Kasikornbank

Flat growth in 3Q14. Hope lies in 4Q14

Kasikornbank Plc (KBANK)

- Profit to stabilize in 3Q14. Expense still not peak

We estimate KBANK’s 3Q14 net profit at B11.7bn, growing only 0.4%qoq

but 10.0%yoy. Core businesses have shown flat or slight growth in this

quarter, including net interest income, NIM, fee income, and other noninterest

income, while operating expense has not increased as projected

(still possibly hitting peak in 4Q14 though). In terms of asset quality,

although NPL has increased very insignificantly, the bank would still keep its

debt provision high. Accordingly, earnings in 3Q14 would stay flat from

2Q14. Overall, we project 9M14 net profit at B35.4bn or the growth of

11.5%yoy, representing 72% of FY2014 forecast.

- Keep long-term ROE forecast at 20%

Since the economy has signaled a rebound in the second half of the year,

alleviating concern about the business growth, we maintain our FY2014-

2015 forecast for the growth of 18.9%yoy and 16.8%yoy, higher than the

sector’s average projected at 8.1%yoy and 13.3%yoy, respectively. ROE is

estimated at 20-21% p.a. on average, net loan growth at 8.0%yoy and

10.0%yoy, and NIM at 3.60-3.65% on average. Cost to income ratio is

projected to decrease to 42.1% in 2015, from 44.4% in 2014, because

operating expense would decrease after K-transformation project is

complete in 2014.

- Top pick of big banks

We recommend BUY for KBANK. Fair value (GGM, based on 2.45x PBV and

20% long-term ROE forecast) is B260 in 2014 and B301.20 in 2015; total

returns (dividend included) can be expected at 12% at end-2014 and 31%

at end-2015. Given its strength of good loan structure and diversified

income base, especially for fee income that has been very strong and lower

investment expense, the bank’s profitability would become better.