The Thai banking sector was one of the underperformed sectors during the Covid-19 pandemic era with lower interest rate and higher provision to cushion uncertainties that the deadly virus outbreak could bring. The Thai central bank also denied all commercial banks to pay dividend payment for the operations in 2020 and later removed the restriction in late 2021, allowing the banks to start paying dividend in 2022 for their performance in the previous year.
As of the closing price on April 12, 2022, before the long holiday in Thailand, several banking stocks have been performing positively this year, led by 15.48% gain for Kiatnakin Phatra Bank Public Company Limited (SET: KKP), 11.11% increase in Bangkok Bank Public Company Limited (SET: BBL) and 9.51% increase in Kasikornbank Public Company Limited (SET: KBANK). On the other hand, the new merged bank TMBThanachart Bank Public Company Limited (SET: TTB) has the worst performance with a 12.24% down this year, while The Siam Commercial Bank Public Company Limited (SET: SCB), one of the most anticipated banks for the new transformation in financial business recorded an 12.66% decline so far. In the meantime, SET Index only gained 1% this year, struggling to maintain above the 1,700 level amid mounting pressure from inflation, Fed’s rate hike and the war in Ukraine.
Meanwhile, all banking stocks are still below their 52-week high with SCB, Bank of Ayudhya Public Company Limited (SET: BAY), and TTB having the widest gap at 25%, 13.92% and 14%, respectively.
| Last Close | 2021 Net Income | 2022 Net Income Estimated |
YTD Change % | 52-Week High | % Change from 52-Week High |
Consensus Target Price |
|
| BAY | 34 | 33,794 | 24,644 | -4.23 | 39.5 | -13.92 | 36.62 |
| BBL | 135 | 26,507 | 30,229 | 11.11 | 149 | -9.40 | 158.5 |
| KBANK | 155.5 | 38,052 | 39,124 | 9.51 | 175 | -11.14 | 174.73 |
| KKP | 69 | 6,318 | 6,900 | 15.48 | 72.5 | -4.83 | 76.09 |
| KTB | 13.3 | 21,588 | 23,598 | 0.76 | 14.7 | -9.52 | 13.95 |
| SCB | 103.5 | 35,598 | 38,830 | -18.50 | 138 | -25.00 | 144.85 |
| TISCO | 99.75 | 6,781 | 7,012 | 3.91 | 102.5 | -2.68 | 107.06 |
| TTB | 1.29 | 10,474 | 12,048 | -12.24 | 1.5 | -14.00 | 1.41 |
Unit: Net income in million
KGI Securities stated that the banking sector should continue to withstand the short-term economic shock, but economic conditions would cause 1Q22 earnings to grow at a slow pace. Income from the capital market is expected to be slower, while loan growth for troubled debt during COVID-19 would help banks grow NII. BBL and KBANK should grow core earnings the most, but TTB, KKP and Tisco Financial Group (SET: TISCO) should be hit harder than big banks.
Meanwhile, NPLs are being maintained with a slight decline in credit cost given upcoming plans to divest NPLs through AMCs. Going forward, earnings recovery will remain fragile if the domestic economy weakens more than our estimate in 2Q-3Q22. To play it safe, KGI Securities stated that BBL and KBANK are top picks.
As for SCB, KGI Securities stated that after the bank’s share swap is completed in April 2022, the new organization as a holding company is expected to be listed in May 2022 and then the new companies CardX and AutoX are expected to operate separately and grow new business. The competitive landscape among banks and non-banks could intensify after that. Following the sharp fall in share price, we think SCB’s earnings growth profile remains unchanged.
Meanwhile, KGI Securities expected TTB’s 1Q22F earnings of 2.9 billion baht (+2.7% QoQ, +3.4% YoY). Forecast factors are i) loan growth slowing due to the bank’s policy to cautiously grow new risky loans but grow only low risk in mortgage and hire purchase loan, ii) falling fee income growth QoQ on a high fee base from bancassurance and asset management fee in 4Q21, and iii) falling operating expense QoQ and YoY.
Meanwhile, core earnings are expected to show zero growth QoQ and decline 4% YoY. Bad debt is expected to be written off in order to maintain its NPL ratio.
Maybank Kim Eng Securities (MST) wrote in its analysis, saying that provision of the banking sector is expected to increase 3% YoY, led by KBANK and BBL, while expected TISCO to set aside low provisions in 1Q22.
| (THBm) | 1Q21 | 1Q22E | Chg YoY |
| BBL | 6,327 | 7,082 | 12% |
| KBANK | 8,650 | 10,241 | 18% |
| KKP | 1,234 | 1,351 | 9% |
| KTB | 8,058 | 8,501 | 6% |
| SCB | 10,008 | 9,161 | -8% |
| TISCO | 833 | 306 | -63% |
| TTB | 5,480 | 5,120 | -7% |
| Sector | 40,590 | 41,764 | 3% |
Provisions are one of the key factors to determine Thai banks’ bottomline as the banks had made a significant increase in provisions to cushion for Covid-19 back in 2020, and started to lower after the situation eased and Thai economy began to recover. An increase in provisions in 1Q22 could be due to uncertainties in the war between Russia and Ukraine in which analysts believed to have limited impact on the Thai economy.
