KGI pointed out most Thai banks are still lagging regional peers, but hoped that the valuations will recover from their lows to fairer valuations with an upside potential, revising up a target price of 5 banks including BBL, KBANK, KTB, KKP and SCB.
KGI (Thailand) Securities (KGI) has raised the target prices for Bangkok Bank Public Company Limited (BBL) (฿143.25/share), Kasikornbank Public Company Limited (KBANK) (฿115.50/share), Krung Thai Bank Public Company Limited (KTB) (฿13.25/share), Kiatnakin Phatra Bank Public Company Limited (KKP) (฿58.00/share), and the Siam Commercial Bank Public Company Limited (SCB) (฿92.00/share) due to valuation rerating better economic conditions.
However, KGI maintained the target prices on TISCO Financial Group Public Company Limited (TISCO), Thanachart Capital Public Company Limited (TCAP) and TMB Bank (TMB) as well as maintained a rating of Neutral on KBANK given the fast rally and the current price is on par to its theoretical price.
The valuation rerating is based on a moderate GDP growth forecast of 4% in 2021, mild recovery in international tourists of 40% to pre-COVID19 levels and full recovery in 2022. Further upside to target prices will depend on a sooner economic recovery than 2H21.
With highly volatile economic growth recovery, KGI prefered medium to small banks TISCO, KKP, and TMB. TISCO and KKP’s growth profiles are related to capital market recovery and dividend yields, while TMB reflects better cost control and manageable NPLs.
Despite bank share prices rallying 30% MoM, most banks are still lagging regional peers with YTD return at 26% (vs. +/ 10% YTD for banks in the region) with PBV at only 0.6x for large banks. KGI realized that Thailand’s economy may recover at a slower pace than peers as the country’s GDP relies heavily on service income from international tourists.
With some constraint on GDP reaching pre-COVID19 levels, KGI hope that the valuations will recover from their lows to fairer valuations. Based on ROE recovering to 7% in 2021 and COE 10%, the theoretical PBV (ROE/COE) or fair PBV should be around 0.7x (from 0.5x in its previous forecast).