Kasikorn Bank

Kasikorn Bank Plc  

 

KBANK has given its initial guidance for 2016 and this is more bearish than we had anticipated, mainly on asset quality and non-NII growth. The bank also raised its 2015F provision target, reflecting its more cautious view on asset quality. We thus cut our earnings forecast by 4% for 2015F, 11% for 2016F, and 8% for 2017F.  

Bearish guidance for 2016 with higher provisions in 2015F. KBANK sent out a presentation on Saturday, making it the first to give its 2016 financial guidance, which is not optimistic. It also reported that it is upping 2015F provision guidance to up to 1.7% of total loans from 1.5% of total loans. KBANK targets loan growth of 6-7% vs. around 6% in 2015F, a slight squeeze in NIM to 3.4-3.6% vs. 3.5-3.7% in 2015F, non-NII growth at up to 10% vs. low teens in 2015F, stable cost to income ratio at 45-47%, a continued large provisioning at up to 1.7% of total loans (the same level as 2015F), and a continued rise in NPLs to 3.5-3.6% of total loans vs. 2.8% at 2015F. 

Cut earnings forecast and TP. To fine tune with the latest guidance, we cut our earnings forecast by 4% for 2015F, 11% for 2016F, and 8% for 2017F. For 2015F, we raised credit cost to 1.7% from 1.5%. For 2016, we raised credit cost to 1.7% from 1.3% and cut non-NII growth to 10% from 12%. This leads to a reduction in target price to Bt215 (1.6x 2016F BVPS) from Bt225. We also rolled valuation base to YE2016 from mid-2016.     

Keep KBANK as the sector pick because 1) it is expected to continue outperforming in terms of loan growth and non-NII, 2) it should benefit the most from the government’s SME support measures, 3) the completion of K-transformation this year is expected to bring in an improvement in cost to income ratio. However, the current value is at >1SD below the historical mean, fully discounting the 2015F doldrums.