Kasikornbank

Kasikornbank Plc (KBANK)

Emphasize on superior service provision in 2013 to increase market share
KBANK’s CEO has revealed vision through the business plan in 2013. With a
success of the (continued) mega investment on employee and IT system (KTransformation)
to comply with the bank’s strategy of customer-centric, now KBANK has a customer data center which helps employees to be able to sell financial products that are appropriate to customers’ demand quickly through several methods. The success has been proved through increasing customers’ use of the bank’s service as main bank status as well as increasing products use by each customer, resulting in increasing market share of most financial products of KBANK. For the business plan in 2013, KBANK would create balance between the growth and the quality of assets. The bank has targeted net loan growth in 2013 at 9-11% like in 2012, focusing on high yield loans (SME and retails) instead of corporate loans which would show lower growth from 2012. Accordingly, NIM is projected to increase slightly to 3.4%-3.6% (already including effects from a possible policy rate cut of 25bp in 2013). Moreover, cost to income ratio is projected to drop to 45-46% from decreasing burden from K-transformation project which is in the end of the phase. All these positive factors would help offset the effects from fee income that is projected to decline (following corporate loan) and debt provision that is projected to increase (from a strict policy amidst the world economic fluctuation, against the bank’s debt quality which is still strong with NPL projected to drop continuously to lower than 2.4% of total loans in 2013).

Q4 2012’s profit to weaken qoq, but new high still expected for 2012-2013

We maintain our net profit forecast for 2012, projecting net profit in 9M12 to comprise 76% of our FY2012’s earnings forecast. We foresee earnings in Q4 2012 to weaken qoq from an increase of K-transformation expense as the bank had revealed (cost to income ratio in 9M12 stood low at only 43.1% while KBANK maintained the target for FY2012 at 46.47%, which means cost to income ratio would increase at an accelerated rate in Q4 2012), but it is not worrying because net profit in 2012 is still projected to make a new high in the year and 2013, under 2012-2013’s EPS growth forecast at 49.3%yoy and 20.4%yoy respectively from the abovementioned positive factors.

Top pick of the sector. BUY

We reiterate BUY for KBANK. 2013’s fair value, using 2.70x PBV, is B237.33,implying 27% upside from the current share price. Moreover, the share price has undergone a correction over the past 1 month, declining more than 6% from the record high in late September 2012. However, considering year-todate (ytd) returns of 43%, KBANK is a top outperformer of the sector. Consequently, a decline of the price in the short term is a good opportunity to accumulate the stock for long-term investment.