20140217-Maybank_KERPL-Stress_test__KBANK_is_most_resilient_12页_550kb

Thai Banking Sector Summary

Core Content

The report discusses the stress testing of Thai banks under a weak economic outlook, primarily influenced by political unrest. It evaluates the resilience of banks based on their earnings and balance sheet strength, and provides investment recommendations.

Main Points

• Economic Outlook: The Thai economy is experiencing a slowdown, with political unrest as a key factor. This is expected to impact loan growth and increase credit costs, particularly in the consumer loans segment.
• Stress Testing: The analysis assumes a 50% reduction in loan growth and increased credit costs. Banks with high consumer loans exposure are more vulnerable.
• Resilient Banks: KBANK and BBL are highlighted as the most resilient banks. KBANK is recommended with a target price (TP) of THB195, while BBL is recommended with a TP of THB210.
• Vulnerable Banks: BAY and TCAP are identified as the most vulnerable, with TP ratings of HOLD and SELL respectively. KTB is also noted as a top pick with a TP of THB22.
• Earnings Impact: Under stress test assumptions, KBANK's earnings would fall by 2.9%, BBL by 3.5%, while TCAP and BAY would see earnings drops of 8.2% and 8.3% respectively.
• Balance Sheet Strength: Despite the earnings risks, the balance sheets of Thai banks remain strong, with solid capital ratios and high loan-loss reserves (LLR) providing a cushion against economic downturns.
• Valuation Considerations: The current valuation of Thai banks is seen as attractive, but there are still headwinds. The report maintains a Neutral stance due to the lack of a clear catalyst.
• Fair Value Analysis: The fair value of banks could drop by 9-42% based on stress test scenarios. KTB, despite its current valuation, is still recommended due to its transformation plan and improved operations.

Key Information

• Loan Growth Assumptions: Loan growth is cut by 50% for all banks, reflecting a pessimistic outlook.
• Credit Cost Adjustments: Banks with high consumer loan exposure see a 10bps increase in credit costs, while others see a 5bps increase.
• Sector Provisions: The sector provisions to total loans ratio is forecasted to drop to 87bps in 2014 from 99bps in 2013 due to strong reserve coverage.
• Dividend Yields: KTB has the highest dividend yield at 5.2%, while BAY has a lower yield at 2.7%.
• Market Capitalization: KBANK has the highest market cap at USD12,294 million, followed by BBL at USD10,327 million.
• Price Targets: KBANK's TP is THB195, BBL's is THB210, and KTB's is THB22.
• Earnings Sensitivity: For every 1ppt drop in loan growth, banks' earnings could decline by 0.4-1.2%. TMB and BAY are the most sensitive to this change.
• Provisioning Risk: TCAP and TMB are most sensitive to rising credit costs due to their low fee income to net operating income ratio. However, TMB has mechanisms to boost fee income.

Investment Recommendations

• Top Picks: KBANK, BBL, and KTB are recommended as top picks.
• Rationale for KBANK: Diversified loan portfolio, high net interest margin (NIM), and high return on equity (ROE).
• Rationale for KTB: Improving operations, undemanding valuation, and high dividend yield.
• Rationale for BBL: Strong asset quality and lowest provisioning risk due to strong coverage ratio and minimal retail loan exposure.

Summary Table

Analyst and Contact Information

• Analyst: Jesada Techahusdin, CFA
• Contact: (66) 2658 6300 ext 1394 | jesada.t@maybank-ke.co.th

Sensitivity Analysis

• Loan Growth Impact: A 1ppt drop in loan growth could reduce earnings by 0.4-1.2%.
• Credit Cost Impact: A 5bps increase in credit cost could reduce earnings by 1.9-5.5%.
• Most Sensitive Banks: TMB and BAY are most sensitive to loan growth changes, while TCAP and TMB are most sensitive to credit cost changes.

Valuation Analysis

• Fair Value Drop: The fair value could drop by 9-42% based on stress test scenarios.
• Current Valuation: The current valuation is seen as attractive, but with some headwinds.
• KTB Exception: Despite a high downside, KTB is still recommended due to its transformation plan and improved operations.

Conclusion

The report maintains a Neutral stance on the Thai banking sector, recommending KBANK, BBL, and KTB as top picks. While the sector has outperformed the SET index, the current valuation is not sufficient to justify a clear investment catalyst. The banks' balance sheets remain strong, providing a cushion against economic downturns. The analysis highlights the importance of diversification and fee income in determining resilience.