KASIKORNBANK

KASIKORNBANK Plc (KBANK)
 

Investment thesis: We have revised up our KBANK FY12-13 earnings projections by 3% and 6%, respectively, to Bt30.8bn and Bt39bn. This is due to anticipation that the BOT will provide the bank with about Bt28bn in soft funding to lend to clients affected by the flooding, which will boost its loan growth in 2H12 and FY13. We have raised our KBANK FY12-13 loan growth projections to 12% and 10%, respectively, from 9% and 7.5%. Given our FY12-13 earnings forecast upgrades, we have increased our YE12 target price by 10% to Bt173, based on a justified PBV of 2.17x. Our BUY rating stands.
Soft funding will mean strong 2H12 loan growth: KBANK said 1Q12 loan growth will inch up about 2% YTD, led by the corporate category. Management guided that the BOT approved Bt28bn in soft funding for the bank to lend in FY12 onward to flood-affected clients. As such, KBANK should easily achieve its FY12 loan growth target range of 9-11% (we have raised our FY12 loan growth assumption to 12% from 9%). 
Normalized LLPs in 1Q12: The bank plans to set loan loss provisions of Bt1.9bn for 1Q12, which would be 10% lower QoQ. Management guides for loan loss provisioning of Bt1.7-1.9bn/quarter for the rest of the year. We forecast that KBANK will set FY12 loan loss provisions of Bt8bn this year, up 9% YoY. 
Fee growth: 1Q12 fees related to loans and bancassurance sales will post growth of 11-14 QoQ, according to management (we estimate 14%). The bank also guides that FY12 fee income expansion will exceed 18%. We maintain our FY12 fee growth assumption at a much less bullish 13%.
Anticipate a great 1Q12 profit: Given improved fee income growth and well-managed OPEX in 1Q12, we expect an impressive 1Q12 profit of Bt8bn, up 164% QoQ and 31% YoY.
Outlook
Modest loan growth in 1Q12: The bank guided that the corporate portfolio led 1Q12 growth, while the SME and retail categories have recovered gradually since December 2011. We expect KBANK to deliver 1Q12 loan growth of 1.3% QoQ. Management reiterates its FY12 lending expansion target of 9-11%. Disaggregated by category, the bank guides for corporate loan growth of 8-10%, SME of 10-12% and retail of 12-15%.
Soft funding will boost loan growth: The BOT approved soft funding of about Bt28bn, to which KBANK will add Bt12bn from conventional funding sources and lend on to clients affected by flooding at concessionary rates. The soft loan scheme represents 3% of the bank’s loans outstanding at YE11. Fifty five percent of the soft loans will go to SME clients; the remaining 45% to retail customers. In order to factor in the effect of the BOT’s soft funding, we have raised our lending growth projections to 12% for FY12 (from 9%) and to 10% for FY13 (from 7.5%).
Heavy LLPs remain: The flooding probably pushed up KBANK’s NPLs somewhat, given that SME lending comprises 36% of its portfolio, the most of any commercial bank in proportionate terms. Thus, its FY11 loan loss provisions rose 10% YoY to Bt7.3bn. Management targets an LLP range of Bt1.7-1.9bn/quarter through FY12. We forecast FY12 loan loss provisions of Bt8bn, in line with the bank’s target. At YE12, KBANK’s NPLs/loans ratio was 2.45% and it had a big loan loss coverage ratio of 127%. The bank targets keeping its NPLs/loans ratio below 2.7% by YE12. We aren’t worried about the quality of its assets at the moment.