At the analyst meeting, KKP disclosed a hike in credit cost guidance and a cut in loan growth for 2023. It expects NPLs to peak in 3Q23-4Q23.We cut our 2023F by another 12% as we raise our credit cost by 30 bps and cut loan growth by 2 ppt to fine tune with the new guidance. We maintain our Neutral rating with a cut in TP to Bt60 from Bt67.
Raised 2023F credit cost guidance. KKP raised 2023F credit cost guidance from 2% to 2.6-2.8% (vs. 2.7% for 1H23), which is higher than our forecast of 2.5%. It also raised 2023F NPL ratio target from 3.1% to 3.5% (vs. 3.6% at 2Q23), expecting NPLs to peak in late 3Q23 or the beginning of 4Q23. The rise in NPLs in 2Q23 was from HP (mainly used car HP extended in 2022) and a qualitative reclassification of corporate loans of one telecom company that operates in Myanmar and has a repatriation problem. Its initiatives to tackle HP NPLs include: 1) tightening credit policy, becoming more selective on clients and dealers, 2) proactive debt restructuring for stage 2 loans and 3) setting up a new department to handle the sale of repossessed cars to minimize loss on sales. We thus raise our 2023F credit cost forecast to 2.8% from 2.5%.
Cut 2023F loan growth target. KKP cut its 2023F loan growth target from 13% to 10% (vs. 5.7% YTD) to reflect a tighter credit policy. We thus lowered our 2023F loan growth to 10% from 12%.
Expect HoH fall in loan spread. KKP maintains its 2023F loan spread target at 5% (vs. 5.3% in 1H23), suggesting a HoH fall in loan spread in 2H23. KKP expects 2H23 loan yield to be pressured by a tighter credit policy and a shift in loan mix more toward the low-yield low-risk segment. We expect 2023F NIM to rise 14 bps to 4.5% (vs. 4.55% in 2Q23 and 4.5% in 1H23), reflecting a minimal QoQ reduction in 3Q23 and 4Q23.
Further cut in 2023F earnings. We cut 2023F earnings by another 12% (after a 7% cut after 2Q23 results were released) as we raise our credit cost by 30 bps and cut loan growth by 2 ppt to fine tune with the new guidance. We thus expected 2023F earnings to fall 15%. 1H23 earnings account for 54% of our revised full-year forecast. We expect 3Q23F earnings to be flattish QoQ (still high ECL with flat toplines) but fall YoY (higher ECL).
Maintain Neutral with TP cut. We maintain our Neutral rating with a cut in TP to Bt60 (0.8x 2024F BVPS) from Bt67.
Key risks: 1) Asset quality risk from uneven economic recovery and global economic slowdown, 2) slower-than-expected loan growth from sluggish loan demand and high competition and 3) non-NII under pressure by a volatile capital market and potential tightening of regulations on fees by the BoT.
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