Broker provides sell notice as KTC shares overvalued

Broker provides sell notice as KTC shares overvalued

Though the share price of SET-listed Krungthai Card Plc (KTC) has risen by 76% year-to-date, an analyst recommends investors sell the stock as the price exceeds its target price.

"We maintain our sell recommendation, but increased our target price to 270 baht, from 198 baht," said the analyst at Asia Wealth Securities, who requested anonymity.

Asia Wealth increased its earnings projection for KTC in 2018. Despite slower loan growth in the first quarter, KTC kept its 2018 portfolio growth target at 10% and credit card spending growth target at 15%, said Asia Wealth.

Asia Wealth speculates KTC's loan growth is likely to accelerate in the second half in tandem with the seasonality effect, said the analyst.

"We raised our net interest margin outlook to 8.5% from 8.3% to reflect KTC's ability to keep funding costs low. We also cut our cost-to-income ratio from 42.1% to 39.7%, near the 39.9% posted in 2017," said the analyst.

Asia Wealth increased KTC's earnings estimate by 13.8% to 4.3 billion baht.

KTC credit card spending grew 7.9% year-on-year in the first two month of 2018, while industry credit card spending grew 9.9%, according to KTC's filing with the Stock Exchange of Thailand. This was attributed to a decline in credit card receivables growth.

In monthly terms, credit card spending growth in the industry for January and February tallied 11.1% and 8.6%, respectively, while KTC credit card spending growth stood at 9.8% and 5.9%.

KTC logged net profit of 1.21 billion baht in the first quarter, up 65% year-on-year as a result of revenue generated from personal loan business, higher bad debt recovery, and lower financial expenses and provisions.

Better bad debt recovery and slower operational expenditure growth in the first quarter, along with the company's conservative stance in provisioning and its strategic shift to lower risk in the upper segments, led to the profit tally, said KGI Securities in its research note.

Bad debt recovery has grown over time, equalling 20% of revenue in the first three months versus at 18% in last year's final quarter and 17% in the first quarter of 2017.

KGI said if KTC maintains credit cost of around 800 basis points through this year, there is potential upside to its earnings of around 10-15%.

In related news, Rathian Srimongkol, chief executive at KTC, said Mongkol Prakitchaiwattana, the company's second-biggest shareholder after Krungthai Bank, does not intend to manage the company even if his shareholding exceeds 25%. Based on KTC's closing price yesterday at 328 baht per share, Mr Mongkol's investment is about 14.2 billion baht.

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