Kasikornbank

Kasikornbank Plc (KBANK)
Small SME, spearhead to boost loan growth to 9-11%p.a. together with fee hike
KBANK declared its vision for the business in 2014 under a projection for the
GDP growth of 4.5% as driven by growing export industry and the
government’s mega investment projects (if they can proceed as planned) and
amidst risks from a fund outflow and domestic and international politics.
According to its vision, KBANK would not focus only on local business but also
regional countries in which it has a business base (ASEAN + 3, which are
China, Japan, and South Korea), consistent with the AEC liberalization in 2015.
The bank’s strength is its partnership with more than 60 financial institutions in
eight countries. For domestic growth, KBANK aims for 2014 net loan growth of
9-11%yoy, which is a feasible and sustainable target with insignificant effects
on tier-1 capital (targeting the growth of not lower than 12% in the next few
years), focusing on SME loans (35% of total loans) that are the bank’s strong
point in terms of high market share and healthy risk management, especially
small SME loans (50% of total SME loans) that still provide very worthwhile
risk-adjusted return on capital (RAROC). Despite a fierce competition in the
market, a demand for small SME loans is believed to remain high. At the same
time, the bank has also aimed for fee income growth of over 15%yoy in 2014.
Income from bancassurance (17% of total fee income) has been showing good
growth, as well as fee income from transaction services (ATM, credit card, debit
card, money transfer, and bill payment). A pressing factor, on the other hand,
is debt provision in 2014 as credit cost (debt provision to total loans ratio)
would stay high close to that of the prior year at 85bp, and close to the sector’s
average because of the BOT’s strict policy and that Basel 3 has not occurred
from NPL problem. The bank still aims for NPL to total loan ratio at lower than
2.2%, below FY2013 target of 2.4%.
- Maintain forecast, with ROE close to 20%
We maintain our earnings forecast for FY2013-2015, projecting the average
EPS growth of 13.2% p.a. (CAGR) under an assumption for 2013-2015 net loan
growth of only 8% p.a., which is lower than the bank’s target. We estimate
aggressive fee income growth of 14% p.a. and project the expense to
normalize after the investment in K-transformation ends in 2013. All these
factors would help boost net profit growth in the next three years. ROE is
projected high at near 20%.
- 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 B238.74, which implies 22% upside from the current share
price. Dividend yield can be expected at 3% p.a.