Goldman Sachs downgrades Krung Thai Bank stock to Neutral on valuation

Goldman Sachs downgraded Krung Thai Bank PCL (KTB) to Neutral from Buy, despite raising its price target to THB29.10, citing a more balanced risk-reward profile following KTB's 21% year-to-date share price surge. The bank's current valuation at 0.75X forward price-to-book is now above its five-year historical median, and while its return on assets outlook is improving, potential net interest income pressure from anticipated rate cuts and muted loan growth, alongside less attractive upside compared to other ASEAN banks in coverage, informed the revised rating.

Analysis

Goldman Sachs has downgraded Krung Thai Bank (KTB) to Neutral from Buy, a decision driven primarily by valuation following a significant 21% year-to-date share price appreciation that starkly contrasts with the Thai SET Index's 7% decline. While the 12-month price target was raised to THB29.10, the bank's risk-reward profile is now considered balanced. KTB's current forward price-to-book ratio of 0.75x is more than one standard deviation above its five-year historical median of 0.64x, a level Goldman Sachs deems fair given an improving fundamental outlook. This improved outlook is supported by a projected rise in return on assets to 1.1% for 2025-2027E from a historical 0.9% and the bank's defensive positioning through its exposure to government-related credit. However, potential headwinds include pressure on net interest income from anticipated Bank of Thailand rate cuts and expectations of muted loan growth. The downgrade is further contextualized by relative value, as KTB's implied 14% upside and 20% total return are less attractive than the 19% upside and 25% total return offered by other ASEAN bank peers in Goldman's coverage.

Key Decisions for Investors

• Investors who have benefited from the recent 21% run-up in KTB's stock may consider trimming their positions to realize gains, given the stock's re-rating to Neutral and a now-balanced risk-reward profile.
• Prospective investors should note that while KTB has a solid fundamental outlook, its implied upside of 14% is considered less compelling than regional peers, suggesting a comparative analysis of other ASEAN banks may yield more attractive opportunities.
• Holders of KTB should closely monitor upcoming Bank of Thailand policy announcements for potential rate cuts and their impact on net interest margins, which Goldman Sachs has identified as a key risk to future profitability.