Kasikornbank

Kasikornbank Plc  (KBANK)

- 1Q14 profit substantially surpasses projection
KBANK announced 1Q14 net profit at B11.9bn, 14.7% above our projection and
making up 29% of FY2014 forecast. The net profit advanced 25.3%qoq and
18.1%yoy, thanks to every business. Net interest income grew 1.8%qoq – as
projected. NIM stabilized at 3.55% from the net loan growth of 0.8%qoq,
mostly commercial, working capital, and international trade loans. Yield
dropped following the policy interest rate, but funding cost also decreased. Fee
income increased 5.8%qoq, mainly from loan-related and credit card
transactions. Other operating income, likewise, surged 37.1%qoq as a result of
growing income from Fx transaction, investment profit, and life insurance
businesses. Operating expense, at the same time, decreased 11.3%qoq
because of deceasing seasonal expense. Cost to income ratio dropped to only
39.95%, making a record low in several years. In terms of asset quality, NPL
increased slightly, but remained 2.05% of the total loan. In addition, KBANK
made 20.6%qoq additional allowance for bad debt in this quarter, with the
credit cost of 101bp, in line with the policy level.
- Profit to soften to normal level in 2Q14
We maintain our earnings forecast for 2014, projecting slight net profit growth
of only 1.1%yoy because of down revision of core business growth to be
consistent with the bank’s GDP growth target of only 1.8%. Furthermore, credit
cost might be increased to meet with rising NPL. For 2Q14, the earnings are
projected to soften from the prior quarter; net loan would not show solid
recovery, while NIM would be able to stabilize as a result of decreasing funding
cost. Operating expense is also projected to increase gradually because the
current level is still lower than the policy level of 45%.
- Hold for dividend
We reiterate to hold KBANK for dividend. The share price has risen until
standing near average PBV in the past ten years of 1.9x. The current share
price has no upside left from 2014 fair value, at 1.77x PBV, of B184 (GGM;
under long-term ROE forecast of 18%).