Brokers sour on KTB after Q2 red flag

Analysts have slashed Krungthai Bank’s net profit forecast for the three months to June by up to 70% after KTB warned that its loan-loss provisions for ailing Energy Earth Plc would deal a blow to its quarterly bottom line.

Asia Plus Securities cut its second-quarter net profit estimate for KTB to 4.78 billion baht from the previous 7.79 billion after taking into account the bank’s full loanloss reserves for coal distributor Energy Earth, said ASP executive vice-president Usanee Liurut.

If the brokerage house is accurate, SETlisted KTB’s second-quarter net profit will be down 44% quarter-on-quarter and 44.9% year-on-year.

The country’s second-biggest lender by assets said recently that Energy Earth owed a total debt plus interest of 12 billion baht to the bank.

Energy Earth last month said in a filing with the Stock Exchange of Thailand that it had already defaulted on bonds, bills of exchange and bank loans worth nearly 7 billion baht.

KTB is due to release its second-quarter results next week.

Ms Usanee said KTB probably delivered better operating results in the second quarter, as lower employee costs can offset narrowed net interest margin.

ASP also revised down its KTB net profit forecasts for 2017 and 2018 by 20.9% and 9.3% to 27.7 billion baht and 32.9 billion.

The broker expects KTB’s non-performing loan (NPL) ratio to have climbed to 4.88% at the end of June from 4.36% at the end of March, but the real figure is likely to surpass the estimate because ASP had not taken soured SME and mortgage loans into consideration.

Ms Usanee said KTB’s earnings outlook for the current quarter is brighter because no defaults by large companies are in sight.

ASP recommends investors shift from KTB to banks with robust earnings prospects such as Siam Commercial Bank (SCB), Kiatnakin Bank (KKP) and Thanachart Capital (TCAP).

Adisorn Mungparnchon, an analyst at Phillip Securities Thailand, said the house cut it second-quarter net profit forecast for KTB to 2.3 billion baht from the previous 7.8 billion, assuming loan impairment charges of 15 billion baht.

The broker earlier predicted that KTB would set aside loan-loss reserves of 8.3 billion baht during the April-to-June quarter.

“Even though the bank doesn’t have defaults of large borrowers, the bank’s soured loans remain on the rise,” Mr Adisorn said. “It is quite certain we will cut KTB’s full-year net profit forecast after second-quarter earnings are announced.”

He said KTB’s plan to boost its NPL coverage ratio to reach a par with those of other large banks within the next 3-5 years is likely to be delayed.

Phillip estimates that KTB will post a net profit of 32.1 billion baht for the full year.

Mr Adisorn advised investors to avoid KTB and buy the broker’s top pick for the sector, Tisco Financial Group Plc (TISCO).

KTB shares closed yesterday on the SET at 18.70 baht, down 30 satang, in heavy trade worth 1.26 billion baht.