• Targets 6-7% loan and fee income growth; plans to cut staff count by 30% within 5 years to offset rising IT investment cost
• 4Q17 net profit fell 35% yoy to Bt4.8bn on higher provisions; expect provisions to drop on improving asset quality this year
• OUTPERFORM, Bt22 TP implies 10x FY18F P/E and 1x P/BV; cut FY18F earnings by 3% on higher credit cost

Expect loan demand to recover this year

CEO targets 6-7% loan growth (1.8% in 2017) and 7% fee income growth in 2018. Loan growth would be driven by government, retail and SME segments, while fee income would be led by bancassurance and mutual fund products. On the cost side, the bank plans to spend Bt10bn on IT this year vs Bt5bn in 2017. It also plans to reduce headcount by 30% over the next five years and number of branches to control OPEX. However, we expect amortization of expenses would push up cost-to-income ratio in the next three years.

4Q17/FY17 results missed expectations due to high credit cost

FY17 net profit fell 30% yoy due to larger provisions for EARTH, and rice mill and cassava segments. Loans grew 1.8% yoy and 3.3% qoq led by lending to the government, which reduced NIM to 3.20% from 3.33% in 3Q17. On a positive note, rising fee income and good cost control led PPoP to beat our forecast by 8%. NPL ratio fell 20bp qoq to 5.3%, thanks to Bt23.7bn NPL write-off in 2017. NPL coverage improved to 122% from 115% in 3Q17, as the bank booked Bt13.5bn provision or 285bp credit cost in 4Q17. Looking forward, asset quality should start to improve as KTB cleans up its loan book. The bank targets 140bp (bank only) credit cost for FY18 vs 138bp in 2017 (excluding provision for EARTH). We assumed 190bp total credit cost (Bt38bn). Of this, Bt28bn is for KTB, Bt7bn for KTC, and the rest to comply with IFRS 9.

OUTPERFORM, TP Bt22; positive on strong EPS recovery

We cut FY18F earnings by 3% after raising credit cost assumption by 20bp. We are positive on its strategy to clean up its loan portfolio and expect KTB to report the strongest EPS growth in FY18F (+36% yoy), which could be a re-rating catalyst.