Krung Thai Bank: The best of the pack
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1Q25 results recap. 1Q25 earnings came in at THB11.7bn (+0.3% y/y; +11.8% q/q), beating the Bloomberg consensus and our estimate by 4% and 8%, respectively, thanks to higher-than-expected revenue.
The y/y increase was thanks to (i) higher non-interest income (non-NII) – from higher gains on financial instrument designated at fair value through profit or loss (FVTPL) and higher gain on investments – and (ii) lower operating expenses (OPEX) – from lower impairment loss of properties for sales.
Meanwhile, the q/q increase was also attributed to (i) higher non-NII (from higher gains on FVTPL, higher gain on investments, higher dividend income, and higher equity income [from its insurance business]) and (ii) seasonally lower OPEX.
3M25 earnings accounted for 26% of our full-year forecast.
2025 financial targets maintained. With heightened economic uncertainties from US reciprocal tariffs, KTB estimates Thailand’s 2025 GDP growth in two scenarios, i.e., (i) 2.0% assuming 10% tariffs, and (ii) 0.7% assuming 36% tariffs. Under the 2.0% GDP growth scenario, KTB believes there would be one more policy rate cut in 2025. Meanwhile, it believes more than one cut is possible under the 0.7% GDP growth scenario.
Nonetheless, with the Bank of Thailand (BOT)’s low willingness to cut the policy rate significantly, together with the government’s THB157bn budget spending to boost the economy, KTB believes we are likely to see no more than one policy rate cut for the remainder of 2025.
Taking these into account, management reaffirmed all its 2025 financial targets. Although loans contracted by 1.3% in 1Q25 (from corporate loan repayment), the bank still targets flat loan growth for the year. The focus remains on quality customers and the retail segment.
Recently, KTB has increased its exposure to (i) home title deed loans to enhance its yields and cross-sell insurance products and (ii) home refinance (selectively from top developers). As of now, home title deed loans make up only a very small portion of KTB’s total housing loans.
It's worth noting that KTB’s retail loans are relatively low risk compared with others in the banking industry, given that most of its retail (both secured and unsecured) loan customers are payroll-linked civil servants (i.e., government employees).
Specifically, 50% of housing loans are payroll-linked, while 90% of unsecured personal loans are payroll-linked. Meanwhile, management stated that it has also continued to grow its personal digital loans, and the performance so far has been acceptable with 18-20% yields and some 4% NPL.
With its expectation of one more policy rate cut, its deposit portfolio adjustment, and its selective loan growth strategy, management expects net interest margin (NIM) to remain within its guidance of -30bps to -10bps, vs. that of 2024.
Small growth in fee income expected. With declining transition fees, following slow new lending/businesses, KTB targets to grow its fee income from its wealth management business as well as new product initiatives, such as featured debit cards. Meanwhile, to boost non-NII, KTB aims to increase its income from bad debt recovery, while anticipating lower gains on FVTPL and lower gains on investments, compared with those in 1Q25. Moreover, management has guided for potential NPA sales in 2H25F if market prices improve.
Cost-to-income ratio maintained at low-to-mid 40s. Note that an impairment loss of properties for sale (NPA) was one of the major operating expenses in FY24. However, there was another impairment loss of NPA set aside in 1Q25 to incorporate the earthquake incident in Mar. At this point, management does not expect any other sizable impairment loss to be recorded in FY25F.
With that, management maintains its C/I ratio target of low-to-mid 40s, despite the bank’s continuous investment in IT infrastructure and systems.
Asset quality to remain in check. 1Q25 witnessed only a small increase in new NPL formation, in line with the economic condition and the bank’s asset quality management. At this point, management believes NPL ratio should remain within its guidance of <3.25% in FY25F.
Meanwhile, KTB has guided for its FY25F credit cost at 105-125bps, while expecting the credit cost to have already peaked in 1Q25 (at 130bps), thanks to increasing mix of government loans and the front-loaded provisions set aside in 1Q25 (to incorporate increasing economic uncertainties from US trade tariffs). Lastly, it looks to maintain a high coverage ratio of around 180% at end-FY25F.
Potential for more capital management initiatives to enhance shareholder returns. KTB raised its dividend payout to nearly 50% in FY24 and intends to at least maintain its payout in FY25F. With that, we expect KTB to pay dividend of THB1.59 per share, implying a dividend yield of 7.3%. Note that KTB normally pays dividends once a year.
With its high Tier 1 capital of 19.1% at end-1Q25, more capital management programmes are expected amid the slow growth environment. Management revealed that at the bank’s latest AGM, it has received shareholder approval to execute a share buyback programme of no more than 10% of its paid-up capital.
This implies that if the bank’s management believes it is the right time to do the share buyback, it can do so without seeking another shareholder approval. Note that KTB is currently trading at 0.66x FY25F P/BV.
Maintain BUY with TP of THB25.50. Our TP is based on 0.77x FY25F P/BV, i.e., its long-term average P/BV. We believe KTB has potential to catch up with its peers in the digital banking arena, supported by its relatively large digital customer base. Moreover, KTB is still trading at a low valuation of 0.66x FY25F P/BV. Given this, along with KTB’s strong financial performance and manageable asset quality, we believe the counter deserves a re-rating.
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