KTB – TP upped after trimming credit cost

Trim 2024F credit cost, but expect stable QoQ in 4Q24. KTB expects credit cost to be stable QoQ in 4Q24 and maintains its goal to reduce credit cost to 1.2-1.3% in 2024 (vs. 1.26% in 9M24) from 1.43% in 2023. We trim our credit cost assumption by 3 bps to 1.27% in 2024F and 5 bps to 1.2% in 2025F, as KTB saw slower NPL inflow from housing loans in 3Q24. We expect credit cost to fall 7 bps to 1.2% in 2025, backed by its high LLR coverage of 179% at 3Q24. There is a chance it may be able to upgrade the Bt5.8bn loans to THAI from stage 3 to stage 1 in 2025, as THAI is in the process of exiting its rehabilitation plan. Taking the THAI loans out of NPLs would slash NPLs by 6%, bring NPL ratio down by 20 bps and lift LLR coverage to 189% from 179% at 3Q24. KTB has lower asset quality risk than peers because: 1) it has a higher exposure to zero-risk government loans at 16%, 2) it has lower exposure to SME loans at 10% and 3) more than 90% of its retail loans are backed up by payroll.

Expect loan growth to pick up in 4Q24 but unlikely to meet target. KTB will find it very challenging to meet its 2024 loan growth target of 3% as loans have contracted 0.5% YTD in 9M24, dragged by high repayment of corporate loans. It expects loan growth to accelerate in 4Q24, driven by government loans. At the same time, there is a risk of corporate loan prepayments, as borrowers can obtain funding abroad at lower cost. We maintain our 2024F loan growth at zero, expecting a QoQ pickup in loan growth in 4Q24.

Narrowed NIM. KTB expects NIM to fall 10-15 bps QoQ in 4Q24 as a result of a 12.5 bps cut in lending interest rates in October. In 2024, it expects NIM to be ~3.3% (+8 bps) in 2024, which is in line with our forecast. Assuming a cut in policy rate of 50 bps in 2H24 and 50 bps in 2025, we expect a 16 bps squeeze in NIM in 2025.

Raise earnings forecast slightly. We raise our 2024F by 2% and 2025F by 3% after trimming our credit cost forecast. We preliminarily expect 4Q24 earnings to fall 21% QoQ (lower NIM, higher opex) but rise 44% YoY (lower ECL). We expect 2025 earnings to be flattish on 2% loan growth, a 16 bps NIM narrowing (assuming a cut in policy rate of 50 bps in 2H24 and 50 bps in 2025), a 7 bps reduction in credit cost, flat non-NII and lower cost to income ratio from smaller loss on NPAs.

Maintain Neural with a TP hike. We maintain our Neutral rating but raise TP to Bt23 (based on 0.7x 2025F PBV) from Bt22.

Key risks: 1) Asset quality risk from an uneven economic recovery, 2) slower loan growth on low demand and high competition 3) interest rate cuts and 4) ESG risk from market conduct and cyber security.