Kasikornbank

Kasikornbank Plc (KBANK)

4Q13 earnings were as expected
KBANK posted a 4Q13 profit of Bt9.5bn, up 24% YoY but down 11% QoQ. The result was in line with our estimate, but was 4% above the Bloomberg consensus. 4Q13 pre-provision operating profit was Bt15.9bn, up 19% YoY but down 7% QoQ. KBANK’s FY13 earnings rose 17% YoY to Bt41.3bn, which represents 100% of our FY13 projection.
Results highlights
The loan portfolio expanded by 1.8% QoQ and 8.5% YoY, led by the corporate (commerce and trade finance) and retail (credit card) categories. 4Q13 NIM was 3.47% up 7 bps QoQ. KBANK‘s loan loss provisions rose by 15% YoY and 2% QoQ to Bt3bn, as expected. Its NPLs/loans ratio was 2.11% at YE13, down slightly from 2.13% at end-September, while its loan loss coverage ratio was 135% at YE13, up from 133% three months earlier. 
Fee income rose 14% YoY (but dipped 5% QoQ) to Bt11bn, as modeled, driven up by banking fees and bancassurance sales commissions. 4Q13 OPEX was Bt14.8bn, up by 8% YoY and 10% QoQ. KBANK’s cost/income ratio rose to 48.3% for 4Q13 from 44.2% in 3Q13 (it was 50.7% in 4Q12).
Outlook
We expect the bank to deliver YoY earnings growth for 1Q14, driven by SME and corporate lending, a sustained NIM and good OPEX management. Management guides for an FY14 cost/income ratio of 45%. We forecast FY14 lending growth of 8%, somewhat below the bank’s guidance range of 9-11%.
What’s changed?
Our FY14 and FY15 profit forecasts unchanged for the moment at Bt43.9bn and Bt50.9bn, respectively.
Recommendation
KBANK justifies a BUY rating, we believe, for the following reasons: 1) enhanced operating efficiency (its FY14 cost/income ratio is likely to be lower than its guidance), 2) strong fee income growth and 3) the possibility of greater lending expansion in FY14 and FY15 than currently modeled.