Kasikornbank

Profit makes new high despite weak economy BUY

Kasikornbank Plc (KBANK)

- 3Q14 profit stronger than expected in all segments

3Q14 net profit was reported at B12.5bn, growing 6.7%qoq and 16.8%yoy

(6% higher than expected). Fee income grew by 9.8%qoq and 21.3%yoy

(8% better than projected), mainly from loan transaction, fund selling, and

securities brokerage. Net interest income and NIM also improved beyond

expectation. Moreover, operating expense decreased (better than

expected), negating an increase in debt provision and boosting net profit

growth in this quarter.

- Keep long-term ROE forecast at 20%

The businesses are projected to continue improving throughout 2014, so

the bank will be able to meet the estimated business targets. 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 from 44.4% in 2014 to 42.1% in 2015

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 over 16% 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.