Kasikornbank

Kasikornbank Plc (KBANK)
- Cut 2014 business goal following lower GDP
KBANK projected Thailand’s GDP growth in 2014 to fall to 1.8% because the
political situation remained in stalemate and unpredictable. As a result, the
bank lowered its 2014 business goal. Net loan growth forecast was slashed
from 9-11%yoy to below 8%yoy. Despite prevailing demands for corporate
loans for the export sector and continuous projects, they are mostly working
capital loans, so repayments can occur anytime. Meanwhile, SME loans have
decelerated since 4Q13 due to the bank’s conservative strategy; new NPLs
have remained low and manageable. Retail loans were projected to show
similar growth to total loan growth target as the bank would turn to focus on
specific target group. For example, housing loans will target clients of top
projects and also expand client base to provincial areas. Although NPLs from
retail debtors have increased, they are still controllable. For non-interest
income, the bank revised down its growth target to 10-12%yoy from 15%yoy.
In terms of asset quality, the bank admitted that NPLs had increased since
1Q14, so it could not keep NPL to loan ratio in 2014 under 2.2% as expected.
As a result, it had to increase credit cost (debt provision to total laon) to 100bp
from 85bp, while maintaining NIM and cost to income ratio at 3.4-3.6% and
45%, respectively.
- Slash forecast. 1Q14 profit still has driving factor
We slash our 2014-2015 earnings forecast slightly, mainly by decreasing net
loan growth and increasing credit cost forecasts to meet with the new targets
of KBANK. After the forecast revision, 2014-2015 net profit would grow only
1.1%yoy and 3.5%yoy, respectively. 1Q14 net profit is estimated at B10.4bn,
rising 9.3%qoq and 3.0%yoy, driven by a Fx gain that is B500m higher than
usual. Operating expense would return to normal in the low season. On the
other hand, credit cost would increase, while fee income will stay flat. NIM is
projected close to that of the previous quarter at 3.55%.
- Downgrade to HOLD. Flat profit growth, limited upside
We downgrade our recommendation from buy to hold for dividend. The share
price has risen until standing near average PBV in the past ten years of 1.9x.
The current share price has only 3% upside from 2014 fair value, at 1.77x PBV,
of B184 (GGM; under long-term ROE forecast of 18%).