Kasikornbank

Kasikornbank Plc (KBANK)
Q2 2013 profit makes new high. Provision drops, fee income grows
KBANK announced 2Q13 net profit at B10.9bn, 4.2% higher than our projection and
making a new quarterly high with the growth of 8.6% qoq and 17.2% yoy due to
following factors. 1) 2Q13 net interest income has grown 4.2%qoq and 15.9%
yoy, exceeding our projection, in line with the net loan growth of 2.5% qoq and
10.7%yoy. 1H13’s net loan grew 4.7% from end-2012, correspondent with FY2013’s
target that we project at 10%yoy, mostly due to corporate loans, which are short-term
working capital loans. SME loan growth has not accelerated much because of a low
season. Retail loans have returned to normal and started to grow qoq after going
negative in 1Q13 (as a result of debt repayment, especially credit card debt for LTF/RMF
purchase late last year). NIM increased slightly by 3bp to 3.52%, beating our
anticipation for flat growth qoq, thanking to increasing loan yield and stabilizing funding
cost. 2) 2Q13 fee income growth stood at 3.3% qoq and 23.6% yoy – as
projected, very high compared to FY2013 goal that we and the bank project at 15%
yoy, mostly from growth in fee income from transaction services e.g. credit card, debit
card, ATM card, money transferring, and bill payment. 3) Debt provision was B2.3bn
- better than expected, dropping 37.6%qoq (but still increasing 16.1%yoy) to a
normal level (2013 credit cost policy is around 70-80bp) from B3.52bn in 1Q13. Credit
cost decreased to 66bp from 104bp in the previous quarter. NPL has risen slightly by
5bp of total loan in this quarter caused by falling of 2 major debtors, which the bank
emphasized that it was only the debtors' problem, not the whole sectors' problem.
Despite the NPL rise, NPL to total credit ratio stood at 2.04%, lower than FY2013
projection at 2.4%. However, pressuring factor in this quarter was an operating expense
that has increased 13.5%qoq and 14.1%yoy, mostly due to an extraordinary expense of
more than B500m (net from extraordinary income from reversal of excess debt provision
transferred to TAMC after the project ended at B1.11bn and extraordinary expense from
impairment of investment for core banking system of deposit section in KTransformation
project at B1.56bn as the bank decided to settle the new system on
evaluation that it would be more beneficial to the bank in long run compared to the
former system. However, overall, positive factors weighed more than negative ones, so
the net profit still grew. 1H13 net profit comprises 49% of our total FY2013 net profit
forecast.
- Maintain forecast. Business direction and profit in 2H13 to progress to goal
We still project KBANK's 2013-2014 earnings result with net profit growth of 23.4% yoy
and 12.3% yoy, respectively, under ROE forecast of up to 21% on average. Although the
bank's economic condition in the remainder of 2013 is likely to decelerate due to
external factors, especially the deceleration of China's economy and the QE cut, the
business outlook in 2H13 is likely to progress to the evaluated goal, especially SME and
retail loans that high season is coming. Though corporate loans may see risk in debt
repayment as they previously emphasized on short term debts, it is not worrying as the
growth up to present is far beyond the goal (7% growth from end-2012 in 5M13,
compared to FY2013 goal at 4-7% yoy)
- Reiterate "BUY". Top pick of the sector
We reiterate "BUY" for KBANK and select it as a top pick of the sector. 2013’s fair value
based on PBV of 2.64x (GGM method) is B237.33 under long-term ROE forecast of 23%.
The share price has decreased greatly recently against its growing profit, making this a
good chance to accumulate. KBANK is the commercial bank most ready for aggressively
generating fee income after the end of K-Transformation in 2013.