Kasikornbank

Investment thesis

We attended KBANK’s analyst meeting last Friday. It was hosted by Mr Banthoon Lamsam, the president. He offered upbeat FY15 financial guidance, saying he anticipates accelerated govt policy implementation and a recovery in exports. The guidance is consistent with our assumptions. Thus, we maintain our profit forecasts at Bt43.9bn for FY14 and Bt50.9bn for FY15. Our BUY rating stands, premised on: 1) earnings resilience, 2) efficient management of asset quality (reflected in its low NPLs/loans ratio of 2.2% and a large loan loss coverage of 142%) and 3) a declining cost/income ratio trend, as core banking upgrading costs will basically end next year.

KBANK sets FY15 loan growth target of 8-9% after 7-8% in FY14

Management forecasts 2015 GDP growth of 4% following 1.6% in 2014. The better FY15 GDP growth outlook prompted KBANK to set its FY15 loan growth target guidance at 8-9% (it is sub-8% for FY14). Mr Banthoon guides for FY15 loan growth as follows—4-6% for corporate, 8-10% for SME and 6-9% for retail. We expect that loans tied to corporate and SME businesses in the electronics, food, commodity, export-oriented and retail industries to dominate portfolio growth in 4Q14 onward. Our model assumes loan growth of 8% in FY14 and 9% in FY15.

FY15 financial guidance looks achievable

KBANK guides for non-interest income growth in low double digits in FY14 and FY15 (close to our model). Its NIM targets are 3.4-3.6% for FY14 and 3.5-3.7% for next year (we assume NIMs of 3.4% in FY14 and 3.5% in FY15) and a cost/income ratio of 45% in both FY14 and FY15 (we assume 45% in FY14 and 44% in FY15). The NPLs/loans ratio should not exceed 2.2% at YE14 and 2.3% at YE15. KBANK will set loan loss provisions at a credit cost of 85 bps in FY14 and 95 bps in FY15 (in line with our numbers).

Scope for upside to our FY15 model

We believe that KBANK could deliver better loan growth and a fatter NIM than modeled if the economy were to recover faster in 2015 than currently forecast. Thus, its fee income could rise at a level exceeding low double digits because of KBANK’s expertise at retail and SME business. We forecast that its fee income will rise by 10% in FY14 and 12% in FY15. Moreover, the K-transformation program will end next year, which will make for a significantly reduced cost/income ratio in FY16 onward (possible further upside for KBANK’s FY16-17 earnings outlook). Its end-Sept CAR was a hefty 17% (14% Tier-1)—we don’t see any danger of a cash call being necessary in the foreseeable future.