The share price of Krungthai Card Public Company Limited (KTC) dropped by 2.07% to trade at ฿35.50/share on Thursday due to concerns over higher NPL formations, lower revenue and BOT’s measurement for good debtors.
In the analysis of KTB Securities (Thailand) (KTBST), the security company maintained the “BUY” recommendation but revised down KTC’s target price from ฿46.00/share to ฿45.00/share while maintaining 2020E PBV multiple at 5.0x, which implies +1.5 SD above 5-yr average level.
KTBST stated that KTC reported 4Q19 earnings results that were in line with Bloomberg consensus. Net profit grew +7% YoY, +2% QoQ to Bt1.3bn, as total loan increased +9.8% YoY and cost of funds and cost to income declined YoY and QoQ. However, NPL formation increased to Bt800mn per quarter in 2H19 and outpaced that in 1H19.
In this regard, KTBST cut the 2020E net profit forecast by 5% to Bt6.1bn, which represents a growth of +10% YoY, as KTBST revised up NPL and LLR to loan ratio assumptions to reflect the deteriorating economy and higher NPL formation.
KTC’s share price has underperformed the SET Index by 13%/10% in one/three months. KTBST believes the stock already priced in the lackluster 4Q19 earnings performance and weaker spending due to the deteriorated economy and see the stock rebounding in the near term in expectation of strong loan-term earnings growth outlook with an estimate of 11.2% CAGR in 2019-21E and new financial products, including nana/picofinance and vehicle title loan, which should drive revenue sharply higher in 2021.
Meanwhile, LH Securities (LHS) stated that the revenue was lower than LHS’ estimation around 3% due to higher-than-expected debt reserves. The share price of KTC constantly declined due to the report of the Bank of Thailand is preparing to enforce the measurement to help “good debtor” by lowering the interest rate from 18-28% to 7-12%.
However, LHS believed that the share price had plunged to the point that gave a wide gap for upside. The share price could decline a little further, thus, LHS recommended “Buy on Weakness”