Thailand Banks. Thailand Industry Focus. FY16 results turned out stronger than expected. DBS Group Research. Equity 23 Jan 2017 SET : 1,562.

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1 Thailand Industry Focus Thailand Banks Refer to important disclosures at the end of this report DBS Group Research. Equity 23 Jan 2017 FY16 results turned out stronger than expected FY16 earnings were Bt177bn (+3% ); five out of eight banks under our coverage reported surprising results In general, banks saw sluggish loan growth but NIM expansion Earnings surprises came from the cost side Prefer small banks: TISCO, TCAP, and KKP A surprising quarter. The eight banks under our coverage posted an aggregate net profit of Bt45.2bn (+19.1% ; +0.3% q-o-q) in 4Q16 and Bt177bn (+2.9% ) in FY16. Of those banks, five (KBANK, KTB, SCB, KKP, and TMB) posted positive surprises, while the other three (BBL, TISCO, and TCAP) announced in-line results. KKP posted the strongest earnings growth, while BBL and TMB reported earnings contraction in FY16. Earnings surprises came mainly from the cost side. For FY16, banks saw sluggish loan growth, but most of them still recorded NIM expansion, thanks to lower costs of fund and (for some) CASA expansion. Lower-than-expected operating costs/provisions were the two key reasons behind the surprising results in 4Q16 and FY16. Specifically, SCB and KKP reported earnings surprises from lower-than-expected provisions, while the other three (KBANK, KTB, and TMB) posted surprising results on lower-than-expected cost-toincome ratio. Prefer small banks. With the multiple-year decline in domestic car sales, small banks have seen their loans contract, accordingly. On the back of expectations of better economic conditions and private consumption recovery in 2017, auto sales and auto hire purchase should also pick up, and this should be a key catalyst to small banks loan growth this year. Besides, for the small banks, asset quality has already passed the peak, and their credit costs are likely to go down further. We like TISCO for its potential turnaround in loan growth, improving asset quality, high ROE, and potential upside from retail portfolio to be acquired from Standard Chartered Bank (Thai). TCAP is our second pick also for the potential turnaround in loan growth and improving asset quality; moreover, valuation-wise, TCAP is the cheapest among Thai banks. KKP is also a BUY, thanks to the potential improvement of its both commercial banking and capital market businesses. SET : 1, Analyst Thaninee SATIRAREUNGCHAI, CFA thaninees@th.dbsvickers.com STOCKS Source: DBS Vickers, Bloomberg Finance L.P. Closing price as of 20 Jan 2017 Sector s profit rose 3% in FY16 NP (Bt mn) 4Q16 4Q15 (%) 3Q16 q-o-q (%) BBL 8,267 7, , ,815 34,181 (6.9) KBANK 10,244 5, ,856 (5.6) 40,174 39, KTB 7,440 6, ,620 (13.7) 32,278 28, SCB 12,716 11, , ,612 47, TISCO 1,293 1, , ,005 4, TCAP 1,694 1, , ,013 5, KKP 1, ,691 (14.1) 5,547 3, TMB 2,138 2,621 (18.4) 1, ,226 9,333 (11.9) Total 45,244 37, ,359 (0.3) 176, , Source: Company, DBS Vickers SETBANK: P/BV (x) Price Mkt Cap Target Price Performance (%) Bt US$m Bt 3 mth 12 mth Rating Bangkok Bank 169 9, BUY KASIKORNBANK , BUY Krung Thai Bank , HOLD Kiatnakin Bank PCL , BUY Siam Commercial , BUY Thanachart Capital , BUY TMB Bank PCL , (5.8) HOLD TISCO Financial , BUY +2 sd +1 sd Mean -1 sd -2 sd (%) ed-ck / sa- CS, PY

2 KKP reported the strongest net profit growth in FY16 Net profit (Bt m) 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) BBL 8,267 7, , ,815 34,181 (6.9) KBANK 10,244 5, ,856 (5.6) 40,174 39, KTB 7,440 6, ,620 (13.7) 32,278 28, SCB 12,716 11, , ,612 47, TISCO 1,293 1, , ,005 4, TCAP 1,694 1, , ,013 5, KKP 1, ,691 (14.1) 5,547 3, TMB 2,138 2,621 (18.4) 1, ,226 9,333 (11.9) Total 45,244 37, ,359 (0.3) 176, , KKP also posted the strongest pre-provision operating profit (PPOP) growth PPOP (Bt m) 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) BBL 13,134 13,156 (0.2) 13,340 (1.5) 50,984 51,656 (1.3) KBANK 20,375 16, ,617 (5.7) 87,844 79, KTB 17,456 16, ,505 (0.3) 70,252 62, SCB 17,670 18,999 (7.0) 20,364 (13.2) 79,166 79, TISCO 2,495 2, ,653 (6.0) 10,073 10,339 (2.6) TCAP 4,961 4, , ,218 17, KKP 1,756 1,881 (6.7) 2,864 (38.7) 8,600 6, TMB 4,806 4, , ,433 16, Total 82,653 77, ,738 (5.8) 343, , Provision expenses declined at small banks Provision (Bt m) 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) BBL 3,596 3,880 (7.3) 4,946 (27.3) 15,728 14, KBANK 6,871 8,827 (22.2) 6, ,753 26, KTB 9,429 8, , ,429 30, SCB 1,994 4,989 (60.0) 7,012 (71.6) 22,528 29,723 (24.2) TISCO ,101 (12.5) 3,972 5,277 (24.7) TCAP 1,358 1,713 (20.7) 1,676 (19.0) 6,210 8,600 (27.8) KKP (87.9) 1,011 (90.1) 2,313 3,208 (27.9) TMB 2, ,541 (12.1) 8,649 5, Total 26,547 30,902 (14.1) 32,789 (19.0) 126, , Page 2

3 Net interest income continued to grow in FY16 NII (Bt m) 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) BBL 16,303 15, , ,998 57, KBANK 23,004 21, , ,678 85, KTB 21,853 21, , ,966 82, SCB 22,804 21, , ,449 82, TISCO 2,770 2, , ,920 10, TCAP 7,150 6, ,284 (1.8) 28,468 27, KKP 2,602 2, ,959 (12.1) 10,433 9, TMB 6,391 6, , ,761 23, Total 102,877 98, , , , Fee income also continued to expand Fee income, net (Bt m) 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) BBL 6,255 6, , ,492 24, KBANK 9,888 9, ,924 (0.4) 38,943 37, KTB 5,909 5, , ,042 19, SCB 7,138 6, ,622 (6.4) 28,414 27, TISCO 1,295 1,312 (1.4) 1,407 (8.0) 5,167 5, TCAP 1,783 1, , ,888 5, KKP 1, ,707 3, TMB 2,205 2, , ,997 7, Total 35,486 33, , , , Sector s non-interest income declined, led by SCB Non-NII (Bt m) 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) BBL 11,064 10, , ,873 45,233 (7.4) KBANK 15,153 14, ,473 (2.1) 63,725 62, KTB 9,849 9, ,942 (0.9) 37,702 34, SCB 9,797 10,896 (10.1) 11,975 (18.2) 44,885 54,531 (17.7) TISCO 1,590 1, ,627 (2.2) 6,140 6,359 (3.4) TCAP 3,560 2, , ,231 12,470 (1.9) KKP 1,386 1,650 (16.0) 2,097 (33.9) 6,268 5, TMB 2,944 2, , ,462 10, Total 55,343 54, ,542 (3.8) 223, ,172 (3.4) Page 3

4 Most banks continued to see NIM expansion, thanks to lower costs of fund/shrinking deposit portfolio in FY16 NIM (percent) 4Q16 4Q15 (bps) 3Q16 q-o-q (bps) (bps) BBL KBANK (19.7) (15.3) KTB SCB TISCO (2.2) TCAP (2.7) KKP (9.5) 5.50 (74.2) TMB Average (6.8) Sector s average cost-to-income ratio increased Cost-to-income (percent) 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) (ppts) BBL KBANK (8.4) (3.6) KTB (2.4) (0.5) (3.0) SCB TISCO (1.2) TCAP (1.7) (0.1) KKP (0.4) TMB (4.2) (2.1) Average (0.4) Sector s loan growth came in at 1.3% in FY16 Loans (Bt bn) 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) BBL 1,946 1, , ,946 1, KBANK 1,701 1, , ,701 1, KTB 1,909 2,033 (6.1) 1,909 (0.0) 1,909 2,033 (6.1) SCB 1,943 1, , ,943 1, TISCO (5.6) 227 (0.7) (5.6) TCAP (3.2) (3.2) KKP (0.9) (0.9) TMB Total 9,189 9, , ,189 9, Page 4

5 Sector s deposits grew in line with loans Deposits (Bt bn) 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) BBL 2,178 2, , ,178 2, KBANK 1,795 1, , ,795 1, KTB 1,972 2,135 (7.6) 1,973 (0.0) 1,972 2,135 (7.6) SCB 2,026 1, , ,026 1, TISCO (2.1) (2.1) TCAP (2.2) KKP TMB (7.1) 607 (1.3) (7.1) Total 9,512 9, , ,512 9, Still ample liquidity in the banking system LDR+borrowing (percent) 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) BBL (0.0) (1.0) (0.0) KBANK (0.1) (0.3) (0.1) KTB (0.0) SCB (0.3) (4.4) (0.3) TISCO (2.5) (4.3) (2.5) TCAP (1.0) (1.0) KKP (1.3) (1.5) (1.3) TMB Average (0.8) (ppts) The sector s ROA remained stable ROAA (percent) 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) (ppts) BBL (0.1) KBANK (0.2) (0.1) KTB (0.1) SCB (0.0) TISCO TCAP KKP (0.4) TMB (0.2) (0.1) Average (0.0) Page 5

6 Sector s ROE was also stable ROAE (percent) 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) (ppts) BBL (1.4) KBANK (1.3) (1.3) KTB (0.4) (2.0) SCB (0.3) (1.1) TISCO (1.2) (0.2) TCAP KKP (2.7) TMB (3.6) (2.5) Average (0.3) Only BBL saw coverage ratio decline at end-2016 Coverage ratio (percent) 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) (ppts) BBL (11.7) (11.7) KBANK KTB SCB TISCO TCAP KKP TMB Average All small banks, as well as TMB and SCB, reported lower NPL ratio NPL ratio (percent) 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) (ppts) BBL (0.3) KBANK (0.0) KTB (0.3) SCB (0.2) 2.80 (0.1) (0.2) TISCO (0.7) 3.04 (0.5) (0.7) TCAP (0.6) 2.56 (0.2) (0.6) KKP (0.1) 5.68 (0.1) (0.1) TMB (0.5) (0.5) Average (0.0) 3.45 (0.2) (0.0) Page 6

7 CAR increased in general CAR (percent) 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) (ppts) BBL (0.6) KBANK KTB (0.1) SCB (0.5) TISCO TCAP (0.1) KKP (0.3) TMB (0.3) Average (0.2) Tier I ratio also increased Tier I (percent) 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) (ppts) BBL (0.7) KBANK KTB (0.2) SCB (0.5) TISCO (0.3) TCAP (0.0) KKP (0.3) TMB (0.1) Average (0.2) Page 7

8 BBL: In-line results. 4Q16 earnings came in at Bt8.3bn (+7.6% y- o-y; +2.6% q-o-q), taking FY16 profit to Bt31.8bn (-6.9% ). Top line growth was driven by higher net interest margin (NIM) (+16bps), helped by lower funding costs. However, non-interest income (non-nii) declined 7.4%, due mainly to the decline in gains on disposal of assets and gains on investments. Preprovision operating profit (PPOP) was Bt51bn (-1.3% ) in Loans expanded 2.1% q-o-q and 3.9% in The q-o-q increase was thanks to the increase in loans to the SME and consumer sectors, and loans made through the bank s international network, while the increase was thanks to loans to large corporates (especially to BJC TB in May), mediumsized businesses, and the consumer sector, as well as and loans made through the bank s international network. The largest proportion of loans went to the manufacturing and commercial sectors (44%), followed by loans to utilities and services (19%), while housing loans accounted for 11% of the total loan portfolio. Compared with FY15, NPL ratio increased; coverage ratio declined. NPLs declined 5.9% q-o-q but increased 22.4% y- o-y to Bt68.8bn. NPL ratio was 3.2% at end-2016, vs. 3.4% at end-3q16 and 2.8% at end Provision was Bt15.7bn (82bps) in FY16, vs. Bt14.7bn (80bps) in FY15. This resulted in a lower coverage ratio of 173.6% at end-2016, vs % at end However, the coverage ratio improved from 3Q16 (159.5%). Capital funds remain solid. CAR stood at 18.2%, with CET 1 ratio and Tier 1 ratio both at 16.2%. BBL: 4Q16 and 2016 results review Bt m 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) NII 16,303 15, , ,998 57, Fee income, net 6,255 6, , ,492 24, Non-NII 11,064 10, , ,873 45,233 (7.4) Total operating income 27,366 26, , , , Total operating expenses 12,968 12, , ,519 45, PPOP 13,134 13,156 (0.2) 13,340 (1.5) 50,984 51,656 (1.3) Provision 3,596 3,880 (7.3) 4,946 (27.3) 15,728 14, Net profit 8,267 7, , ,815 34,181 (6.9) EPS (Bt) (6.9) Percent 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) 2016F 2015 (ppts) NIM (bps change) ROAA (0.1) ROAE (1.4) Cost-to-income ratio Bt bn 4Q16 4Q15 (%) 3Q16 q-o-q (%) 2016F 2015 (%) Loans 1,946 1, , ,946 1, Deposits 2,178 2, , ,178 2, Percent 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) 2016F 2015 (ppts) LDR (0.3) 90.4 (1.1) (0.3) LDR+borrowings (0.0) 85.1 (1.0) (0.0) Coverage ratio (11.7) (11.7) NPL (0.2) CAR (0.6) T (0.7) T (0.1) (0.1) Source: Company, DBS Vickers Page 8

9 KBANK: Results beat estimates. 4Q16 profit came in at Bt10.2bn (+87% ; -6% q-o-q), taking FY16 profit to Bt40.2bn (+2% ). Lower-than-expected cost-to-income ratio (46% actual, vs. 55% estimated for 4Q16) was the key to the earnings surprise, despite higher-than-expected credit cost (163bps actual vs. 120bps estimated). Loans grew 5.5%, below the bank s 6-7% growth target. Loans growth was attributed mainly to one large corporate (BJC TB) loan that was drawdown in May, and partly to the increase in commercial loans, credit cards, trade finance, and housing loans. NPL ratio dropped as guided, but coverage ratio improved. NPL ratio dropped to 3.32%, vs. 3.35% at end-3q16. With the still high credit cost (163bps) in 4Q16, coverage ratio improved to 130.9%, compared with 127.3% at end-3q16. CAR stayed robust at 18.8%, with CET 1 and Tier 1 ratios at 15.2%, higher than Bank of Thailand s minimum requirements of 9.125%, 5.125%, and 6.625%, respectively. KBANK: 4Q16 and 2016 results review Bt m 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) NII 23,004 21, , ,678 85, Fee income, net 9,888 9, ,924 (0.4) 38,943 37, Non-NII 15,153 14, ,473 (2.1) 63,725 62, Total operating income 38,157 36, , , , Total operating expenses 17,606 19,832 (11.2) 15, ,854 66,656 (4.2) PPOP 20,375 16, ,617 (5.7) 87,844 79, Provision 6,871 8,827 (22.2) 6, ,753 26, Net profit 10,244 5, ,856 (5.6) 40,174 39, EPS (Bt) (5.6) Percent 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) 2016F 2015 (ppts) NIM (bps change) (19.7) (15.3) ROAA (0.2) (0.1) ROAE (1.3) (1.3) Cost-to-income ratio (8.4) (3.6) Bt bn 4Q16 4Q15 (%) 3Q16 q-o-q (%) 2016F 2015 (%) Loans 1,701 1, , ,701 1, Deposits 1,795 1, , ,795 1, Percent 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) 2016F 2015 (ppts) LDR LDR+borrowings (0.1) 90.3 (0.3) (0.1) Coverage ratio NPL (0.0) CAR T T (0.0) Source: Company, DBS Vickers Page 9

10 KTB: Results beat estimates. 4Q16 earnings came in at Bt7.4bn (+9% ; -14% q-o-q), taking FY16 earnings to Bt32.3bn (+13% ). Lower-than-expected cost-to-income ratio, despite higher-than-expected credit cost, was the key reason behind the stronger-than-expected results. Nonetheless, its credit cost was 198bps, higher than our forecast at 160bps. Loans contracted by 6.1% in 2016, due to declining credit demand from all major segments, especially from the government and SMEs. In 2016, government loans outstanding contracted by 37%, making its proportion to total loan portfolio decline to 4%, vs. 7% at end SME loans now comprise 20% of total loans, down from 22% at end Contribution from corporate and retail loans increased to 37% (from 35% at end-2015) and 39% (from 37% at end-2015), respectively. The bank set aside Bt33.4bn provisions (i.e. 170bps credit cost) in 2016, compared with Bt30.5bn (153bps) in Note that, in 2016, KTB had raised normalised provisions per month for the bank to Bt1bn, from Bt700m in Coverage ratio rose to 121.6% at end-2016, vs % at end-3q16 and 112.6% at end Capital funds remain solid. CAR stood at 16.88%, with CET 1 ratio and Tier 1 ratio both at 12.98%. FY16 NPL ratio and coverage ratio increased. In 2016, NPLs increased 19% to Bt91bn. The increase in NPLs came mainly from SME and retail clients. With that and the contraction in loan portfolio, KTB s NPL ratio rose to 3.97% at end-2016, from 3.20% at end However, the NPL ratio dropped q-oq, from 4.2% at end-3q16, thanks to the reclassification of Sahaviriya Steel Industries PLC s (SSI TB) loans from NPL to special mention loans (SML) after the Central Bankruptcy Court approved the debt rehabilitation plan in December The magnitude of the decline in NPL ratio in 4Q16 was smaller than we had expected, due to the increases in SME and retail NPLs. KTB: 4Q16 and 2016 results review Bt m 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) NII 21,853 21, , ,966 82, Fee income, net 5,909 5, , ,042 19, Non-NII 9,849 9, ,942 (0.9) 37,702 34, Total operating income 31,702 30, , , , Total operating expenses 13,036 13,355 (2.4) 13,140 (0.8) 50,638 50,905 (0.5) PPOP 17,456 16, ,505 (0.3) 70,252 62, Provision 9,429 8, , ,429 30, Net profit 7,440 6, ,620 (13.7) 32,278 28, EPS (Bt) (14.5) NIM (bps change) ROAA (0.1) ROAE (0.4) 12.9 (2.0) Cost-to-income ratio (2.4) 41.7 (0.5) (3.0) Bt bn 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) Loans 1,909 2,033 (6.1) 1,909 (0.0) 1,909 2,033 (6.1) Deposits 1,972 2,135 (7.6) 1,973 (0.0) 1,972 2,135 (7.6) LDR LDR+borrowings (0.0) Coverage ratio NPL (0.3) CAR (0.1) T (0.2) T Source: Company, DBS Vickers Page 10

11 SCB: Results beat expectations. 4Q16 net profit came in at Bt12.7bn (+8% ; +10% q-o-q), taking FY16 earnings to Bt47.6bn (+1% ). Lower-than-expected provision in 4Q16 was the key reason behind the surprising results, despite higherthan-expected cost-to-income ratio. Pre-provision operating profit (PPOP) came in at Bt17.7bn (-7% ; -13% q-o-q) in 4Q16, due mainly to higher cost-to-income ratio (45.5% in 4Q16, vs. 39.5% in 4Q15 and 37.3% in 3Q16). The increase in operating costs in 4Q16 was due mainly to expenses related to the bank s transformation project, IT system upgrade, branch renovation, and marketing expense. Nonetheless, FY16 PPOP was flat, despite higher operating costs, as it was cushioned by NIM expansion (+8bps). Cost-to-income ratio was 38.7% in 2016, vs. 35.6% in On a q-o-q basis, loan growth stemmed mainly from the retail (+1.9% q-o-q) and corporate (+1.4% q-o-q) segments, with SME loans remaining flat (+0.5% q-o-q). On a basis, loan growth was contributed by every segment, except auto loans (-0.3% ). Corporate loans increased the most at 10%. In terms of loan breakdown, retail loans accounted for 45% of total loans; corporate loans shared 37%, and SME loans accounted for 19%. Of the retail loans, 70% were housing loans (31% of total loans) and 20% were auto loans (9% of total loans). NPLs declined, and coverage ratio increased, on SSI loan reclassification. NPLs declined by 6.2% q-o-q and 2.4%, thanks mainly to the reclassification of Sahaviriya Steel Industries PLC s (SSI TB) loans from NPL to special mention loans (SML) after the Central Bankruptcy Court approved the debt rehabilitation plan in December NPL ratio dropped to 2.7%, compared with 2.8% at end-3q16 and 2.9% at end Coverage ratio improved to 134.3% at end-2016, compared with 128.9% at end-3q16, despite a low credit cost of 41bps set up in 4Q16. Credit cost for FY16 then came in at only 119bps, compared with 164bps in Management reasoned that the provision expense of Bt2bn (41bps) in 4Q16 should be enough, as the bank s coverage ratio already was higher than the bank s 130% target. Capital fund remains solid. CAR stood at 17.4%, with CET 1 ratio and Tier 1 ratio both at 14.5%. SCB: 4Q16 and 2016 results review Bt m 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) NII 22,804 21, , ,449 82, Fee income, net 7,138 6, ,622 (6.4) 28,414 27, Non-NII 9,797 10,896 (10.1) 11,975 (18.2) 44,885 54,531 (17.7) Total operating income 32,601 32, ,189 (4.6) 133, ,365 (2.9) Total operating expenses 14,839 12, , ,644 48, PPOP 17,670 18,999 (7.0) 20,364 (13.2) 79,166 79, Provision 1,994 4,989 (60.0) 7,012 (71.6) 22,528 29,723 (24.2) Net profit 12,716 11, , ,612 47, EPS (Bt) NIM (bps change) ROAA (0.0) ROAE (0.3) (1.1) Cost-to-income ratio Bt bn 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) Loans 1,943 1, , ,943 1, Deposits 2,026 1, , ,026 1, LDR (1.3) (5.6) (1.3) LDR+borrowings (0.3) 95.5 (4.4) (0.3) Coverage ratio NPL (0.2) 2.8 (0.1) (0.2) CAR (0.5) T (0.5) T (0.2) (0.2) Source: Company, DBS Vickers Page 11

12 TISCO: Results were in-line. 4Q16 profit came in at Bt1.3bn (+4% ; +3% q-o-q), taking FY16 earnings to Bt5.0bn (+18% ). The strong earnings growth was thanks mainly to the increase in net interest income (NII, +7.8% ), thanks to NIM expansion (+57bps) and despite its loan portfolio contraction (-5.6% ) and lower provision expenses (credit cost for the year was 171bps, vs. 210bps in 2016). Declining cost of fund (from 2.6% to 2.2%) was the key reason for the expansion in NIM. Loans contracted 5.6% in FY16. Specifically, retail loans (72% of total loans, of which 85% are hire purchase [HP] loans) declined 7.5% ; HP loans slid 10%. SME loans (7% of total loans, mostly to car dealers) fell 17%, while corporate loans (21% of total loans) increased by 7%. NPL ratio dropped and coverage ratio surged, on SSI loan reclassification. NPL ratio fell to 2.54% at the end of 2016, compared with 3.23% at the end of 2015, thanks not only to improving asset quality in both HP and corporate lending, but also to the reclassification of Sahaviriya Steel Industries PLC s (SSI TB) loans from NPL to special mention loan (SML), after the Central Bankruptcy Court approved the debt rehabilitation plan in December With that, its coverage ratio also surged to 139.8%, compared with 80.1% at the end of In terms of capital position, BIS ratio was strong at 19.8%, with Tier I ratio at 14.9%. TISCO: 4Q16 and 2016 results review Bt m 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) NII 2,770 2, , ,920 10, Fee income, net 1,295 1,312 (1.4) 1,407 (8.0) 5,167 5, Non-NII 1,590 1, ,627 (2.2) 6,140 6,359 (3.4) Total operating income 4,361 4, ,394 (0.8) 17,060 16, Total operating expenses 1,793 1, , ,844 5, PPOP 2,495 2, ,653 (6.0) 10,073 10,339 (2.6) Provision ,101 (12.5) 3,972 5,277 (24.7) Net profit 1,293 1, , ,005 4, EPS (Bt) NIM (bps change) (2.2) ROAA ROAE (1.2) 17.1 (0.2) Cost-to-income ratio (1.2) Bt bn 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) Loans (5.6) 227 (0.7) (5.6) Deposits (2.1) (2.1) LDR (5.4) (2.5) (5.4) LDR+borrowings (2.5) (4.3) (2.5) Coverage ratio NPL (0.7) 3.0 (0.5) (0.7) CAR T (0.3) T Source: Company, DBS Vickers Page 12

13 TCAP: Results were in-line. 4Q16 profit came in at Bt1.7bn (+25% ; +13% q-o-q), taking FY16 earnings to Bt6.0bn (+11% ), in line with expectations. The key factors supporting the strong earnings growth in the quarter include NIM expansion, lower provisions and a low effective tax rate (9% in 4Q16 and 6% in FY16, vs. corporate tax rate of 20%). As at end-2016, TBANK had tax losses carried forward (from the liquidation of SCIB in 2Q15) of Bt14.7bn, equivalent to a tax benefit of Bt2.9bn, based on a 20% tax rate. This tax benefit must be utilised within five years from 2Q15. NIM expansion was as a result of declining cost of funds (from low market interest rate and higher proportion of CASA, 46% at end-2016 vs. 40% at end-2015), albeit lower average asset yields. Provisions were lower, in line with improving asset quality. The effective tax rate was low because there still are tax losses carried forward (at TBANK level) to be utilised (within five years from 2Q15), thus resulting in a low effective tax rate at TCAP level. Loans contracted 3.2% in 2016; HP loans expanded q-o-q for the first time in three years. Loans declined across all segments, except SME (+0.15% ). In the retail segment, however, housing loans grew a strong 10.7% and 1.3% q-o-q; while hire purchase (HP) loans fell by 5.4% but expanded 0.6% q-o-q, keeping the proportion of HP loans to total loan portfolio at 50%, while the proportion of retail loans to corporate and SME loans was 69:31. NPLs declined for ten consecutive quarters; coverage ratio continues to improve. NPLs fell further by 8% q-o-q and 23.4% ; NPL ratio declined to 2.41%, vs. 2.56% at end-3q16 and 2.96% at end-2015, thanks to its effective NPL management, despite the contraction in its loan portfolio over the course of the year. Together with the still high provisions set aside in 2016, its coverage ratio improved further to 146.8%, from 132.9% at end-3q16 and 117.2% at end At TBANK level, BIS ratio stood strong at 19.15%, with Tier I ratio at 13.27%. TCAP: 4Q16 and 2016 results review Bt m 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) NII 7,150 6, ,284 (1.8) 28,468 27, Fee income, net 1,783 1, , ,888 5, Non-NII 3,560 2, , ,231 12,470 (1.9) Total operating income 10,710 9, , ,699 40, Total operating expenses 5,453 5, , ,025 20, PPOP 4,961 4, , ,218 17, Provision 1,358 1,713 (20.7) 1,676 (19.0) 6,210 8,600 (27.8) Net profit 1,694 1, , ,013 5, EPS (Bt) NIM (bps change) (2.7) ROAA ROAE Cost-to-income ratio (1.7) 51.1 (0.1) Bt bn 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) Loans (3.2) (3.2) Deposits (2.2) LDR (4.4) (4.4) LDR+borrowings (1.0) (1.0) Coverage ratio NPL (0.6) 2.6 (0.2) (0.6) CAR (0.1) T (0.0) T (0.2) 4.3 (0.1) (0.2) Source: Company, DBS Vickers Page 13

14 KKP: Results beat estimates. 4Q16 profit came in at Bt1.4bn (+48% ; -14% q-o-q), taking FY16 earnings to Bt5.5bn (+67% ). Lower-than-expected provision expense was the key reason behind the surprising results. However, its cost-toincome ratio was higher than we had expected (56.6% actual vs. 47.4% estimated). The high cost-to-income ratio in 4Q16 was due to higher loss from sale of foreclosed assets, i.e. a loss of Bt173m (comprising loss from sale of repossessed cars at Bt208m and gain on sale of foreclosed properties of Bt35m) in 4Q16 vs. a gain of Bt20m in 4Q15, as well as higher personnel and marketing expenses. Pre-provision operating profit (PPOP) grew 25% in 2016, supported by a 51bps increase in NIM (on lower funding cost). Loan portfolio contracted by 1% in FY16. Specifically, retail loans (70% of total loans, of which 91% are hire purchase loans) expanded 2.5%, with hire purchase (HP) loans dropping 2.7%. Commercial (SME) loans (23% of total loans, of which 47% are loans to real estate development (RE)) fell 10.6%, with RE loans declining 22%. Meanwhile, corporate loans (4% of total loans) declined by 21.6%, due mainly to loan repayment from large corporate clients. NPL ratio decreased to 5.6%, compared with 5.8% at end The NPL ratio of HP loans continued to decline to 1.9% at end- 2016, compared with 2.0% at end-3q16, 2.1% at end-2q16, 2.2% at end-1q16, and 2.4% at end Meanwhile, the NPL ratio of RE loans increased to 27% at end-2016, compared with 20% at end However, that was partly due to a huge 22% RE loan contraction in 2016, while the NPLs of RE had actually started to improve in 2H16. Coverage ratio improved to 110.1% at end-2016, vs % at end-3q16 and 91.7% at end Capital fund remains strong. CAR stood at 18.5%, with CET 1 ratio and Tier 1 ratio both at 15.0%. KKP: 4Q16 and 2016 results review Bt m 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) NII 2,602 2, ,959 (12.1) 10,433 9, Fee income, net 1, ,707 3, Non-NII 1,386 1,650 (16.0) 2,097 (33.9) 6,268 5, Total operating income 3,988 4,220 (5.5) 5,056 (21.1) 16,701 14, Total operating expenses 2,257 2,319 (2.6) 2, ,898 7, PPOP 1,756 1,881 (6.7) 2,864 (38.7) 8,600 6, Provision (87.9) 1,011 (90.1) 2,313 3,208 (27.9) Net profit 1, ,691 (14.1) 5,547 3, EPS (Bt) (14.5) NIM (bps change) (9.5) 5.5 (74.2) ROAA (0.4) ROAE (2.7) Cost-to-income ratio (0.4) Bt bn 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) Loans (0.9) (0.9) Deposits LDR (10.2) (3.0) (10.2) LDR+borrowings (1.3) (1.5) (1.3) Coverage ratio NPL (0.1) 5.7 (0.1) (0.1) CAR (0.3) T (0.3) T Source: Company, DBS Vickers Page 14

15 TMB: Results beat expectations. 4Q16 profit came in at Bt2.1bn (-18% ; +16% q-o-q), taking FY16 earnings to Bt8.2bn (- 11.9% ). The weak FY16 bottom line was due mainly to higher provision expenses (+58% ). The bank s 4Q16 and FY16 results beat expectations by 25% and 6%, respectively. This is despite higher-than-expected credit cost set up in 4Q16. The key reasons for the surprising results include stronger-thanexpected NIM and lower-than-expected cost-to-income ratio. FY16 PPOP stood at Bt18.4bn (+9.7% ). The decent operating performance was driven mainly by strong NIM expansion, thanks to well-managed funding cost and deposit portfolio optimisation, as well as effective cost controls (lower cost-to-income ratio). Performing loans grew 2.8%, driven mainly by the retail segment (mostly mortgages). In 2016, gross loans grew 2.2%, while performing loans expanded by 2.8%. Specifically, retail loans (26% of total loans) grew 34.6% ; SME loans (35% of total loans) decreased by 3.1%, while corporate loans (39% of total loans) declined by 6.6%. NPLs declined by 14% to Bt17.6bn, thanks to NPL write-off and sales. Of those NPLs, 80% (Bt14bn) came from the SME segment of which 27% (Bt3.8bn) were claimable to Thai Credit Guarantee Corporation (TCG). NPL ratio also dropped to 2.53%, compared with 2.99% at end The ratio was quite stable q- o-q. With the bank s priorities still on asset quality, together with a high coverage ratio and strong capital base, TMB continued to set aside high provisions in 4Q16 (i.e. a credit cost of 151bps vs. our estimate of 140bps) to keep its coverage ratio high at 143%, vs. 142% at end Capital remained strong, with CAR at 18.1% and Tier 1 ratio (and CET 1) at 12.8% TMB: 4Q16 and 2016 results review Bt m 4Q16 4Q15 (%) 3Q16 q-o-q (%) (%) NII 6,391 6, , ,761 23, Fee income, net 2,205 2, , ,997 7, Non-NII 2,944 2, , ,462 10, Total operating income 9,335 8, , ,223 33, Total operating expenses 4,515 4,572 (1.2) 4, ,589 16, PPOP 4,806 4, , ,433 16, Provision 2, ,541 (12.1) 8,649 5, Net profit 2,138 2,621 (18.4) 1, ,226 9,333 (11.9) EPS (Bt) (18.6) (12.1) Percent 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) 2016F 2015 (ppts) NIM (bps change) ROAA (0.2) (0.1) ROAE (3.6) (2.5) Cost-to-income ratio (4.2) (2.1) Bt bn 4Q16 4Q15 (%) 3Q16 q-o-q (%) 2016F 2015 (%) Loans Deposits (7.1) 607 (1.3) (7.1) Percent 4Q16 4Q15 (ppts) 3Q16 q-o-q (ppts) 2016F 2015 (ppts) LDR LDR+borrowings Coverage ratio NPL (0.5) (0.5) CAR (0.3) T (0.1) T (0.0) 5.4 (0.1) (0.0) Source: Company, DBS Vickers Page 15

16 DBS Vickers recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends Completed Date: 23 Jan :27:47 (THA) Dissemination Date: 23 Jan :32:51 (THA) GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers Securities (Thailand) Co, Ltd. 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