Kasikornbank

Kasikornbank Plc (KBANK)
 

Investment thesis: We have revised down our KBANK FY11-12 earnings projections by 3% and 5%, respectively, to Bt25.3bn and Bt29.5bn. This is due to anticipation that the recent flooding will require heavier loan loss provisioning for 4Q11 and FY12 than we earlier assumed. Furthermore, the bank is expected to report lower fee income growth than our previous model for FY11-12 indicated. Given our FY11 and FY12 earnings forecast downgrades, we have cut our KBANK YE12 target price by 15% to Bt144, based on a justified PBV of 1.8x. Our BUY rating stands.
Modest 4Q11 lending growth: KBANK said 11M11 loan growth was 11.4% YTD, led by the corporate category. Management guided for FY11 loan expansion of 12% YoY (we had already assumed loan growth of 12%). KBANK has a FY12 loan growth target range of 9-11%; our forecast is currently 9%.
Heavier LLPs and extra expenses in 4Q11: Because of the flooding, KBANK plans to increase its loan loss provisioning to Bt2.5bn for 4Q11, up substantially from its usual range of Bt1.7-1.9bn/quarter. As such, we have raised our FY11 and FY12 LLP forecasts to Bt7.7bn and Bt8bn, respectively, from Bt7bn and Bt7.5bn. The bank will also set deferred tax expenses of Bt1.9bn (a non-cash one-off item) in 4Q11.
Fee growth revised down: 4Q11 fees related to loans and bancassurance sales will post a QoQ contraction (we estimate 13%), though it should rise slightly in YoY terms. Management guided that FY11 fee income growth will be in the low teens or less. KBANK’s previous fee income growth target was above 20% for the year. We have cut our FY11 fee growth assumption—which in any case was much less bullish than that of the bank—from 17% to 4%.
Anticipate a poor 4Q11 profit: Given NIM squeeze, heavier LLPs, deferred tax expenses and lower fee income growth in 4Q11, we expect a poor 4Q11 profit of Bt4.1bn, down by 22% YoY and 47% QoQ.