Kasikornbank

Highest ROE among big banks BUY

Kasikornbank Plc (KBANK)

- 4Q14 profit shrinks from rising expenses

KBANK posted 4Q14 net profit at B9.96bn, contracting 20.4%qoq yet growing

4.6%yoy, 18% lower than projected. Operating expenses rose on seasonal

effect, while provisioning for doubtful debts increased following B1.05bn or

3.0%qoq growth in NPLs (consolidated financial statement), from 2.16% of

total loans at end-3Q14 to 2.24% of total loans at end-2014. Since positive

factors from increasing net interest income and substantially-better-thanexpected

NIM could not compensate for the aforementioned adverse effects,

FY2014 net profit grew 11.7%yoy to B46.1bn, still 6% lower than our

forecast.

- Cut forecast. Focus on corporate and SME in 2015, though still conservative

We slash our net profit forecast in 2015 and 2016 by 6.8% and 5.6%,

respectively, to reflect our previous overestimation of net interest income

growth and cost to income ratio. At the same time, we slightly increase NIM

assumption and reduce forecast of provisioning for doubtful debts. After the

forecast revision, FY2015-2016 net profit growth is estimated at 16.0%yoy

and 14.5%yoy, respectively. Major driving factors for the business in 2015,

under KBANK’s GDP growth forecast of 4.0%, are growth of corporate and

SME loans, while we still make a conservative estimate of retail loan growth.

Fee income is projected to grow aggressively at least 15%yoy.

- Top pick of big banks

We recommend BUY. New 2015 fair value after the forecast revision (GGM,

based on 2.41x PBV and 19.8% long-term ROE forecast, the highest ROE

among big banks) is B300; total returns (dividend included) can be expected

over 25% 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.