KKP – 3Q24: Big beat on ECL and fee income

With a big beat on ECL, KKP’s 3Q24 results reflected stable NPLs with easing credit cost, contracting loans, narrowed NIM, higher non-NII and higher cost to income ratio. We raise our earnings forecasts by 8% for 2024 and 5% for 2025, adjusting our assumptions for credit cost and fee income. We expect 4Q24 earnings to fall QoQ but grow YoY. We stay Neutral and inch up TP to Bt47 from Bt46.

3Q24: Beat on ECL and fee income. 3Q24 net profit was Bt1.31bn (+70% QoQ, +2% YoY), above INVX forecast by 30% and consensus forecasts by 42%. The beat was fueled by lower-than-expected ECL and higher-than-expected fee income.

Highlights:
1) Asset quality: NPLs were stable QoQ (rising HP NPLs offset by falling real estate NPLs) with a 15 bps QoQ rise in NPL ratio to 4.27%. Credit cost (including losses on repossessed cars) fell 93 bps QoQ (-107 bps YoY) to 1.96% in 3Q24, lower than expected. ECL was slashed 61% QoQ (partly on smaller management overlay) but losses on repossessed cars grew 11% QoQ. LLR coverage rose to 136% from 131% in 2Q24. We cut our credit cost forecast by 10 bps to 2.4% (-41 bps) in 2024 (below its guidance of 2.5-2.7%) and 5 bps to 2.2% (-20 bps) in 2025.
2) Loan growth: -4.6% QoQ, -6.9% YoY and -6.3% YTD. We cut our 2024F loan growth assumption to -7% from -3%.
3) NIM: +3 bps QoQ (-73 bps YoY) in 3Q24. Yield on earning assets rose 7 bps QoQ. Cost of funds increased 9 bps QoQ. We expect NIM to fall QoQ in 4Q24 but rise 4 bps in 2025 as we expect a policy rate cut of 50bps in 4Q24 and 50 bps in 2025.
4) Non-NII: +8% QoQ (+15% YoY) in 3Q24, on fee income related to the capital market. Net fee income rose 27% QoQ (+11% YoY), better than expected.
5) Cost to income ratio: +580 bps QoQ (+754 bps YoY) to 47.53%, higher than expected. Opex rose 15% QoQ (+7% YoY), pushed up by personnel expenses.

4Q24 and 2025 outlook. We raise our earnings forecasts by 8% for 2024 and 5% for 2025 as we cut our credit cost forecast and raise our assumption for fee income. 9M24 earnings accounted for 79% of our full-year forecast. We expect 4Q24 earnings to be lower QoQ (narrower NIM and seasonally higher ECL) but higher YoY (lower ECL). We expect 2025F earnings to rise 9%, supported by 3% loan growth, a 4 bps rise in NIM, a 20 bps drop in credit cost, a 2% rise in non-NII and a rise in cost to income ratio.

Maintain Neutral rating with TP hike. We keep our Neutral rating with a hike in TP to Bt47 (based on 0.6x PBV for 2025F) from Bt46.

Key risks: 1) Asset quality risk from uneven economic recovery, 2) falling used car prices, 3) volatile capital market and 4) ESG risk on market conduct.