Kasikornbank

Kasikornbank Plc (KBANK)

Q1 2013’s profit grows 31.4%qoq. Provision increases but core business very blissful
KBANK posted 1Q13’s net profit growth of 31.4%qoq and 12.4%yoy to B10bn,
exceeding the projection and making another quarterly high after declining
continuously in the past 2 quarters, thanking mainly to the growth of the core
business of the bank and subsidiaries, which are insurance, securities, and fund
management companies. 1) Net interest income growth in this quarter was
1.2%qoq and 15.3%yopy – slightly lower than expected. Net loans in 1Q13
grew 2.2%qoq and 11.1%yoy, which was in line with our target of 10%yoy for
FY2013, due mainly to corporate loans, both short-term working capital loans and
long-term investment loans. SME loans also thrived despite the low season, while
retail loans still decreased qoq as a result of debt repayment, especially credit card
debts for LTF and RMF purchases at the year-end. NIM shrank from the previous
quarter by 5bp to 3.49% because loan yield declined more than funding cost in this
quarter. 2) Fee income has grown 5.6%qoq and 29.5%yoy – better than
expected, very high comparing to the bank’s and our FY2013’s target at 15%yoy.
Main contribution was the growth of fee income from retail clients such as credit
cards, debit cards, and ATM cards, as well as the fee income from cross selling of
products of subsidiaries, which are mutual funds and insurances. 3) Income from
other operations escalated 28.6%qoq and 0.6%yoy - better than
expected, thanking to a profit of B286m from a sale of investment in government
bonds portfolio, which was higher than our estimate. 4) Operating expense
decreased 16.2%qoq but still increased 12%yoy – better than expected, likely
because of a decrease in marketing expenses during the year end which would
gradually rise in the following quarters. Cost to income ratio in 1Q13 fell to only
40% from 50.5% in 4Q12, which was still low comparing to FY2013’s target of
45%. Debt provision increased to B3.52bn – as expected, higher than the
previously revealed average of around B2bn a quarter, making credit cost rose to
104bp in this quarter. As a result, the bank has revised up FY2013’s credit cost
target to 70-80bp from 60-70bp. The increase in the debt provision did not stem
from the increase of NPLs, evident by NPL to loan ratio at end-1Q13 at 1.99%,
versus 2.06% at end-2012, but rather because of counter cyclical provisioning
strategy imposed by most of the banks. Accordingly, coverage ratio (LLR/NPL) of
KBANK increased to 143.8%, versus 136.5% at end-2012. However, overall, with
the aforementioned surrounding positive factors, the bank’s profit still grew in this
quarter, which comprises 23% of FY2013’s profit forecast.
- Profit to brighten in 2Q13. Provision normalizes.
For 2Q13, we still project to see continuous remarkable growth like in 1Q13
because debt provision would normalize to B2bn a quarter. Loan growth outlook
would be similar to that in 1Q13 for corporate loans, while SME and retail loans
would show significant growth. Accordingly, overall loan growth would still be
blissful, which would help compensate for gradually rising expenses. We hold our
positive perspective toward the bank’s business outlook in 2013, with estimated
net profit growth of 23.4%yoy under high long-term ROE forecast of 21.7%.
- Share price corrects, time to accumulate. Upside increases to 16% now
We reiterate our BUY recommendation for KBANK. 2013’s fair value, based on
2.64x PBV (GGM) is B237.33, under long-term ROE forecast of 23%. As the share
price has corrected substantially since before the earnings declaration against
satisfactory profit, it is a good opportunity to accumulate.