Kasikornbank

Kasikornbank (KBANK)

Q2 2013 profit projected to make new high. Provision drops, fee income grows
We estimate KBANK's 2Q13 net profit to reach B10.5bn, making a new quarterly high,
rising by 4.3% qoq and 12.5% yoy, thanks to following factors: 1) 2Q13’s net
interest income growth is projected at 2%qoq and 13.4% yoy, in line with our
projection of net loan growth at 2.5% qoq and 10.6%yoy. 1H13’s net loan grew 4.7%
from end-2012, correspondent with FY2013’s target that we project at 10%yoy, mostly
due to corporate loans, which are short-term working capital loans. SME loan growth
hasn't accelerate much because of a low season. Retail loans have returned to normal
and started to grow qoq after going negative in 1Q13 (as a result of debt repayment,
especially credit card debt for LTF/RMF purchase late that year). NIM is projected to
stabilize at 3.49%. 2) 2Q13’s fee income growth is estimated at 4% qoq and
24.5% yoy, very high compared to FY2013’s goal that we and the bank project at
15% yoy, mostly from growth in fee income from transaction services e.g. credit card,
debit card, ATM card, money transferring, and bill payment. 3) 2Q13’s debt provision is
projected to decrease to B2.3bn, back to normal (2013’s credit cost policy is around
70-80bp) from B3.52bn in 1Q13. Credit cost decreased to 66bp from 104bp in the
previous quarter. NPL would rise slightly by 4-5bp of total loan in this quarter caused
by falling of 2 major debtors, which the bank emphasized that it was only the debtors'
problem, not the whole sectors' problem. Despite the NPL rise, NPL to total present
credit ratio still stands around 2.1%-2.2%, lower than FY2013’s goal at 2.4%.
Pressuring factor in this quarter is an extraordinary expense that has increased more
than B500m (net from extraordinary income from reversal of excess debt provision
transferred to TAMC after the project ended and extraordinary expense from
impairment of investment for core banking system of deposit section in KTransformation
project at B1.5bn (B1.1-1.2bn for impairment of assets; the rest
booked as expense in the income statement) as the bank decided to settle the new
system on evaluation that it would be more beneficial to the bank in long run compared
to the former system. However, overall, positive factors weigh more than negative
ones, so the net profit would still increase. 1H13’s net profit is predicted to be 47% of
our total FY2013’s net profit forecast.
- Maintain forecast. Business direction and profit in 2H13 to progress to goal
We still project KBANK's 2013-2014 earnings result with net profit growth of 23.4%
yoy and 12.3% yoy, respectively, under ROE forecast of up to 21% on average.
Although the bank's economic condition in the remainder of 2013 is likely to decelerate
due to external factors, especially the deceleration of China's economy and the QE cut,
the business outlook in 2H13 is likely to progress to the evaluated goal, especially SME
and retail loans that high season is coming. Though corporate loans may see risk in
debt repayment as they previously emphasized on short term debts, it is not worrying
as the growth up to present is far beyond the goal (7% growth from end-2012 in 5M13,
compared to FY2013’s goal at 4-7% yoy)
- Reiterate "BUY". Top pick of the sector
We reiterate "BUY" for KBANK and select it as a top pick of the sector. 2013’s FV based
on PBV of 2.64x (GGM method) is B237.33 under long-term ROE forecast of 23%. The
share price has decreased greatly recently against its growing profit, making this a
good chance to accumulate. KBANK is the commercial bank most ready for aggressively
generating fee income after the end of K-Transformation in 2013.