Kasikorn Bank

Kasikorn Bank Plc (KBANK)

Bank cuts 2014 top line targets to line up with cut in Thailand’s 2014 GDP growth to 1.8% from 3%. It now expects 2014 loan growth of below 8%, from 9-11%, made up of: 5-7% for corporate loans from 6-8%, 6-8% for SME loans from 9-11% and 6-9% for retail loans from 10-13%. It also cut non-interest income (non-NII) growth to the lowteens from the mid teens.
But stands by stable NIM, credit cost and cost to income. KBANK does stand by its
2014 guidance of stable net interest margin (NIM) at 3.4-3.6% on easing deposit
competition, slight rise in credit cost to 85 bps, as deterioration in asset quality
remains under control plus stable cost to income ratio at mid-40% on resilient opex.
Factoring in new guidance and worsening economy lowers our 2014 just 2%:
We cut our 2014 loan growth forecast to 5% from 7% (vs. 8% for 2013), non-NII growth
to 11% from 15% (vs. 18% for 2013) and raise credit cost to 90 bps from 85 bps (vs. 82
bps for 2013). Even after factoring in a 50 bps cut in policy rate in 2014, we can keep
our NIM forecast at 3.54% (-1 bps YoY) because of lower competition over deposits. We
lower 2014 opex to maintain cost to income ratio at 44%, the same as last year. All in,
this lowers our 2014 forecast by only 2%. We are reviewing our forecast for other banks
and expect to move in the same direction.
1Q14F preview – still good with 15% growth YoY, 22% QoQ to Bt11.6bn
(Bt4.85/share), based on the following 1Q14F guidance.
1. Loan growth: +1-2% QoQ (vs. the sector’s 2M14 of 0% YTD), driven by corporate
loans (5-6%), mostly trade finance. SME and retail loans slimmed slightly QoQ.
2. Net interest margin: Stable QoQ, despite a negative implication from interest rate
cuts. Its high-cost deposits under its “stepping up” campaign and its high-cost
debenture matured in 1Q14, lowering cost of funds.
3. Non-interest income: Up almost to mid-teens YoY from a one-off forex gain.
4. Cost to income ratio: Down seasonally QoQ to 40% in 1Q14 (on par with 1Q13) from
49% in 4Q13.
5. Asset quality: It raised provision expense to 1% of total loans from 0.84% in 4Q13
but maintains full-year credit cost at 0.85%. In 1Q14, KBANK saw a slight increase in
NPLs and special-mention loans but this remains manageable and it stands firm
on its target of stable NPL ratio at 2.2% at YE2014.
Maintain as top Buy with unchanged TP of Bt214 (2x 2014F BVPS); its outstanding
non-NII growth plus easing in cost to income ratio after the completion of the IT
upgrade next year undergirds its L-T value.