Kasikornbank

Kasikornbank Plc (KBANK)

As a big commercial bank with diversified loan structure, KBANK
would revive and grow aggressively in 2H14, while fee income is
also its strong point. Therefore, we revise up our FY2014 earnings
forecast and fair value.

- 2Q14 profit weakens a bit as projected. Expense rises
KBANK posted 2Q14 net profit at B1.19bn, contracting 1.7%qoq but rising
6.9%yoy, in line with projection. Non-interest income decreased, while
operating expense increased. Cost to income ratio rose from 39.95% in
1Q14 to 44.31%, in line with the bank’s previous projection that its expense
would grow at a faster rate in the rest of the year due to seasonal effect and
rising personnel expense, reflecting from 2014 cost to income ratio target of
45%. For positive factors, net fee income in 2Q14 increased better than
expected, thanks to the growth in fee income from loan transaction, fund
selling, and securities brokerage. Net interest income also grew above
projection. NIM stood at 3.69%, increasing 14bp, better than expected,
because funding cost decreased at a faster rate than loan yield.
- Up forecast. Long-term ROE touches 20%
Based on a projection that the economy would rebound in 2H14, we revise
up our earnings forecast for 2014-2015 by 17.6% and 32.7%, respectively,
mainly by increasing loan growth and NIM and cutting credit cost. After the
revision, 2014-2015 net profit growth forecast is 18.9%yoy and 16.8%yoy,
respectively, higher than the sector’s average projected at 7.2%yoy and
13.0%yoy.
- Up 2014 fair value to B260
We recommend BUY for KBANK. FY2014 fair value after the forecast revision
(GGM, 2.45x PBV, 20% long-term ROE forecast) is B260, implying a total
return (dividend yield included) of over 20%. KBANK is a good choice
amidst the reviving economy for its diversified income base and potentially
growing fee income.