Kasikornbank

Kasikornbank Plc (KBANK)
3Q13 earnings as expected
KBANK posted a 3Q13 profit of Bt10.7bn, up 16% YoY but down 2% QoQ. The result was in line with our forecast and the Bloomberg consensus. 3Q13 pre-provision operating profit was Bt17.1bn, up 16% YoY but down 3% QoQ. KBANK’s 9M13 earnings rose 15% YoY to Bt31.8bn, which represents 77% of our FY13 projection. 
Results highlights
The loan portfolio expanded by 1.7% QoQ and 9.8% YoY, led by the corporate and retail categories. 3Q13 NIM was 3.4%, virtually unchanged QoQ. KBANK‘s loan loss provisions jumped by 48% YoY and 36% QoQ to Bt3bn, as expected (the bank set counter-cyclical provisions in 3Q13). Its NPLs/loans ratio was 2.13% at end-September, also unchanged from three months earlier, while its loan loss coverage ratio was 133%, down slightly from 134% at end-June 2013. 
Fee income jumped by 8% QoQ and 21% YoY to Bt11.6bn, as modeled, driven by banking fees and bancassurance sales commissions. 3Q13 OPEX was Bt13.5bn, up by 17% YoY and 8% QoQ. KBANK’s cost/income ratio rose slightly to 44.2% from 41.5% in 2Q13 (it was 43.9% in 3Q12).
Outlook
We expect the bank to deliver better YoY earnings for 4Q13, driven by loan growth, a sustained NIM and good OPEX management. Note that management guides for an FY13 cost/income ratio of 45-46%—significantly higher than the 1H13 number of 41%. If its cost/income ratio were to be lower than the guidance, there would be clear scope for upside to our FY13 earnings projection.  
What’s changed?
We maintain our FY13 and FY14 profit forecasts unchanged for the moment at Bt42.7bn and Bt48.70bn, respectively.
Recommendation
Our BUY rating stands, premised on scope for earnings upside from: 1) enhanced operating efficiency (KBANK’s cost/income ratio is likely to be lower than its guidance for FY13), 2) strong fee income growth and 3) better lending expansion in FY13 and FY14 than currently modeled.