Kasikorn Bank

Kasikorn Bank Plc (KBANK)

Guides to higher provisioning. The most important takeaway from the analyst
meeting was a surprising statement by management that the bank is raising
provisioning to add in a countercyclical buffer in preparation for any economic
downturn. This is in line with the BoT’s policy to encourage banks to set aside
provisions in lieu of capital requirement of up to 2.5% of risk-weighted assets as a
countercyclical buffer under Basel III. KBANK expects to make provisions of up to
Bt3.5bn in 1Q13, well above earlier guidance of Bt2bn/quarter. The bank raised 2013
provisioning guidance to 70-80 bps of total loans from the earlier 60-70 bps. To bring
our assumptions in line with this, we raised our provision forecast for 2013F-2015F by
35-40% to Bt11-12 bn, which brought a 4-5% cut in 2013F-2015F earnings.
1Q13F preview – Still strong despite higher provisions. We forecast a 12% YoY
and 30% QoQ rise in 1Q13F earnings to Bt10bn, based on the 1Q13 preview guidance.
1) Provisions: Up YoY and QoQ of up to Bt3.5bn (vs. Bt1.8bn for 1Q12 and Bt2.65bn for
4Q12) on the inclusion of a countercyclical buffer.
2) Loan growth: Strong at >2% YTD for 1Q13F (vs. 1.8% in 2M13, 9-11% target and 12%
SCBS forecast), mainly corporate (+6% in 2M13) and SME (+1% in 2M13) loans. Retail
loan growth was negative YTD. This is a stronger growth than usually seen in the
low 1Q13F season and corporate loan growth of 6% in 2M13 beat the full-year
target of 4-6%, but the majority of this was working capital loans, which are
expected to be repaid this year.
3) NIM: Stable QoQ at ~3.5%.
4) Non-interest income growth: In line with the full-year target of growth in the
mid-teens.
5) Cost to income ratio: Down substantially QoQ to 41-42%. However, the bank is
maintaining its 45% full-year cost to income ratio as opex will increase on a
seasonal basis over the rest of the year, particularly in the last quarter.
6) NPLs: An insignificant retreat QoQ.
TP cut, but maintain Buy. We cut KBANK’s target price to Bt230 (2.5x 2013F BVPS,
based on 20.7% L-T ROE, 11.9% cost of equity and 6% sustainable growth) from Bt244
(2.6x 2013F BVPS) to reflect the 4-5% downward revision in 2013F-2015F earnings as a
result of the inclusion of a countercyclical buffer into provisioning. However, we still
keep the stock as a Buy, underpinned by outperforming fee and insurance fee income
growth, accelerating demand for SME loans and improving cost to income ratio upon
completion of IT upgrade in 2013.