Kasikornbank

Kasikornbank Plc (KBANK)

3Q12’s profit fails to make new high as expected due to overestimation of insurance business
KBANK reported 3Q12’s net profit at B9.21bn, weakening slightly by
1.7%qoq but still growing 18.7%yoy. The profit was a little lower than our
projection for an increase of 3.4%qoq due to our overestimation of premium
income from the life insurance business (MTL). However, the core business
performance was still in line with our projection. 1) Net interest income has
thrived 4.8%qoq and 10.4%yoy – close to our estimation. NIM hiked 3bp
from the prior quarter to 3.48%. Although yield showed a slight decrease,
funding cost also declined accordingly. Net loan growth in 3Q12 stood close
to the projection at 2.5%qoq, mainly from SMEs and retails which have
grown continuously from 2Q12 due to the high season, while disbursement of
corporate loans have been seen continuously from projects that are
approved. 2) Fee income escalated by 4.5%qoq and 13.4%yoy as projected,
mainly from the growth of fee income from loan transactions and retail
transaction especially credit card. However, the growth of fee income in 9M12
stood at only 12.5%yoy, lower than the target for FY2012 at higher than
18%yoy. Nevertheless, there is nothing to worry because the growth will
become more accelerated in 4Q12, especially fee income for SME and retail
loans from an arrival of a high season. 3) Cost to income ratio in 3Q12
softened slightly to 43.5% - still better than expected, and still lower than
FY2012’s target KBANK has set at 46-47%. Nonetheless, despite pressure
from debt provision which has risen to B2bn in this quarter or an increase of
6.5%qoq and 17.3%yoy partially from provision for future economic
fluctuation, with the abovementioned positive factors which had more weight
and helped offset all the increasing expenses, net profit growth is still seen in
3Q12.

Profit might weaken qoq in 4Q12 but will make new high in 2012-2013
We maintain our 2012’s net profit forecast for KBANK. Net profit in 9M12
accounted for 76% of our FY2012’s forecast. 4Q12’s earnings are projected
to decline qoq from an increase of expense on K-transformation that is now
in the ending phase of the investment. However, it is still far from concern as
we believe that the net profit would still be able to make a new high in
FY2012 and continue growing in FY2013 due to growth of domestic economy
especially the government’s investment that would play an important role in
2013.

Reiterate BUY. Change to use 2013’s fair value at B237.33
We reiterate our recommendation to buy KBANK. Fair value in 2013, based
on 2.70x PBV, is B237.33/share, implying an upside of 26% from the current
share price. Since the beginning of the year until now, the share price has
rallied the most in the sector by more than 44% and outperformed the sector
and the market, which is inline with our recommendation to select the stock
as a top pick. Earnings in 2013 are projected to make a new high, thanking
to loan business particularly high yield SME loans. This is a key factor to
make KBANK outperform the sector in 2013.