Kasikornbank

Kasikorn Bank Plc (KBANK)

7% above our number
KBANK posted 3Q12 earnings of Bt9.2bn, up 19% YoY but down 2% QoQ. The result was 7% above our estimate (and in line with the Bloomberg consensus) because of lower OPEX than modeled. The bank’s 3Q12 OPEX was 5% below our number, due to lower costs booked for the core banking system (the K-Transformation program). As such, the 3Q12 pre-provision operating profit was Bt14.8bn, up by 11% YoY and 3% QoQ. KBANK’s 9M12 earnings jumped 30% YoY to Bt27.6bn, which represents 81% of our FY12 earnings projection. 

 Results highlights
The loan portfolio expanded by 2.5% QoQ and 6.4% YTD, led by the corporate and retail categories. Due to better QoQ lending growth and well-managed funding costs, 3Q12 NIM inched up 2 bps QoQ to 3.42%. KBANK‘s loan loss provisions totaled Bt2bn for the quarter, up by 7% QoQ and 17% YoY. Its NPLs/loans ratio was 2.07% at end-September down from 2.2% at end-June, while its loan loss coverage dipped to 143% from 145% three months earlier. 
Fee income grew by 5% QoQ and 13% YoY to Bt9.6bn, driven by banking fees and bancassurance sales commissions. 3Q12 OPEX was Bt11.5bn, up by 12% YoY and 1% QoQ (and 5% lower than our estimate). Given a fatter QoQ NIM and strong fee income growth, KBANK’s cost/income ratio declined slightly to 43.9% in 3Q12 from 44.3% in 2Q12. Its 9M12 cost/income ratio stood at 44.7%—significantly below the trend of its FY12 guidance of 46.5%.

Outlook
We expect KBANK to deliver softer QoQ earnings for 4Q12, due to the fact that it normally books more sales & promotion expenses and costs for its core banking system (K-transformation) in the fourth-quarter.  

What’s changed?
We maintain our FY12 and FY13 profit forecasts unchanged for the moment at Bt32.8bn and Bt42.7bn, respectively.

Recommendation
Our BUY rating stands, premised on scope for earnings upside from: 1) better operating efficiency (its cost/income ratio is likely to be lower than the 46.5% that the bank guided), 2) well-managed asset quality (lower LLPs than last year) and 4) fee-based income growth (banking fees, bancassurance sales commissions and trade finance).