Kasikornbank

Kasikornbank Plc (KBANK) 
KBANK posted a 2Q13 profit of Bt11bn, up by 17% YoY and 9% QoQ. The result was in line with our forecast, but 4% above the Bloomberg consensus (fee income exceeded the street number). 2Q13 pre-provision operating profit was Bt17.7bn, up by 23% YoY and 5% QoQ. KBANK’s 1H13 earnings rose 15% YoY to Bt21.1bn, which represents 49% of our FY13 projection. 
Results highlights
The loan portfolio expanded by 2.5% QoQ and 10.7% YoY, led by the corporate and retail categories. Due to swifter QoQ lending growth and well-managed funding costs, 2Q13 NIM was 3.41%, up 4 bps QoQ. KBANK‘s loan loss provisions jumped 16% YoY (but dived 38% QoQ) to Bt2.2bn, as expected (the bank set counter-cyclical provisions in 1Q13). Its NPLs/loans ratio was 2.13% at end-June, up slightly from 2.09% three months earlier, while its loan loss coverage ratio was 133.9%, down slightly from 138.6% at end-March. 
Fee income jumped by 8% QoQ and 28% YoY to Bt11.7bn, as modeled, driven by banking fees and bancassurance sales commissions. 2Q13 OPEX was Bt12.6bn, up 10% both YoY and QoQ. KBANK’s cost/income ratio rose slightly to 41.5% from 40.4% in 1Q13 (it was 44.3% in 2Q12). Note that KBANK booked a Bt1.6bn impairment on its K-transformation program, the effect of which was mitigated by a Bt1.1bn gain on asset sales to the TAMC.
Outlook
We expect the bank to deliver better YoY earnings for 3Q13, driven by 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 1H13 number of 41%. If it were to keep its cost/income ratio below its guidance, there would be scope for upside to our FY13 earnings projection.  
What’s changed?
We maintain our FY13 and FY14 profit forecasts unchanged for the moment at Bt42.7bn and Bt48.70bn, respectively.
Recommendation
We reiterate our BUY rating for KBANK, premised on scope for earnings upside from: 1) better operating efficiency (its cost/income ratio is likely to be lower than its guidance for FY13), 2) strong fee income growth and 3) better lending expansion than modeled.