LH Financial Group (LHBANK): 3QFY17 profit down 4% y-y but up 8.8% q-q October 17, 2017

3QFY17 profit down 4% y‐y but up 8.8% q‐q: LHBANK missed forecast with 3QFY17 profit of Bt671mn as a result of lower‐than‐expected investment gains and dividend income. In this period, the quarterly profit slipped 4% y‐y as a dramatic drop in investment gains outweighed an increase in net interest income and other income but the q‐q comparison however showed an 8.8% growth thanks largely to lower interest expenses and loan‐loss provisions.

Loan growth decelerates but NPLs creep up: In 3QFY17, LHBANK reported its loan book grew a marginal 0.5% q‐q, the lowest rate of the year, taking its YTD loan growth to 4.4% from end‐FY16. Given its YTD growth number, we believe it would be difficult for LHBANK to achieve our full‐year loan growth target of 9% though it stands to reap the benefit of rising corporate loans under its co‐investment deal with CTBC and 4Q is traditionally a high season for lending. As a result, we cut our FY17 loan growth forecast for LHBANK to 7%. Despite decelerating loan growth, NPLs however edged higher to 2.07% in this period from 2.01% in the prior quarter.

FY18 profit downgrade, target price cut to Bt1.84/share but ‘ACCUMULATE’ rating intact: To reflect the above cut in full‐year loan growth target, we trim our FY17 profit outlook for LHBANK to Bt2.6bn from Bt2.9bn. We also slash our FY18 target price for LHBANK to Bt1.84/share after the profit cut but our ‘ACCUMULATE’ rating remains intact as the new target still offers some but limited upside from current trading levels.

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