Kasikornbank

Kasikornbank Plc (KBANK)
Investment thesis
We attended KBANK’s analyst meeting on Friday, which was hosted by the CEO, Mr Banthoon Lamsam. The bank guides for moderate FY14 loan growth, a sustained NIM and good OPEX management. We anticipate FY13-14 earnings in line with the guidance (there would be scope for upside if state infrastructure project spending were to rise faster next year than currently assumed).
Our BUY rating stands, premised on 1) earnings resilience to economic uncertainty, 2) good asset quality management (an NPLs/loans ratio of 2.1% and loan loss coverage of 134%) and 3) a declining cost/income ratio trend, as core banking upgrading costs will decline significantly in FY14, as the last of the expenses tied to the K-Transformation program will be booked this year.
Moderate FY14 loan growth guidance of 9-11%
Management anticipates better 2014 GDP growth of 4.5%, up from 3.7% forecast for 2013. Thus, KBANK guides for FY14 loan growth in the 9-11% range (the same range as for FY13). Disaggregated by category, the loan growth targets for next year are 9-11% for SME, 6-8% for corporate 10-13% for retail. The bank claims that mortgages, personal loans and credit card business still have room for further growth, despite the unfavorable macro-economic climate. Note that we model for lending growth of 10% in FY13 and only 8% in FY14.
FY14 NIM guidance of 3.4-3.6%, unchanged from the FY13 number
Given a stronger lending focus on retail and SME business, which pay higher yields than corporate loans, management believes FY14 NIM is sustainable at 3.4-3.6% (the NIM expected for FY13), despite intensifying competition. KBANK expects the one-day Repurchase Rate to rise to 3.00% by YE14 from 2.50% at the moment. We believe a rising interest rate trend would benefit its profitability.
Credit cost will be about 0.85% of gross loans in FY14
Although, management expects the economy to strengthen next year, loan loss provisioning will be maintained at a level equal to 0.85% of gross loans. KBANK aims to keep its NPLs/loans ratio below 2.2%; it was 2.13% at end-September. We are confident in its asset quality management—the loan loss coverage ratio was equal to 134% of NPLs at end-September. The coverage ratio will rise to above 140% at YE14, the bank guides.
FY14 cost/income is targeted at 44-45%
KBANK anticipates that a focus shift to retail and SME business will enable it to deliver good fee income and a sustained good NIM. Management guides for non-interest income growth of 15%, driven by banking fees (credit cards and transaction fees) and bancassurance sales of Muangthai Life Assurance products.