Kasikorn Bank

Kasikorn Bank Plc (KBANK) 
 -Raising precautionary provisions. KBANK raised 2013 provision guidance to 84-85 bps of total loans from the earlier guidance of 70-80 bps. It says this is simply a precautionary cushion rather than reflecting deterioration in asset quality. Though it is not yet seeing NPLs trend up, it is becoming more cautious on loan underwriting and has tightened its credit extension, mainly for consumer loans.   
- Maintains loan growth target. KBANK is standing firm on its top line growth target of 9-11%, estimating 9M13 loan growth at 7-8% vs. 8M13 of 6.5%. Its 8M13 loan growth was 9% for corporate loans (vs. 4-6% 2013F target), 5.2% for SME loans (vs. 10-12% target) and 6.2% for retail loans (10-13% target). Although its 9% 8M13 growth in corporate loans exceeded the full-year target of 4-6%, it is standing firm on its full-year target, as the majority of corporate loans extended in 1H13 were working capital loans and are expected to be repaid before yearend. In contrast, YTD growth in both SMEs and retail loans is flagging, though the bank is maintaining targets since 2H13 should bring a seasonal acceleration. We maintain our loan growth forecast at 10% for 2013 and 9% for 2014. 
- Continued robust non-NII growth. Management said KBANK’s 3Q13 non-interest income (non-NII) was stable QoQ, which would mean 9M13 YoY growth exceeds its full-year target in the mid-teens. By our calculations, a QoQ stable non-NII for 3Q13 would translate to 19% YoY growth in 9M13, mainly supported by insurance income from subsidiary Muang Thai Life Assurance. However, the bank is not changing its mid-teen non-NII growth target. We maintain our forecast of non-NII growth at 17% for 2013F.
 - 3Q13F preview – provision hike. We expect 3Q13 earnings of Bt10.5bn, growth of 14% YoY on higher top lines but a fall of 5% QoQ on higher provisions. Key guidance for 3Q13 is: 1) QoQ acceleration in loan growth, bringing 9M13 loan growth to 7-8%, 2) QoQ stable NIM, 3) QoQ stable non-NII, 4) QoQ rise in credit cost to 84-85 bps from 63 bps for 2Q13, 5) cost to income ratio of 44-45% in line with full-year target of 44-45% (before a sharp seasonal rise in 4Q13).  
 - Maintain Buy with a slight cut in TP. We cut KBANK’s target price to Bt220 (2.2x average 2013F and 2014F BVPS) from Bt225, raising our provision forecast to fine tune with the new guidance. We keep KBANK as a Buy underpinned by outperforming fee and insurance fee income growth and easing cost to income ratio upon completion of the IT upgrade in 2014.