Kasikornbank

Kasikorn Bank Plc (KBANK)

Investment thesis: KBANK is well-positioned to cope with intensifying competition and economic volatility. Its 3Q11 lending remains strong, led by corporate and SME business. We expect the bank to sustain this trend through the year and beyond. Fee income will increase and OPEX decline (as K-Transformation expenses will fall from last year), while NIM should be maintained at 3.3 %. We reiterate our BUY rating on KBANK, premised on: 1) efficiency enhancements (a declining cost/income ratio), 2) robust lending and fee income growth and 3) excellent asset quality management.
Strong 3Q11 lending, despite global risks: Management said 8M11 lending growth was 9.9%, led by the corporate and SME portfolios. As such, the bank indicated that its FY11 loan expansion target should rise to 10-12% from the current 7-9% (we already model for loan growth of 12%). KBANK has only 1% direct loan exposure to the EU and the US.
NIM dipped in 3Q11: Given intensifying competition for deposit mobilization and lending, management anticipates that 3Q11 NIM will report a dip to 3.4% from 3.5% in 1H11. Nonetheless, we maintain our FY11 NIM forecast at 3.3%.
LLP policy maintained: KBANK said loan loss provisioning will be maintained at Bt1.6-1.8bn per quarter through 2H11 and beyond. That implies a credit cost (loan loss provisions/total lending) of 60-70 bps.  We assume 3Q11 provisioning of Bt1.85bn, up by 16% YoY and 4% QoQ.
3Q11 non-interest income growth set at 20%: Fees related to loans and bancassurance sales will make for FY11 fee income expansion of 20% YoY, according to management (and 3Q11 fee income will be in-trend with the bank’s full-year target). We, however, have a slightly more subdued FY11 assumption of 18.5% (and 16% in FY12), given the intensely competitive environment and diminished expectations for sectoral loan growth. We expect 3Q11 fee income to report 15% YoY growth and be flat QoQ at Bt16.2bn.