Sector Report 24 April 2015

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Banking Sector

Staying conservative amidst uncertain times

Collective earnings performance

In aggregate, 1Q15 net profit of the 11 SET-listed banks was Bt52.4bn, up 6.3% QoQ and

7.0% YoY. The improvement QoQ was expected given decreasing operating expenses after

passing the peak in 4Q, which is when most banks book the majority of their expenses.

Increasing fee income from mutual funds and bancassurance, as well as gains from

investments, helped boost earnings during the quarter. The gains from investments came

mostly from the sale of equities and fixed income. Meanwhile, lending grew a lackluster

0.3% QoQ and 4.1% YoY after excluding BAY’s consolidation with the Bank of Tokyo-

Mitsubishi UFJ’s Bangkok branch. The Bank of Thailand’s policy rate cut in March did not

bode well for big banks (BBL, KBANK, KTB, SCB) as this put pressure on NIM. However,

hire-purchase (HP)-oriented banks (TISCO, TCAP) benefited as the majority of their loan

portfolios are fixed rate loans, allowing them to keep lending rates while lowering their cost

of funds. Average NIM stood at 3.11%, down 3bps from the previous quarter. Overall,

CIMBT, KKP, and KBANK showed the most net profit growth in the quarter while TMB,

TISCO, and TCAP contracted the most.

Worsening asset quality leads to higher provisions

Asset quality worsened for most banks as there was a greater than expected rise in NPLs.

This was especially evident from KTB’s portfolio, which saw a jump in NPLs to 2.7% of

total loans in 1Q15 from 2.3% in 4Q14. The rise in bad debts stemmed from small-size

SME and housing loans whose borrowers felt growing pressure from high household debt.

As a result, the trend in the industry saw most banks setting aside extra provisions to

guard against future uncertainties. Average coverage ratio fell slightly to 126.5% from

129.3% in the prior quarter. While loan loss provisions increased, absolute NPLs grew at

a higher rate leading to this drop off. We believe there is potential for banks to continue to

set high loan loss provisions in the remaining quarters to cushion against any unforeseen

circumstances.

Thailand Research Department

Mr. Warut Siwasariyanon (No.017923)

Tel: 02 680 5041

Mr. Alex Manoonpol (Assistant Analyst)

► Combined 1Q15 net profit of the 11 SET-listed banks was Bt52.4bn, up 6.3%

QoQ and 7.0% YoY. This was short of the Bloomberg consensus of

Bt53.2bn.

► Loans grew 2.4% QoQ and 6.7% YoY due primarily to BAY’s consolidation

with the Bank of Tokyo-Mitsubishi UFJ’s Bangkok branch. Excluding BAY,

loans grew a mere 0.3% QoQ and 4.1% YoY.

► We maintain our OVERWEIGHT call on the banking sector. Our top pick is

KBANK (TP: Bt262.00) due to its high ROE compared to its peers while BBL

(TP: Bt232.00) is a close second as its conservative policies leave it well

positioned during these uncertain economic times.

Sector Report 24 April 2015

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Source: Company data

Maintain OVERWEIGHT call on the banking sector

While we revised down most of our FY15 earnings estimates by 3-5% before the bank

earnings were released, we maintain our OVERWEIGHT call on the banking sector given

the notable non-interest income growth that has compensated for a lack of credit growth.

We still anticipate lending to pick up again in 2H15 from the drawdown of funds for

government infrastructure projects while stimulus measures provide a glimmer of hope for

increased consumer spending. Our top pick remains KBANK (TP: Bt262.00) for its ability

to generate strong fee income as well as its high ROE compared to its peers. BBL

(TP:Bt232.00) comes in as a close second due to its superior asset quality, which leaves

it well positioned for credit growth when conditions permit.

Figure 1: Banking sector 1Q15 results review

Unit: Btmn 1Q14 4Q14 1Q15 %QoQ %YoY1Q15

Consensus

%Earnings

Surprise

%QoQ

Loan

Growth

%YoY

Loan

Growth

%Gross

NPL%Coverage % NIM

BAY 3,266 3,936 4,326 9.9% 32.5% 4,377 -1.2% 21.9% 31.4% 2.4% 139.2% 4.2%

BBL 8,965 8,763 9,407 7.3% 4.9% 9,159 2.7% -0.4% 1.6% 2.2% 189.9% 2.2%

CIMBT 441 89 134 51.3% -69.5% n/a n/a 0.1% 10.7% 3.7% 94.1% 3.0%

KBANK 11,939 9,967 12,401 24.4% 3.9% 12,815 -3.2% 1.4% 6.7% 2.3% 139.7% 3.7%

KKP 722 466 664 42.5% -8.1% 707 -6.1% -1.9% -8.3% 6.5% 74.9% 4.0%

KTB 8,298 8,019 7,864 -1.9% -5.2% 8,493 -7.4% 0.1% 10.6% 2.7% 115.8% 2.8%

LHBANK 226 302 328 8.7% 45.1% 358 -8.2% 3.6% 17.3% 2.3% 154.9% 2.1%

SCB 13,129 12,230 13,152 7.5% 0.2% 12,433 5.8% 1.8% 4.3% 2.1% 138.1% 3.2%

TCAP 1,323 1,360 1,332 -2.1% 0.7% 1,332 0.0% -3.3% -7.5% 4.0% 89.8% 2.8%

TISCO 935 1,234 1,192 -3.4% 27.6% 1,098 8.6% -3.2% -10.6% 2.7% 105.0% 3.1%

TMB 1,602 2,976 1,637 -45.0% 2.2% 2,385 -31.4% 1.6% 7.6% 3.0% 150.0% 3.1%

Total 50,846 49,342 52,438 6.3% 3.1% 53,157 -1.4% 2.4% 6.7% 3.1% 126.5% 3.1%

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ADVANC BTS GRAMMY MCOT PTT SC SSI TMBAOT CIMBT HANA MINT PTTEP SCB SSSC TNITYASIMAR CK HEMRAJ NKI PTTGC SCC SVI TOPBAFS CPF ICC NOBLE QH SCSMG SYMC TRCBANPU CPN INTUCH PAP RATCH SE-ED TCAP TRUEBAY CSL IRPC PG ROBINS SIM THAI TTWBBL DRT IVL PHOL RS SIS THCOM TVOBCP DTAC KBANK PR S&J SITHAI THRE UVBECL EASTW KKP PRANDA SAMART SNC TIP VGIBKI EGCO KTB PS SAMTEL SPALI TISCO WACOALBROOK ERW LPN PSL SAT SPI TKT

2S ASP CHOW GBX JUBILE LRH NMG PPP SINGER TCP TOG UACACAP AYUD CM GC KBS LST NSI PREB SIRI TF TPC UMIAF BEC CNT GFPT KCE MACO NWR PRG SKR TFD TPCORP UMSAHC BFIT CPALL GL KGI MAJOR OCC PT SMT TFI TPIPL UPAIT BH CSC GLOW KKC MAKRO OFM PYLON SNP THANA TRT UPOICAKP BIGC DCC GOLD KSL MBK OGC QTC SPCG THANI TRU UTAMANAH BJC DELTA GSTEL KWC MBKET OISHI RASA SPPT THIP TSC VIBHAAMARIN BLA DTC GUNKUL L&E MFC PB SABINA SSF TICON TSTE VIHAMATA BMCL ECL HMPRO LANNA MFEC PDI SAMCO STANLY TIPCO TSTH VNGAP BWG EE HTC LH MODERN PE SCCC STEC TK TTA VNTAPCO CCET EIC IFEC LHBANK MTI PF SCG SUC TLUXE TTCL YUASAAPCS CENTEL ESSO INET LHK NBC PJW SEAFCO SUSCO TMILL TUF ZMICOASIA CFRESH FE ITD LIVE NCH PM SFP SYNTEC TMT TWFPASK CGS FORTH JAS LOXLEY NINE PPM SIAM TASCO TNL TYM

A ASIA CITY EASON HTECH KASET MJD PL SF SVOA TMI UOBKHAAV BAT-3K CMR EMC HYDRO KC MK POST SGP SWC TNDT UPFAEC BCH CNS EPCO IFS KCAR MOONG PRECHA SIMAT SYNEX TNPC UWCAEONTS BEAUTY CPL F&D IHL KDH MPIC PRIN SLC TBSP TOPP VAROAFC BGT CRANE FNS ILING KTC MSC Q-CON SMIT TCCC TPAC VTEAGE BLAND CSP FOCUS INOX KWH NC QLT SMK TEAM TPP WAVEAH BOL CSR FPI IRC LALIN NIPPON RCI SOLAR TGCI TR WGAI BROCK CTW FSS IRCP LEE NNCL RCL SPC TIC TTI WINAJ BSBM DEMCO GENCO IT MATCH NTV ROJNA SPG TIES TVD WORKAKR CHARAN DNA GFM JMART MATI OSK RPC SRICHA TIW TVIALUCON CHUO DRACO GJS JMT MBAX PAE SCBLIF SSC TKS TWZANAN CI EA GLOBAL JTS MDX PATO SCP STA TMC UBISARIP CIG EARTH HFT JUTHA PRINC PICO SENA SUPER TMD UEC

Score Range Number of Logo Description

90 - 100 Excellent

80 - 89 Very Good

70 - 79 Good

60 - 69 Satisfactory

50 - 59 Pass

Below 50 No logo given N/A

Contact

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This report has been prepared by Asia Wealth Securities Company Limited (“AWS”). The information herein has been obtained from sources believed to be reliable and accurate, but AWS makes no representation as to the accuracy and completeness of such information. AWS does not accept any liability for any loss or damage of any kind arising out of the use of such information or opinions in this report. Before making your own independent decision to invest or enter into transaction, investors should study this report carefully and should review information relating. All rights are reserved. This report may not be reproduced, distributed or published by any person in any manner for any purpose without permission of AWS. Investment in securities has risks. Investors are advised to consider carefully before making decisions.

Branch Address Phone Fax

Head Office 540 Floor 7,14,17 , Mercury Tower, Ploenchit Road, Lumphini,

Pathumwan Bangkok 10330

02-680-5000 02-680-5111

Silom 191 Silom Complex Building,21st Floor Room 2,3-1 Silom Rd.,

Silom, Bangrak, Bangkok, 10500 Thailand

02-630-3500 02-630-3530-1

Asok 159 Sermmitr Tower, 17th FL. Room No.1703, Sukhumvit 21

Road, Klong Toey Nua, Wattana, Bangkok 10110

02-261-1314-21 02-261-1328

Pinklao

7/3 Central Plaza Pinklao Office Building Tower B, 16th Flr.,

Room No.1605-1606 Baromrajachonnanee Road, Arunamarin,

Bangkoknoi, Bangkok 10700

02-884-7333 02-884-7357,

02-884-7367

Chaengwattana

99/99 Moo 2 Central Plaza Chaengwattana Office Tower, 22nd

Flr., Room 2204 Chaengwattana Road, Bang Talad, Pakkred,

Nonthaburi 11120

02-119-2300 02-8353006

Chaengwattana 2

9/99 Moo 2 Central Plaza Chaengwattana Office Tower, 22nd Flr.,

Room 2203 Chaengwattana Road, Bang Talad, Pakkred,

Nonthaburi 11120

02-119-2388 02-119-2399

Mega Bangna 39 Moo6 Megabangna, 1st Flr., Room 1632/7 Bangna-Trad

Road, Bangkaew Bangplee, Samutprakarn 10540

02-106-7345 02-105-2070

Rayong 356/18 Sukhumvit Road, Nuen-Phra Sub District, Muang

District, Rayong Province 21000

038-808200 038-807200

Khonkaen 26/9 Srijanmai Road, Tamboonnaimuang, Khon Khaen

40000

043-334-700 043-334-799

Chonburi 44 Vachiraprakarn Road, Bangplasoi, Muang Chonburi, Chonburi

20000

038-274-533 038-275-168

Chaseongsao 233-233/2 Moo2 1st Flr., Sukprayoon Road, Na Meung Sub-

District, Meung District, Chachoengsao 24000

038-981-587 038-981-591