Kasiskornbank

Kasikornbank Plc (KBANK)
Investment thesis
We have cut our KBANK profit forecasts by 4% for FY13 to Bt41.2bn and by 5% for FY14 to Bt46.4bn, due mainly to heavier LLP assumptions. Thus, our YE14 target price declines 5.5% to Bt231, pegged to a PBV of 1.86x. Despite our forecast cuts, we maintain our BUY rating, premised on 1) earnings resilience to economic uncertainty, 2) good asset quality management with a low NPLs/loans ratio of 2.1% and a big loan loss coverage ratio of 134% and 3) a declining cost/income ratio trend, as core banking upgrading costs (the K-Transformation program) will end next year.
FY13 LLP peg raised to 0.85 bps of loans from 70-80 bps
KBANK has raised its FY13 loan loss provisioning guidance from 70-80 bps of gross loans to 85 bps. The heavier provisioning target reflects greater bad debt risk tied to the economic slowdown. Hence, we have revised up our FY13-14 loan loss provisioning forecasts from Bt9.9bn for both years by 13% to Bt11.2bn (for each of the two years). We expect KBANK to set 3Q13 LLPs of Bt2.7bn, up by 23% QoQ and 34% YoY.
Reiterate loan growth target range of 9-11%
Management is concerned about the Thai economy. However, KBANK believes that its FY13 lending growth target range of 9-11% is comfortably achievable. The loan portfolio should post expansion of 2% QoQ at end-September. During 8M13, corporate lending grew 9% YTD (surpassing KBANK’s FY13 target of 4-6%), followed by retail at 6.2% (compared with an FY13 target range of 10-13%) and SME by 5.2% (against an FY13 target range of 10-12%). We model for FY13 loan growth of 10% and a relatively conservative NIM of 3.31% for the year.
NIM sustainable through 2H13
Guiding for a renewed focus on retail and SME lending in 2H13, KBANK anticipates a 2H13 NIM of 3.4-3.6%. Its 3Q13 NIM will be about 3.4%, basically flat QoQ, according to management. The bank expects the one-day Repurchase Rate to remain 2.50% through much of 1H14. Note that greater competition for business among lenders will limit the scope for KBANK to push up loan rates.
QoQ slippage in 3Q13 earnings, due to heavier LLPs
We estimate a 3Q13 profit of 10.8bn, up 17% YoY but down 2% QoQ. The assumed QoQ decline in earnings is due to heavier LLPs, both QoQ and YoY. We expect a cost/income ratio of 42%, slightly lower than the 2Q13 ratio of 43% because of continued loan growth, a stable NIM, fee income expansion and good OPEX management. We forecast a 3Q13 pre-provision operating profit (PPOP) of Bt17.5bn, up by 19% YoY and 1% QoQ.