Kasikornbank

KASIKORNBANK Plc (KBANK)
 

Beating all estimates: KBANK reported 1Q12 earnings of Bt9bn, up by 47% YoY and 196% QoQ. The result was 12% above our estimate and 17% ahead of the consensus because of greater fee income and lower OPEX than modeled. Pre-provision operating profit was Bt14.4bn, up by 34% YoY and 42% QoQ. KBANK’s 1Q12 earnings represent 29% of our FY12 projection. 
Results highlights: The loan portfolio expanded by 0.8% QoQ and 12.7% YoY, led by corporate and trade finance. Despite the corporate lending increase, NIM was squeezed only 4 bps QoQ to 3.47%. KBANK‘s loan loss provisions totaled Bt1.8bn, down 15% QoQ (but up 9% YoY). Its NPLs/loans ratio was 2.35% at end-March down from 2.45% at YE11, while loan loss coverage rose to 133% at end-March from 127% at YE11.
Fee income jumped by 25% QoQ and 22% YoY to Bt9bn, driven by banking fees, bancassurance sales and FX gains from trade finance. 1Q12 OPEX was Bt10.3bn, essentially flat YoY, but down 17% QoQ. Thus, KBANK’s cost/income ratio declined to 43.0% in 1Q12 from 50.7% for the same period last year and 56.1% the previous quarter.
Outlook: We anticipate that the bank will achieve stronger lending growth in 2Q12 onward, buoyed by the BOT’s soft funding program for clients affected by the 4Q11 flooding. Given its impressive YTD fee income growth and well-managed OPEX, we see scope for an earnings forecast upgrade, assuming that KBANK can more-or-less sustain its current operation going forward and can maintain its NIM at around 3.4% for the year as a whole.   
What’s changed? We maintain our FY12 and FY13 earnings forecasts unchanged for the moment at Bt30.8bn and Bt39.3bn, respectively.
Recommendation: KBANK looks set to at least achieve (and quite possibly exceed) our FY12 profit projection. Our BUY rating stands. We see scope for upside to our bottom-line forecast from: 1) fee income growth in excess of our model (mostly bancassurance and fees related to loans), 2) better operating efficiency with the completion of the K-Transformation program, 3) well-managed asset quality (lower LLPs than last year) and 4) loan growth (boosted by the BOT’s soft funding).