KTB’s 2Q23 results reflected stable credit cost, contraction in loans, NIM expansion, QoQ weaker non-NII and easing cost to income ratio. We adjust NIM to reflect the beat, which lifts our 2023F by 15%. Outperform is maintained with a hike in TP to Bt25.
2Q23: Beat on NIM. 2Q23 net profit was Bt10.2bn (+1% QoQ, +22% YoY), beating INVX by 11% but in line with consensus. The beat reflected larger NIM than expected.
Highlights.
1) Asset quality: NPLs slipped 2% QoQ (+17% if write-offs are added back, suggesting a rise in NPL inflow). Write-offs shot up to Bt21bn in 2Q23 from Bt883mn in 1Q23. Credit cost eased 5 bps QoQ (+35 bps YoY) to 1.2% vs. our 2023F of 1.25%. LLR coverage fell to 171% from 177% at 1Q23.
2) Loan growth: -0.2% QoQ, -2.2% YoY, -0.6% YTD. Loan growth by segment: corporate -1.2% QoQ, -1.2% YoY, -1.2% YTD; government +0.9% QoQ, -17.6% YoY, -2.1% YTD; SMEs -4.7% QoQ, -8.9% YoY, -6.3% QoQ; retail +1.4% QoQ, +6.7% YoY, +2.1% YTD. We maintain our 2023F loan growth at 1%.
3) NIM: Better than expected, +24 bps QoQ, due to a 31 bps QoQ rise in yield on earning assets against an 8 bps QoQ rise in cost of funds. We lift our 2023 NIM by 20 bps to 3.36% (+65 bps).
4) Non-NII: -16% QoQ (+5% YoY) due to weaker net fee income (-7% QoQ, -2% YoY) and gain on financial instruments (-36% QoQ, +58% YoY).
5) Cost to income ratio: -55 bps QoQ and -293 bps YoY to 38.35% as a rise in toplines exceeded a rise in opex (+3% QoQ, +12% YoY).
Raise 2023F with upside on NIM. We up our NIM assumptions, which raises our 2023F by 15%. suggesting 21% growth in 2023F. 1H23 accounted for 50% of our full-year forecast; we expect 2H23 to be stable HoH as a rise in NII (from NIM expansion) is expected to be offset by higher provisions and opex as well as smaller FVTPL gain. In 3Q23, we expect earnings to be stable QoQ but rise nicely YoY. We see upside to NIM from the potential further hike in policy rate to 2.5%.
Maintain Outperform with a TP hike. We keep our Outperform rating with a hike in TP to Bt25 (0.8x PBV or 8.2x 2024F PE) from Bt21 to reflect the upward revision and a rollover to 2024, underwritten by an attractive valuation, upside to NIM from a possible hike in policy rate to 2.5% and low asset quality risk.
Key risks: 1) Asset quality risk from a global economic slowdown, 2) slower loan growth on low demand and high competition and 3) pressure on non-NII from a volatile capital market and the potential tighter regulations by the BoT
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