KTB has a low non-performing loan coverage ratio of 95% in 1Q compared to industry average of 127%. According to Phillip Securities, they reckon KTB may have to increase their provision in 2Q.
Saha Farms Group is one of the leading chicken exporters in Thailand with 22% market share of total exports. Saha Farms export mainly to Japan, England, Germany, and China, to name a few countries.
Saha Farms faces a liquidity crunch due to incurring losses in 2012 due to increased costs of operations from wages to animal feed. Expenses arising from its business expansion activities the past few years coupled with a downtrend in chicken exports came at the wrong time for Saha Farms.
KTB is Saha's largest lender, accounting for about a 5 billion baht credit line. Thanachart and the Islamic Bank of Thailand are the two other major creditors. Saha will allow the banks to control its financial management until debt restructuring is complete and it gets back on its feet. Debt restructuring details are expected to be worked out within the next 2 months.
KTB believes Saha's business remains viable due to its pipeline of current orders, and with an increase in liquidity, it can fix the business.
I believe this issue with Saha Farms should not affect KTB much and it ended up trading flat today amid a slight recovery, +1.06% to close at 19.00 baht today. The reaction was not big enough to cause a strong dip, thus it did not present an attractive price to increase my holdings.