We maintain an "Overweight" rating on the banking sector, expecting our covered bank stocks to deliver an aggregate net profit of Bt47bn, representing a YoY increase of +11% but a QoQ decline of -14%. This YoY growth is primarily driven by a low base effect from elevated provisioning in 4Q23 related to ITD loan defaults. Seasonal fee income growth from bancassurance and mutual funds also contributes. QoQ profit is impacted by seasonally higher opex.

KKP is projected to lead YoY growth at 87%, driven by reduced car repossession losses, followed by KTB at 65% due to the low base effect. SCB (-18% YoY, -17% QoQ) and TISCO (-8% YoY, -4% QoQ) are expected to experience both YoY and QoQ profit declines due to higher provisioning related to increased focus on high-yield car title loans. Total loans are anticipated to remain stable YoY, with growth in large corporate loans offsetting weaker retail and SME loan demand. While the NPL ratio is forecast to increase slightly to 3.29% from 3.2% in 3Q24, it remains manageable.

Our 2024E and 2025E net profit estimates remain unchanged at Bt207bn (+6% YoY) and Bt218bn (+5%), with a projected -10% YoY decline in loan-loss provisions compared to the +17% surge in 2023. Our economic team forecasts a stable policy rate at 2.25% throughout 2025E.

SETBANK has outperformed the SET Index by 7% over the past three months, due to a rotation towards high dividend stocks amidst market volatility. The banking sector offers an average dividend yield of 6.3%, higher than the market’s 3.2%. Currently trading at 0.7x 2024E PBV, the sector is trading at a discount of -1 SD below its 10-year average. KTB (BUY, Target: Bt24.50) and KBANK (BUY, Bt176.00) are our top picks. KTB is expected to deliver strong profit growth in 2024E and 2025E and trades at a discount to its 10-year average (-0.75 SD). KBANK, despite improved asset quality, trades at a significant discount to its historical average (1.25 SD) and its key rival SCB.