Kasikornbank

Kasikornbank Plc (KBANK)  

 

- 1Q15 profit beats projection. Core business remains strong

KBANK announced 1Q15 net profit of B12.4bn or a growth of 24.4%qoq and 3.9%yoy, better than expected. Fee income grew significantly (including fee income from loan-related transactions and transactional services, i.e. bancassurance, credit card, and ATM card), so did income from other operations, especially Fx gain. In addition, operating expense, i.e. personnel expense and other expense, decreased after passing a high season, so cost to income ratio lowered sharply. Net interest income weakened against growing net loan as NIM had shrunk partly because of the recent policy interest rate cut. Expense on bad debt provisioning increased slightly following with rising NPL. However, the positive factors were able to outweigh negative factors in overall, so net profit growth was seen in this quarter. 

 

- Lower debt provision leading to growing profit in 2Q15 

We maintain FY2015-2016 earnings forecast, projecting to see net profit growth of 16.0%yoy and 14.5%yoy, respectively. A major driving factor in 2015 is net loan growth, which is expected at around 8-9%yoy, mainly from corporate and SME loans, while retail loans would remain dull. Fee income growth is also estimated at an aggressive rate of at least 15%yoy. With non-interest income accounting for as much as 40% of its total income, KBANK would be able to show sturdy growth against the economic slowdown. According to our study, every 1% decrease in net loan growth below our forecast of 8%yoy will depress KBANK’s net profit by only 0.24% from the current forecast, the least among peers, versus 0.57% on average for the sector. Earnings rebound is foreseen in 2Q15 from decreasing provision for bad debts, after very high provisioning in 1Q15, which will compensate for rising operating expense in the quarter. 

- Top pick of the sector  

We recommend BUY. 2015 fair value (GGM, based on 2.41x PBV) is B300, under long-term ROE forecast of 19.8%, the highest among big banks. Total returns with dividend yield included can be expected more than 25%.