Kasikorn Bank
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Bank more pessimistic, changes financial targets BUY
Kasikorn Bank Plc
Pessimistic revision of 2016 targets. KBANK disclosed a revision of its 2016 NIM and provisions. It cut NIM target by 10 bps to 3.3-3.5% from 3.4-3.6% vs. 3.67% for 2015 and raised credit cost expectations by 20 bps to 1.9% from 1.7%.
Cut earnings 2016 forecast by 3%. The bank’s new NIM target is in line with our latest forecast in which we factored in the impact from lending interest rate cuts. Its new credit cost target is 5 bps higher than our forecast. Raising our credit cost forecast to its new target of 1.9% will impact our earnings forecast by 3%, bringing our 2016F earnings down to -3%.
Cut TP, maintain Buy but remove from the sector top pick. We cut target price by 3% to Bt180 (1.35x 2016F BVPS) from Bt185. We remove KBANK as a top pick but keep it as a Buy because: 1) it is expected to continue outperforming in terms of loan growth and non-NII; 2) the completion of K-transformation will improve cost to income ratio for the long haul; 3) its undemanding valuation at -2SD below historical mean already discounts the cyclical asset quality concerns and slowing top line growth. We expect the deterioration in asset quality to be worst this year (1H16) and look for a moderate earnings recovery next year.
