Kasikornbank Plc (KBANK)

Kasikornbank Plc (KBANK) is not immune to the fiercer competition in SME lending.
However, any retreat there should be more than made up for by its burgeoning bancassurance business. The bank is also trying to stay ahead of competition by banking on urbanisation outside of Bangkok. We expect healthy 2Q net profit of THB9.1bn (+2% qoq, +25% yoy). Maintain Outperform and target price, set at 2.4x FY12 P/BV (GGM with long-term assumptions of 16.5% ROE, 11.7% COE, 8.2% growth). 
What Happened
KBANK hosted a briefing for fund managers and analysts. Management retains its loan growth
target of 9-11% for this year (CIMB: 12%). The guided 1H growth of 4% implies more rapid expansion in 2H. It also maintains its 18% non-interest income growth target (also our target).
The star performer would be its bancassurance business through Muang Thai Life Assurance (effective stake of 38%). Asset quality probably remained sound, with its NPL ratio stabilising
at the 1Q level of 2.5%. Loan loss provisions are THB1.8bn-1.9bn per quarter, equivalent to credit cost of 60bp per year; we forecast the same.
The cost-to-income ratio in the coming quarters may rise from 1Q12, but the bank is keeping its full-year target of a 1% pt reduction yoy to 46.5% (CIMB: 45%).Loans expanded 3.3% in 5M12, consisting of 5.2% growth in corporate lending, 2.2% in SME and 2.9% in retail. SME competition
intensified. It is prepared to compete on pricing but not on loose lending terms or indulgent credit lines.
Urbanisation anchors KBANK’s new growth strategy, identifying 14 major provinces for near-term penetration with its retail and SME products.
What We Think
We expect KBANK to report 2Q12 net profit of THB9.1bn, bringing 1H12 to
53% of our full-year forecast. On a qoq basis, this assumes moderate loan and non-interest income growth, stable NIM, rising cost-to-income ratio and stable credit cost.
What You Should Do
While the upcoming 2Q12 numbers may lack 1Q12’s surprises, profit growth probably stayed decent. We still see KBANK as a name to own.