Sector Report 25 Jul 2016

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Banking Sector

A better outlook ahead

Collective earnings performance

In aggregate, 2Q16 net profits of the 11 SET-listed banks was Bt50.3bn, rising 5.1% QoQ

but falling 2.4% YoY. The QoQ improvement was from decreased provision expenses QoQ

as provisioning was likely front-loaded this year. However, provisions were still higher YoY,

especially for four big banks, BBL, KBANK, KTB, and SCB, as they needed to set aside

provisions to combat rising NPLs. On the lending side, overall loans slightly grew 1.0% YTD,

corresponding with the slow economic recovery. Many banks have started to see loan

improvement while hire-purchase (HP)-oriented banks (KKP, TCAP, and TISCO) still

experienced loan contractions, in line with the slowdown in the automotive market. Despite

loan contractions, these HP banks enjoyed better earnings growth than others thanks to

increased net interest margins (NIM) bolstered by lower funding costs, as well as improved

asset quality allowing lower provisioning. KTB also faced loan contraction as it tightened its

credit policy due to asset quality concerns. Regarding NIM for the sector, 2Q16 NIM rose to

3.4%, from 3.3% in 1Q16 and 3.1% in 2Q15, as most banks were able to more effectively

manage funding costs. LHBANK, SCB, and KKP showed the most net profit growth in the

quarter whereas CIMBT, BBL, and TISCO contracted the most.

Outlook for 2H16

As seen in 2Q16, loans have shown gradual improvement. Most big banks, except for

KTB, reported lending growth YTD, in line with the continuing recovery of the Thai

economy, driven by the government’s spending and tourism industry. Loans at these

banks expanded among various segments varying from large corporates, SMEs, and the

retail sector. This growth, especially in the corporate segment, indicates public spending

has started to yield results. We remain optimistic on the 2H16 outlook as we anticipate the

growth momentum to continue, driven by the government’s infrastructure investments.

This should help strengthen consumer confidence, and eventually boost private

investments. We expect the banking sector to receive significant benefit from such

catalysts, especially corporate-driven banks such as BBL.

Thailand Research Department

Mr. Warut Siwasariyanon (No.017923)

Tel: 02 680 5041

Ms. Veeraya Rattanaworatip

(Assistant Analyst)

► Combined 2Q16 net profits of the 11 SET-listed banks was Bt50.3bn, up

5.1% QoQ but down 2.4% YoY, on account of loan loss provisions. This

was 2.7% above the Bloomberg consensus of Bt49.0bn.

► Sector loans slightly improved 1.3% QoQ and 1.0% YTD, in line with the

country’s gradual economic recovery.

► We maintain our OVERWEIGHT call on the banking sector as we believe

Thailand’s economy should continue expanding in 2H16 and the market

has already priced in asset quality concerns. Our top picks are BBL (AWS

TP: Bt188) and TCAP (AWS TP: Bt46).

Sector Report 25 Jul 2016

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Looking at HP-driven banks, even though loans at these banks have yet to fully recover

due to the lackluster auto market, we expect them to continue enjoying earnings upside

in 2H16. Robust NIMs and strengthened asset quality would be the driving forces behind

the expected growth. Specifically, NIMs should benefit from ongoing effective funding cost

management, as well as the low interest rate environment as the majority of their portfolios

are fixed-rate hire-purchase loans. Meanwhile, their strategy to cope with unfavorable

lending demand by focusing more on enhancing asset quality would allow them to record

lower provision expenses, hence boost bottom lines. This was seen with TCAP and

TISCO, especially TCAP which has posted declines in NPLs for eight-straight quarters.

Apart from that, BAY’s outstanding 1H16 result, surging 20.1% YoY, leaves us more

optimistic about the counter’s prospects. During the period, its loans grew 4.2% YTD,

supported by a broad-base of segments, including retail loans, corporate loans, and SME

loans. Further, its asset quality strengthened as its 2Q16 NPL ratio inched down to a post

Asian Financial Crisis low of 2.20% while coverage ratio improved to 146.4%, well above

the sector average of 129.8% and those of big banks (except for BBL). This suggests that

the consolidation with BTMU gives the bank greater opportunities to explore and

strengthens its position to be almost comparable to big banks. While other banks might

struggle with rising NPLs and slow loan expansion during the slow economic recovery,

BAY still managed to show good growth in the periods. Hence, we reckon BAY will

continue growing even more in 2H16, along with the improving economy, and estimate its

earnings to grow 8.2% and 13.8% in 2016 and 2017, respectively. Taking into account its

strong fundamentals, we revised up BAY’s target price to Bt44.50, from Bt39.00, with a

caution to investors regarding its low free float.

Maintain OVERWEIGHT call on the banking sector

We maintain our OVERWEIGHT call on the sector as we anticipate the Thai economy to

continue to gradually expand in 2H16, with huge support from government spending and

bright tourism. Further, we believe the market has already priced in asset quality concerns.

Given the theme of infrastructure play, our top picks would be corporate-driven banks,

such as BBL (AWS TP: Bt188). We also suggest TCAP (AWS TP: Bt46) as its earnings

growth is expected to march on in 2H16, bolstered by high NIM, lower provisions, and tax

benefit. In addition, we start to like BAY (AWS TP: Bt44.50) on account for its bright

outlook but investors should be aware of its low free float.

Sector Report 25 Jul 2016

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Table 1: Banking sector 2Q16 results review

Source: Company data

Table 2: AWS bank ratings

Bank Rating 2016 Target Price

(Bt) Closing Price (Bt)

BAY BUY 44.50 39.25

BBL BUY 188.00 166.00

CIMBT N/A N/A 1.18

KBANK BUY 203.00 179.00

KKP BUY 55.50 51.00

KTB BUY 20.00 17.10

LHBANK N/A N/A 1.83

SCB HOLD 152.00 150.50

TCAP BUY 46.00 39.25

TISCO BUY 60.00 52.50

TMB BUY 2.80 2.28

Source: AWS

Unit: Btmn 2Q15 1Q16 2Q16 %QoQ %YoY2Q16

Consensus

%Earnings

Surprise

%QoQ

Loan

Growth

%YoY

Loan

Growth

%YTD

Loan

Growth

%Gross

NPL%Coverage % NIM

BAY 4,349 5,150 5,269 2.3% 21.1% 5,243 0.5% 4.3% 9.1% 4.2% 2.2% 146.4% 3.8%

BBL 8,035 8,317 7,169 -13.8% -10.8% 8,270 -13.3% 1.7% 6.6% 2.0% 3.1% 164.5% 2.3%

CIMBT 218 327 40 -87.8% -81.7% n/a n/a 1.1% 3.0% 1.6% 4.3% 92.8% 3.9%

KBANK 11,479 9,646 9,427 -2.3% -17.9% 9,711 -2.9% 3.1% 6.2% 3.4% 2.9% 136.2% 3.5%

KKP 749 1,107 1,297 17.2% 73.2% 1,014 27.9% -0.2% -0.1% -1.4% 6.1% 95.7% 4.5%

KTB 8,449 7,540 8,679 15.1% 2.7% 7,655 13.4% -0.9% -0.3% -2.7% 3.9% 104.7% 3.3%

LHBANK 420 571 802 40.4% 90.9% 439 82.9% 2.3% 10.3% 6.0% 1.7% 182.9% 2.4%

SCB 13,218 10,546 12,818 21.5% -3.0% 11,781 8.8% 1.3% 2.5% 1.5% 2.8% 130.0% 3.2%

TCAP 1,393 1,351 1,466 8.6% 5.3% 1,466 0.0% -1.7% -4.3% -3.7% 2.7% 126.0% 3.1%

TISCO 1,004 1,255 1,208 -3.8% 20.3% 1,281 -5.7% -1.0% -7.4% -3.1% 3.0% 106.0% 4.0%

TMB 2,260 2,092 2,151 2.8% -4.8% 2,139 0.5% 0.9% 7.4% 1.8% 2.9% 143.0% 3.1%

Total 51,573 47,902 50,326 5.1% -2.4% 48,999 2.7% 1.3% 3.6% 1.0% 3.23% 129.8% 3.4%

CG Report

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Score Range Number of Logo Description

90 – 100

80 – 89

70 – 79

60 – 69

50 – 59

Below 50

No logo given

Excellent

Very Good

Good

Satisfactory

Pass

N/A

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2015.

Corporate Governance Report disclaimer

The disclosure of the survey result of the Thai Institute of Directors

Association (“IOD”) regarding corporate governance is made pursuant

to the policy of the Office of the Securities and Exchange Commission.

The survey of the IOD is based on the information of a company listed

on the Stock Exchange of Thailand and the Market for Alternative

Investment disclosed to the public and able to be accessed by a

general public investor. The result, therefore, is from the perspective of

a third party. It is not an evaluation of operation and is not based on

inside information.

The survey result is as of the date appearing in the Corporate

Governance Report of Thai Listed Companies. As a result, the survey

result may be changed after that date, Asia wealth Securities Company

Limited does not conform nor certify the accuracy of such survey result.

ADVANC BAFS BCP BIGC BTS CK CPN DRT DTAC DTC EASTW EGCO GRAMMYHANA HMPRO INTUCH IRPC IVL KBANK KCE KKP KTB LHBANK LPN MCOT MINTMONO NKI PHOL PPS PS PSL PTT PTTEP PTTGC QTC RATCH ROBINS SAMARTSAMTEL SAT SC SCB SCC SE-ED SIM SNC SPALI THCOM TISCO TKT TMBTOP VGI WACOAL

AAV ACAP AGE AHC AKP AMATA ANAN AOT APCS ARIP BMCL BOL BROOKBWG CENTEL CFRESH CHO CIMBT CM CNT COL CPF CPI CSL DCC DELTADEMCO ECF EE ERW GBX GC GFPT GLOBAL GUNKUL HEMRAJ HOTPOT HYDRO ICCICHI INET IRC KSL KTC LANNA LH LOXLEY LRH MACO MBK MC MEGAMFEC NBC NCH NINE NSI NTV OCC OGC OISHI OTO PAP PDI PEPG PJW PM PPP PR PRANDA PREB PT PTG Q-CON QH RS S&JSABINA SAMCO SCG SEAFCO SFP SIAM SINGER SIS SITHAI SMK SMPC SMT SNPSPI SSF SSI SSSC SST STA STEC SVI SWC SYMC SYNTEC TASCO TBSPTCAP TF TGCI THAI THANA THANI THIP THRE THREL TICON TIP TIPCO TKTKS TMI TMILL TMT TNDT TNITY TNL TOG TPC TPCORP TRC TRU TRUETSC TSTE TSTH TTA TTCL TTW TU TVD TVO TWPC UAC UT UVVNT WAVE WINNER YUASA ZMICOVNT WAVE WINNER YUASA ZMICO

2S AEC AEONTS AF AH AIRA AIT AJ AKR AMANAH AMARIN AP APCOAQUA AS ASIA AUCT AYUD BA BEAUTY BEC BFIT BH BIG BJC BJCHIBKD BTNC CBG CGD CHG CHOW CI CITY CKP CNS CPALL CPL CSCCSP CSS CTW DNA EARTH EASON ECL EFORL ESSO FE FIRE FOCUS FORTHFPI FSMART FSS FVC GCAP GENCO GL GLAND GLOW GOLD GYT HTC HTECHIEC IFEC IFS IHL IRCP ITD JSP JTS JUBILE KASET KBS KCAR KGIKKC KTIS KWC KYE L&E LALIN LHK LIT LIVE LST M MAJOR MAKROMATCH MATI MBKET M-CHAI MFC MILL MJD MK MODERN MOONG MPG MSC MTIMTLS NC NOK NUSA NWR NYT OCEAN PACE PATO PB PCA PCSGH PDGPF PICO PL PLANB PLAT PPM PRG PRIN PSTC PTL PYLON QLT RCIRCL RICHY RML RPC S SALEE SAPPE SAWAD SCCC SCN SCP SEAOIL SIRISKR SMG SOLAR SORKON SPA SPC SPCG SPPT SPVI SRICHA SSC STANLY STPISUC SUSCO SUTHA SYNEX TAE TAKUNI TCC TCCC TCJ TEAM TFD TFI TICTIW TLUXE TMC TMD TOPP TPCH TPIPL TRT TSE TSR UMI UP UPFUPOIC UREKA UWC VIBHA VIH VPO WHA WIN XO

Source: Thai Institute of Directors (IOD)

CG Report

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ขอมล Anti-Corruption Progress Indicator ของบรษทจดทะเบยน ระดบ 1ACD AEONTS AFC AIRA AJ ALUCON AMC AQUA ARIP AUCT BAT-3K BIG BJCBLISS BMCL BOL BRR BSBM CBG CCET CCN CGD CMR CPH CSC CSPCTW DCON DRACO DSGT DTCI E EMC ESSO FOCUS FSMART GIFT GLANDGRAND GUNKUL HFT HTECH IHL ILINK ITD JSP KDH KTIS KTP LEE LSTMAJOR MATCH MAX M-CHAI MDX MIDA ML MPIC NC NEP NNCL NWR OHTLPICO PK PL PPM PRAKIT PRECHA PRIN PSTC PYLON RAM RICH RS SANKOSAUCE SAWAD SAWANG SCN SEAFCO SF SHANG SIRI SMART SMM SOLAR SPACK SPGSPPT SPVI STA STAR SVH SVOA SWC TAPAC TC TCCC TCJ TCOAT THTKS TNH TNPC TPA TPAC TPOLY TRC TRUBB TSE TTA TTI TTL TTTMTWP TWZ U UMS UPA UPOIC UTP UVAN VARO VI VIBHA VIH VTEWG

ระดบ 22S ABICO AF AKP AMARIN AMATA AOT APCO AYUD BEAUTY BFIT BH BKDBLAND BTNC CCP CI CSR CSS EFORL EPCO FE FNS FVC GEL GLOBALHEMRAJ IEC IFS INET JUTHA KASET KCAR KKC KSL L&E LALIN LTX MMALEE MBK MBKET MEGA MK MPG MTLS NCH NCL NPP OCC OCEAN PBPCA PRINC QH ROCK RPC S&J SGP SIAM SIS SKR SMG SMIT SORKONSUSCO TAKUNI TEAM TF TIC TIP TIPCO TMC TMI TPP TRT TRU TRUETSC TSI TTW TVD TVO UKEM UNIQ UWC VNG WIIK WIN XO

ระดบ 3AABC ACAP ADVANC AEC AGE AH AIE AMANAH ANAN AP APCS APURE ASASIA ASIAN ASIMAR BIGC BROOK BTS BWG CEN CENTEL CFRESH CHARAN CHO CHOTICM CNT COL CPALL CPF CPI CPL DELTA DEMCO DIMET DNA DTAC EAECF EE EVER FPI GBX GC GFPT GLOW HMPRO HOTPOT ICC ICHI IFECINOX INSURE IRC JAS JTS JUBILE KC KTC KYE LHK LPN LRH MAKROMC MCOT MFC MFEC MINT MJD MONO MOONG NBC NDR NINE NMG NSINTV OGC PACE PCSGH PDI PG PHOL PLAT PPS PR PRANDA PREB PSQLT RATCH RML ROBINS ROJNA RWI SAMCO SCCC SCG SEAOIL SE-ED SENA SINGERSITHAI SMK SMPC SPALI SPC SPCG SPI SRICHA SSI STANLY SUPER SVI SYMCSYNEX SYNTEC TASCO TCMC TFI THAI THRE THREL TICON TKT TLUXE TNL TPCORPTMILL TMT TSTE TSTH TTCL TU TVI UOBKH UREKA VGI VNT WACOAL WHAZMICO

ระดบ 3BAAV AHC AI AIT AKR ARROW ASK BA BDMS BEC BECL BJCHI BUICGH CHG CHOW CIG CITY CK CKP COLOR CWT EARTH EASON EPG F&DFANCY FIRE FMT FORTH GENCO GL GOLD GPSC GRAMMY HYDRO IRCP IT JCTKCM KWC LH LIT LOXLEY MACO MANRIN MATI MODERN MSC NOBLE NOK NPKNUSA OISHI OTO PAF PAP PATO PF PJW PLANB PLE POLAR PRG PTLQ-CON QTC RCI S11 SALEE SAM SAMART SAMTEL SAPPE SC SCP SFP SIMSLP SMT SPA SPORT SSC SST STEC STPI SUC SUTHA T TAE TBSPTCC TFD TGCI TGPRO THANA THIP TIW TK TMW TNDT TOPP TPC TPCHTPIPL TSR TT TYCN UAC UBIS UEC UMI UP UPF UT UV VPOWAVE WINNER YUASA

ระดบ 4ASP BAFS BANPU BAY BBL BKI BLA CIMBT CNS CSL DCC DRT DTCEASTW ECL EGCO ERW FSS GCAP HANA HTC INTUCH IRPC IVL KBANK KCEKGI KKP KTB LANNA LHBANK MTI NKI PSL PTG PTTEP SABINA SCB SNCSNP SSF SSSC TCAP THCOM TISCO TIMB TMD TNITY TOG

ระดบ 5BCP CPN GYT PE PM PPP PT PTT PTTGC SAT SCC THANI TOP

ไมเปดเผยหรอไมมนโยบายA ACC AJD AQ BCH BGT BROCK BSM BTC CHUO CPR CRANE EICFER JMART JMT KAMART KBS KIAT LDC MBAX MCS METCO NEW NEWS NYTPAE PDG PERM PMTA POST RCL RICHY ROH S SIMAT TCB TR TSFTVT WORKหมายเหตระดบ 1 : มนโยบายระดบ 2 : ประกาศเจตนารมณระดบ 3 : มมาตรการปองกน ซงทง 2 กรณ ถอเปนผลการประเมนในระดบเดยวกน

3A : บรษทมการประกาศเจตนารมณเขารวมโครงการ CAC หรอภาค3B : บรษทมค ามน และนโยบายของบรษท แตมไดประกาศเจตนารมณเขารวมโครงการ CAC หรอภาค

ระดบ 4 : ไดรบการรบรองระดบ 5 : ขยายผลสผท เกยวของ

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