Kasikornbank

Kasikornbank Plc (KBANK) 

Investment thesis

After the analyst meeting yesterday, we raised our KBANK profit forecasts by 4.1% to Bt45.7bn for FY14 and by 2.2% to Bt52bn in FY15. The revisions reflect stronger NIM guidance—our NIM assumptions rise from 3.45% to 3.62% for this year and from 3.55% to 3.62% for next. As such, we have increased our YE15 target price 2% to Bt264, pegged to a PBV at 1.97x. We rate KBANK a BUY, premised on: 1) earnings resilience in the face of an unfavorable business environment, 2) a low NPLs/loans ratio of 2.3% (and a loan loss coverage ratio of 141%) and 3) a falling cost/income ratio trend, as core banking upgrading costs will end in FY15. 

KBANK expects loan growth of 6-7% in FY14 and 8-9% in FY15

Management cut its FY14 loan growth guidance range from 7-8% to 6-7%, attributable to big-ticket corporate loan repayments during 4Q14. We, thus, have cut our FY14 loan growth assumption from 8% to 7%. But our FY15 loan growth target stands at 9%, in line with the bank’s guidance of 8-9%. Note that YTD 11M14 loan growth was 6.9%. Corporate loans rose 5.8%, SME business by 11.2% and retail by 4.4%. Management expects to win banking licenses for Cambodia and China this year. The bank anticipates an NPLs/loans ratio of 2.3% for both YE14 and YE15.

Better NIM management than expected; scope for upside to profit

FY14 NIM will be posted in the 3.6-3.7% range for FY14, according to KBANK. It had earlier guided for a slightly lower range of 3.4-3.6%. Funding costs declined faster than lending rates. Note that 9M14 NIM was 3.6%. Management’s FY15 NIM target range is 3.5-3.7%. The bank even thinks that the BOT may possibly cut its policy interest rate slightly during 2015. Because of the new guidance, we have raised our NIM assumptions from 3.45% to 3.62% for FY14 and from 3.55% to 3.62% for FY15.

Cost/income will ratio will stay at around 45% in FY14 and FY15

KBANK anticipates that its 4Q14 cost/income ratio will be high and may push up the FY14 ratio to about 45%. Note that the 9M14 cost/income ratio was 42%. We assume a 4Q14 cost/income ratio of 51%, due to the booking of core banking system costs (K-Transformation). We assume fee income growth of 13% in FY14 and 12% in FY15, in line with management guidance.

Flat YoY earnings expected for 4Q14, due to heavy OPEX

We estimate 4Q14 earnings of Bt9.5bn, flat YoY and down 24% QoQ, due to the booking of heavy costs ahead of year-end. We also expect loan loss provisioning to increase 4% YoY (but drop 14% QoQ) to Bt3.1bn. Our model assumes a cost/income ratio of 51% (up from 42% in 9M14). We expect a 4Q14 pre-provision operating profit (PPOP) of Bt16.7bn, up 5% YoY but down 18% QoQ.