Kasikorn Bank

Kasikorn Bank Plc (KBANK)

Negative surprise on K-Transformation. The most important takeaway from the
analyst meeting was an unpleasant surprise with regards to the lengthy KTransformation,
its hugely costly IT upgrade. KBANK will book up to Bt1.6bn
impairment loss on its IT system (Bt1.1-1.2bn for asset impairment and Bt300-400mn
related expenses) in 2Q13 because it will terminate part of the new core banking
system for deposits. The K-Transformation program involved upgrading the bank’s
core banking platform for lending and deposits. The new core banking platform for
lending using TEMENOS banking software has been completed and is expected to be
deployed by the end of this year, enabling the bank to handle a flexible range of multichannel
transactions, sufficient for KBANK’s existing 6-7mn lending accounts. However,
the bank now feels the TEMENOS may not work well for the deposit side with its 10mn
accounts, and its assessment shows that its own back-up system for deposits is more
reliable than TEMENOS. Therefore, it decided to terminate the portion of the new
system that handled deposits, leading to an impairment loss of Bt1.6bn in 2Q13. Out of
the total Bt19.5bn budgeted for the new core banking system, Bt10-11bn has been
spent and ~65% has already begun to be amortized.
2Q13F preview – Negative surprise offset by positive surprise. We forecast a 22%
YoY and 13% QoQ rise in 2Q13F earnings to Bt11bn, based on the 1Q13 preview
guidance. There will be the negative surprise from booking the impairment loss for its
IT system, but this will be partly offset by a positive surprise from the write-back of
provisions for loans transferred to the TAMC.
1) Loan growth: 4-5% YTD for 1H13 (vs. 2.1% for 1Q13), mainly driven by corporate
loans. 5M13 YTD loan growth was 3.7%, comprising of +7% for corporate (beating
its full-year target of 4-6%, most of which were S-T working capital loans), 1.7% for
SME (behind its full-year target of 10-12% on seasonal factors) and 2.5% for retail
(behind its full-year target of 10-13%).
2) NIM: Stable QoQ, in line with the full-year target of 3.4-3.6%.
3) Non-interest income growth: Above the full-year target of 15%, thanks to the
buoyant capital market environment. It will book extra income of Bt1.1bn from a
write-back of provisions on loans transferred to the TAMC.
4) Cost to income ratio: Up QoQ to 44-45% with negative surprise in the impairment
loss of up to Bt1.6bn on IT as detailed above.
5) NPLs: NPL ratio increased slightly by 4-5 bps QoQ from two large corporate loans.
Maintain Buy. We keep KBANK as a Buy underpinned by outperforming fee and
insurance fee income growth and accelerating demand for SME loans.