In this briefing:
1. Krung Thai Bank: Not as Cheap as It Looks
Originally, Krung Thai Bank Pub (KTB TB) struck us as interesting. A solid PH Score™, reasonable franchise valuation and P/Book, and a low RSI.
However, further due-diligence shows a somewhat stagnant and eroding operation.
- Headline profitability improvement is unrelated to efficiency or to operational advances.
- Cost growth is fast outpacing a declining top-line.
- Interest income has actually fallen for each of the last 3 years.
- The bank is being squeezed on margin despite keeping interest expenses unchanged.
- Non-interest expenses soared by 26% YoY.
- The bottom line (and profitability) was flattered by varied low quality items as well as much lower loan loss provisions, but still remained well above comprehensive income.
- Asset Quality is also concerning (despite lower loan loss provisions) given the sharp rise in loss (especially) and substandard loans as well as the amount of Special Mention Loans on the Balance Sheet. This means provisioning of problem loans may not be sufficient.
- Liquidity: Deposits are also declining, pushing up the LDR.
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