Kasikornbank

Kasiskornbank Plc (KBANK)

Investment thesis: We have revised up our KBANK FY12-13 earnings projections by 6.5% and 8.8%, respectively, to Bt32.8bn and Bt42.7bn. We now anticipate that the bank will deliver stronger fee income than we earlier assumed. As such, we have raised our FY12-13 fee income growth projections to 20% and 15%, respectively, from 13% and 12%. Because of our FY12-13 earnings forecast upgrades, we have raised our KBANK YE12 target price by 10.4% to Bt191, pegged to a justified PBV of 2.35x. Our BUY rating stands.
2Q12 lending growth: KBANK guides for 2Q12 loan growth of 4% YTD, led by the corporate category. Management plans to lend more to SME and retail clients in 2H12, including Bt40bn in BOT soft funding that it will lend on to clients affected by the 4Q11 flooding. Thus, KBANK’s FY12 loan growth is likely to exceed the upper bound of its target range of 9-11% (we expect loan growth of 12%).
FY12 fee income growth upgrade to 20%: Given robust 1Q12 fee income growth of 24% QoQ and 22% YoY, we have revised up our fee income growth projections for FY12-13 to 20% and 15%, respectively from 13% and 12%. Hence, we have upgraded our FY12-13 earnings forecasts by 6.5% and 8.8%, respectively, to Bt32.8bn and Bt42.7bn. Management guides that FY12 fee income growth will exceed 18%. KBANK also expects 2Q12 fee income growth to sustain the momentum built in the first-quarter.
Normalized LLPs in 2Q12: The bank’s asset quality remains good—the 4Q11 flooding proved to be a blip rather than a game-changing event. KBANK will maintain loan loss provisions in the range of Bt1.7-1.9bn/quarter this year. Note that we forecast FY12 loan loss provisions of Bt7.7bn this year, up 3% YoY. 
Good 2Q12 earnings and 3Q12 profit to be sustain QoQ: Given sustained NIM, strong fee income growth and well-managed OPEX in 2Q12, we expect a good 2Q12 profit of Bt8.8bn, up 20% YoY (but down 2% QoQ, due to seasonality). Despite better lending in 3Q12, we expect its 3Q12 profit will be stable QoQ due to outpacing OPEX (partly from K-Transformation).
Outlook
Good 2Q12 profit growth: We estimate 2Q12 earnings of Bt8.8bn, up 20% YoY (but down 2% QoQ due to seasonality). Expected bottom-line expansion was led by loan growth of 2.7% QoQ, greater fee income and a sustained NIM. Our 2Q12 estimate represents 26.8% of our new FY12 profit forecast of Bt32.8bn, which we have just raised by 6.5%, due to an expanded fee income growth assumption.
Better loan growth in 2Q12 onward: KBANK guides for 2Q12 loan growth of 4% YTD, led by the corporate category. We estimate loan growth of 2.7% QoQ and 7.3% YoY. Management plans to lend more for to SME and retail clients in 2H12, including Bt40bn in BOT soft funding that it will lend on to clients affected by the 4Q11 flooding. Thus, KBANK’s FY12 loan growth is likely to exceed the upper bound of its target range of 9-11% (we expect loan growth of 12%). Note that its corporate lending expansion target range is 8-10% and it guides for SME growth of 10-12% and retail growth of 12-15%. 5M12 net lending rose 3.4% YTD after no QoQ growth in 1Q12. KBANK said that corporate loans expanded 5.2% YTD during 5M12, while SME and retail lending increased by 2.2% YTD and 2.9% YTD, respectively.
Scope for lending growth upside from BOT’s soft funding: The BOT approved Bt40bn in soft funding to KBANK to lend on to clients affected by the 4Q11 flooding, equal to about 3% of its total loans at YE11. So far, the bank has utilized Bt12bn in soft funding. We expect it to use the rest in 2H12.