Kasiskornbank

Kasiskornbank Plc (KBANK)

6% above our number: KBANK posted 2Q12 earnings of Bt9.4bn, up by 28% YoY and 4% QoQ. The result was 6% above our estimate and 3% ahead of the consensus because of lower corporate tax expenses than modeled. The bank’s effective 2Q12 tax rate was 20% down from 24% in 1Q12. Pre-provision operating profit was Bt14.4bn, up 14% YoY and flat QoQ. KBANK’s 1H12 earnings represent 56% of our FY12 projection. 
Results highlights: The loan portfolio expanded by 3% QoQ and 7.7% YoY, led by the corporate and retail categories. Given better QoQ lending growth, NIM rose 14 bps QoQ to 3.60%, boosted by big dividend income of Bt939m during the quarter. Stripping out the item, 2Q12 NIM would be 3.4%, down slightly from 3.5% in 1Q12. KBANK‘s loan loss provisions totaled Bt1.8bn, up by 3% QoQ and 6% YoY. Its NPLs/loans ratio was 2.2%, down from 2.35% at end-March, while its loan loss coverage rose to 145% at end-June from 133% three months earlier. 
Fee income increased by 2% QoQ and 10% YoY to Bt9.1bn, driven by banking fees and bancassurance sales. 2Q12 OPEX was Bt11.4bn, up by 13% YoY and 11% QoQ. Thus, KBANK’s cost/income ratio increased to 44.3% in 2Q12 from 43% in 1Q12.
Outlook: We anticipate that the bank will achieve stronger lending growth in 3Q12 onward, buoyed by the investment up-cycle, and the BOT’s soft funding program for clients affected by the 4Q11 flooding. Hence, KBANK can more-or-less sustain its current operation going forward and 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 Bt32.8bn and Bt42.7bn, respectively.
Recommendation: Our BUY call stands, premised on scope for earnings upsides from: 1) possible NIM expansion as a result of accelerated lending growth in 2H12 and good funding cost management, 2) operating efficiency enhancements 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 and SME lending in 2H12).