Kasikornbank

Kasikornbank Plc (KBANK)

Q1 2013 earnings were 8.7% over our estimate
KBANK posted 1Q13 earnings of Bt10.1bn, up by 12% YoY and 31% QoQ. The result was 8.7% above our estimate and 2.6% over the Bloomberg consensus because of lower OPEX than modeled. The bank’s 1Q13 OPEX was 7% below our number, due to lower costs booked for the core banking system than assumed. As such, 1Q13 pre-provision operating profit was Bt16.9bn, up by 18% YoY and 27% QoQ. KBANK’s 1Q13 earnings represent 24% of our FY13 projection. 
Results highlights
The loan portfolio expanded by 2.2% QoQ and 11.2% YoY, led by the retail and corporate categories. Due to better QoQ lending growth and well-managed funding costs, 1Q13 NIM was 3.44%, up 2 bps QoQ. KBANK‘s loan loss provisions jumped by 93% YoY and 33% QoQ to Bt3.5bn, as expected, due to its new counter-cyclical provisioning policy. Its NPLs/loans ratio was 2.09% at end-March, down slightly from 2.16% at YE12, while its loan loss coverage rose to 138.6% at end-March from 132% three months earlier. 
Fee income grew by 11% QoQ and 20% YoY to Bt10.8bn, as modeled, driven by banking fees and bancassurance sales commissions. 1Q13 OPEX was Bt11.5bn, up 12% YoY but down 16% QoQ (and 7% lower than our estimate). Given strong YoY loan and fee income growth and an improved NIM, KBANK’s cost/income ratio fell to 40.4% in 1Q13 from 43.0% in same period last year. 
Outlook
We expect the bank to deliver better YoY earnings for 2Q13, driven by continuing loan growth, a sustained NIM and well-managed OPEX. Note that KBANK guides for an FY13 cost/income ratio of 45-46%, which is significantly higher than the 1Q13 number. If the bank can keep its cost/income ratio below its guidance, there will be scope for FY13 earnings upside.  
What’s changed?
We maintain our FY13 and FY14 profit forecasts unchanged for the moment at Bt42.7bn and Bt48.70bn, respectively.
Recommendation
Our BUY rating stands on KBANK, premised on scope for earnings upside from: 1) better operating efficiency (its FY13 cost/income ratio is likely to be lower than its guidance), 2) strong fee income growth and 3) lending expansion.