yoy and 13.6% qoq in Q3 2024. This growth was largely driven by gains on investments and financial instruments, while fee income also rose, supported by increased bancassurance and mutual fund fees. However, net interest income remained flat, reflecting challenges in sustaining growth through traditional lending.
Cost Management and Operating Efficiency
The bank’s cost-to-income ratio increased slightly to 42.4% in Q3 2024 from 41.7% in Q2 2024. Operating expenses rose by 2.8% yoy and 4.6% qoq, attributed mainly to investments in IT and digital projects. Despite these higher costs, KTB maintained a steady net interest margin of 3.41% during the quarter.
Earnings Outlook and Risks
CGS International has retained a “Hold” rating on KTB, with an FY25 target price of THB20.90, based on a Price-to-Book Value (P/BV) ratio of 0.64x. The report suggests that KTB’s strong dividend yield, expected to be between 4.4% and 4.9% annually from FY24F to FY26F, supports this rating. However, potential downside risks include a deterioration in large corporate loans, rising NPLs in the housing and unsecured personal loan segments, and possible impacts from future interest rate cuts.
ESG and Sustainability Initiatives
KTB has been active in promoting sustainability, earning a ‘B’ ESG Combined Score from LSEG in 2023 and an AAA ESG rating from the Stock Exchange of Thailand. The bank is a member of the SETESG Index and integrates economic, social, and environmental considerations into its operations. KTB aims to achieve carbon neutrality by 2050 and net-zero greenhouse gas emissions by 2065, with medium-term targets to reduce emissions by 30% by 2030. The bank’s ESG loan program accounted for 0.82% of its total loans in 2023, highlighting a focus on sustainability, albeit with modest current contributions.
Links to Government Projects
KTB’s close ties with the Thai government and Ministry of Finance (MOF) are reflected in its business strategies and projects. Several board members are senior executives in government entities. The bank supports state welfare programs through its mobile apps, such as Pao Tung and Tung Ngern, though these projects are not primarily profit-driven. Additionally, KTB has exposure to Thai Airways, which is in the process of exiting its business rehabilitation plan. The bank’s total loan exposure to the airline stands at THB5.8 billion, and if these loans are upgraded to performing loans by Q4 2025, KTB’s NPL ratio could improve by 0.26%.
Investment Recommendations
CGS International’s report emphasizes that KTB’s future growth will likely depend on its ability to secure more government and state enterprise loans. Efficient management of operating expenses, particularly in IT and personnel, could also enhance profitability. While the bank remains a stable dividend payer, achieving growth through traditional loan segments may require overcoming challenges related to asset quality and interest rate policies.
