Kasikorn Bank

Cautiously optimistic 2015 targets BUY

Kasikorn Bank Plc (KBANK)

2015 targets cautiously optimistic. Holding an analyst meeting on Friday, KBANK

was the first to give its 2015 guidance. Cautiously optimistic, its key 2015 targets are

given below.

1. Loan growth: 8-9% vs. its 2014 target of less than 8% (7% SCBS forecast). Within

this, it targets loan growth of 4-6% (vs. 1.7% in 9M14) for corporate loans, 7-8% (vs.

8.8% in 9M14) for SME loans and 6-7% (vs. 2.6% in 9M14) for retail loans. The bank

plans further penetration into the small SME segment.

2. NIM: Stable at 3.5-3.7%, vs. its 2014 target of 3.4-3.6% and 3.7% for 9M14 (KBANK’s

calculation). We maintain our forecast of a small 3 bps NIM improvement to 3.78%

in 2015F, driven by improving loan yield from a higher mix of high-yield SME loans.

3. Non-NII: Low teens, unchanged from its 2014 target vs. 14% YoY for 9M14, mainly

driven by fee and insurance income. We maintain our more optimistic 2015F non-

NII growth at 15%, expecting a pick-up from 13% for 2014F upon recovering loanrelated

fees.

4. Cost to income ratio: Mid-40%, the same as the 2014 target. The bank expects its

cost to income ratio to stay in this range for the next two years. We maintain our

2015F cost to income ratio at 44%. We expect meaningful improvement in 2016.

5. Asset quality: Stable 2.2-2.3% NPL ratio with a small hike in credit cost to mid-90

bps from 85-90 bps in 2014.

SME-led outperformance in loan growth. We view its 2015 loan growth target of

8-9% as a bit too cautious when taken against its outperforming 4.3% 9M14 loan

growth in the slowing economy. We believe the SME segment will lead the sector’s

overall loan growth in 2015, driven by recovering domestic consumption, the AEC

integration and the government’s infrastructure projects. With the highest market

share (~30%) in this segment, KBANK should benefit the most from the strong demand

potential for SME loans, giving it continued outperformance in loan growth in 2015. To

fine tune with the bank’s target, we cut our 2015F loan growth to 10% from 11%, still

slightly above the bank’s target.

Prudently raise provision forecast. KBANK’s target to lift its credit cost to mid-90

bps from 85-90 bps for 2014 is higher than we earlier anticipated. Note that the bank

recently raised 2014 provision target to 0.85-0.9% of total loans from the original

target of 0.85%. It appears that the bank is becoming increasingly prudent in its

provisioning policy to reflect the rising proportion of SME loans. We raise our 2015

credit cost to 0.95% from 0.9% for 2015F vs. 0.9% for 2014F.

Maintain as top Buy with an unchanged TP, underpinned by its outstanding loan

and non-NII growth plus a lower cost to income ratio after completion of the IT

upgrade next year, solidifying L-T value. We keep its target price unchanged at Bt250,