Kasikorn Bank

Kasikorn Bank Plc (KBANK) 

 

KBANK’s profit is expected to remain solid in 1Q15, backed by outperforming loan growth and continued good fee income growth that will more than offset the higher provisions. The share correction has returned KBANK’s valuation to an undemanding level. Buy at an unchanged TP of Bt270.  

1Q15 preview: Still solid. We forecast KBANK’s 1Q15 earnings to increase 5% YoY and 26% QoQ to Bt12.5bn, based on the guidance of 1-2% QoQ loan growth, stagnant NIM, 8-10% YoY growth in non-NII (mainly from net fee income with weaker net insurance income), seasonally low cost to income ratio at 41-42%, and high credit cost at above full-year target of 95bps with a minimal rise in NPLs. 

KBANK cuts GDP forecast, reviewing financial targets. KBANK cut its 2015 GDP growth forecast to 2.3-3.3% (2.8% base case) from 4% to accommodate its view that global economic growth may be worse than expected, particularly in China. The bank is reviewing its 2015 financial targets, now at 8-9% loan growth, 3.5-3.7% NIM, low-teens non-NII growth, 45% cost to income ratio, 95 bps credit cost and 2.2-2.3% NPL ratio.    

Continued good non-NII growth. It has the highest exposure to the SME segment, where the majority of Thailand’s businesses are placed. This offers KBANK a large opportunity to cross-sell for non-interest income (non-NII), allowing it to sustain outperforming growth in the high teens for several years with the sector’s highest non-NII contribution at 40%. Even with last year’s sluggish economy, KBANK managed a robust 16% growth in non-NII. This year, KBANK conservatively expects its non-NII to grow 14% vs. 16% for 2014.   

Outperforming loan growth. Loan growth continued to outdo its sector in 2M15 at +2% YTD, mainly driven by corporate loans (6.1% YTD) and SME loans (2% YTD) with a contraction in retail loans. Despite the good loan growth in 2M15, we maintain our 2015F loan growth at 8% (vs. 7% for the sector) as the majority of 2M15 loan growth was in the form of S-T working capital loans, meaning they will be repaid this year. The bank targets corporate loan growth of 4-6%, SME of 7-8% and retail of 6-7%. It plans to get more deeply into the small SME segment. KBANK gained market share in its SME segment with a 10% growth in SME loans growth (vs. 4-5% for the sector) last year. The bank plans to leverage on its existing clients this year.   

Further NIM improvement with loan yield holding up. Its ability to hold up loan yield in 2014 despite interest rate cuts indicates greater resiliency in NIM than thought. KBANK said that yield improvement not only came from a higher proportion of SME loans but also higher yield on corporate loans. We expect a further rise in NIM of 5 bps to 3.85% in 2015, with loan yield held firm by a higher proportion of high-yield small SMEs and further easing in funding cost following the interest rate cut in March.   

Back to an undemanding valuation. The 10% share correction since last November’s peak has returned KBANK’s valuation to a historical mean at 10.8x PER (vs. 10% EPS growth) and 1.8x PVB (vs. 18% ROE). We maintain our 2015F earnings growth of 10%, mainly from top line growth.