Kasikornbank

Kasikornbank Plc (KBANK)
- 3Q13 profit weakens slightly qoq. Core business grows but debt provision rises
KBANK announced 3Q13 net profit at B10.7bn, 4% better than our projection, shrinking
2.4%qoq but still growing 16.3%yoy, thanks to fee income that rose 2%qoq and
20.6%yoy, mostly fee income from loan-related transaction and credit card, against a
projection for stable growth qoq. 9M13 fee income growth stood at 24.4%yoy, very high
comparing to our target at 18.7%yoy. The factors that depressed the earnings in this
quarter were as follows. 1) Debt provision expense soared 35.6%qoq and 47.9%yoy –
as projected. The bank has changed a debt provisioning policy in 2013 by increasing the
provisioning to 85bp from 60-70bp targeted, while 1H13 average credit cost was only
82bp (mostly from high debt provision in 1Q13). Consequently, debt provision expense
2H13 would increase as a result of the new policy. The reasons KBANK has given for the
provision increase were that it was only a countercyclical buffer, not because of NPL
problem, and that FY2013 net profit would be strong so it decided to raise the prosivion.
2) Income from other operations dropped 7.6%qoq (but still growing 19.3%yoy), mainly
because share of profit from associated companies, especially capital-market-related
transactions, declined substantially from 1H13. 3) Operating expense increased
3.4%qoq and 16.8%yoy – as expected. Cost to income ratio rose to 43.63% from
42.65% in 2Q13, in line with the bank’s disclosure that the expense would grow at an
accelerated rate in 2H13, mainly personnel, advertising, and marketing expense.
However, there was still a positive factor from net interest income in 3Q13 that grew
3.3%qoq and 14.3%yoy – as projected, in line with the net loan growth in this quarter
at 1.6%qoq and 9.8%yoy. Accordingly, 9M13 net loan growth increased to 6.5% from
end-2012, consistent with FY2013 target we estimated at 8%yoy and the bank’s target
at 9-11%yoy. The growth stemmed mainly from corporate loans, but also short-term
working capital loans, while SME loans did not show rapid growth because it was a low
season. For retail loans, continuous growth was still seen like in 2Q13. NIM in 3Q13
would stabilize qoq at 3.52%, mostly because loan yield increased at a higher rate than
funding cost. Overall, as the negative factors outweighed the positive factors, they had
an effect on 3Q13 net profit. Overall, 9M13 net profit comprised 75% of our FY2013 net
profit forecast.
- Maintain forecast. Our assumption already reflects economic deceleration
We maintain our forecast for FY2013-2015, projecting the net profit growth at
20.1%yoy, 11%yoy, and 8.8%yoy, respectively, under net loan growth forecast of only
8%p.a. for 2013-2015, down from 12%yoy previously. Likewise, the bank projected the
economic outlook for the rest of 2013 until 2014 to decelerate as a result of international
factors, especially the Chinese economic slowdown and the QE measure, while there is
also domestic factor like sluggish export. However, the business outlook in the
remainder of 2013 would still be able to meet our target, especially for SME and retail
loans that are entering a high season.
- Buy. Top pick of the sector
We reiterate BUY and select KBANK as a top pick of the sector due to its strength as a
blue-chip bank with high profitability despite economic deceleration. 2013 fair value,
using 2.31x PBV (GGM) and under long-term ROE forecast of 21%, is B207, which
implies 9% upside from the current share price (the share price has 27% upside when
compared with 2014 fair value).