Kasikorn Bank
Preview 1Q16: Worsening - but no surprise BUY
Kasikorn Bank Plc (KBANK)
1Q16F preview: Asset quality worsening but no surprise. Management guidance for 1Q16 indicates worsening asset quality but still in line with its full-year guidance. We forecast a 24% YoY fall in 1Q16F (higher provisions) with a rise of 71% QoQ (seasonally lower opex) to Bt9.4bn, based on the guidance summarized below.
1) NPLs: Up materially QoQ in 1Q16 but still in line with the full-year NPL ratio target of 3.5-3.6% (vs. 2.7% at 4Q15 by bank calculations); with stabilizing NPL inflows in 1Q16 and expectation of easing NPL inflows later in the year.
2) Provisions: Hefty in 1Q16 with front-loaded provisioning in 2016 (vs. back-loaded in 2015, with credit cost peaking at 2.2% in 4Q15); expect easing later in 2H16; maintain full-year credit cost target of up to 1.7% vs. 1.64% in 2015.
3) Loan growth: Robust loan growth in March is expected to bring 1Q16 loan growth to >1% mainly from large corporate loans with flat SME loans and a slight rise in retail loans; full-year target of 6-7% is achievable.
4) NIM: Lower YoY but stagnant QoQ in 1Q16; maintain full-year target of 3.4-
3.6% (vs. 3.67% in 2015 by bank calculations) which incorporates the potential for another 25 bps cut in policy rate this year.
5) Non-NII: Slower growth (mainly driven by insurance) in 1Q16 from the 12% YoY in 1Q15, in line with full-year target of up to 10% (vs. 13% in 2014); around Bt200-300mn realized gain from the divestment of SEACON Development.
6) Cost to income: QoQ decrease on low season for cost to income ratio to 42-43%; expect a repetition of the historical pattern of a QoQ rise for the remainder of the year; maintain full-year target of 45-47% vs. 45.5% in 2015.
Still cautious on loans under financial aid package. The bank is very cautions, stopping the S-T financial aid in March when outstanding loans under financial aid amounted to Bt60bn (4% of total loans) out of a total of Bt172bn at the end of February. Loans worth ~Bt112bn already exited the financial aid program, with Bt21bn
(1% of total loans or 42% of total NPLs) turning into NPLs and Bt91bn (6% of total loans) returning to normal status – though the bank is watching these closely.
Still the sector pick. We keep KBANK as our sector pick because: 1) it is expected to continue outperforming in terms of loan growth and non-NII; 2) the completion of K-transformation will improve cost to income ratio and then enhance ROE in the long run; 3) undemanding valuation of 1.27x PBV relative to 14% ROE already discounts concern on asset quality.
