Kasikornbank

Kasikornbank Plc (KBANK)

2Q16F preview: Asset quality worsening but no surprise. Management guidance for 2Q16 indicates worsening asset quality but still in line with its full-year guidance. We forecast its 2Q16F earnings to fall 21% YoY and 6% QoQ to Bt9bn, based on the guidance summarized below.  

 

1) NPLs: Continued up QoQ to 2.8-3% in 2Q16 vs. 2.8% 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 2Q16 and expectation of easing NPL inflows later in the year.

 

2) Provisions: 2.3-2.5% of total loans in 1H16 vs. 2.8% in 1Q16,in line with the earlier guidance of 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 1.9% vs. 1.64% in 2015.

 

3) Loan growth: Accelerating to 3-4% YTD in 1H16 (vs. 0.2% in 1Q16), mainly from large corporate loans (+8% YTD) with only small growth in SME loans (+1% YTD) and flattish retail loans; full-year target of 6-7% is achievable.

 

4) NIM: Hit by a cut in lending rate, NIM is expected to be lower QoQ in 2Q16 with an expectation of 3.5-3.6% in 1H16 vs. 3.6% in 1Q16; maintain full-year target of 3.4-3.6% (vs. 3.67% in 2015 by bank calculation)

 

5) Non-NII: Slower growth to 3-5% YoY in 1H16 vs. 15% YoY in 1Q16, suggesting a downside risk to its full-year target of up to 10% (vs. 13% in 2014). 

 

6) Cost to income: QoQ rise to around 40% in 1H16 from 37% in 1Q16; 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.

 

Exposure to National e-payment. KBANK disclosed that around 4.5% of its non-NII would come under the National e-payment master plan. These include money transfer fees via mobile, internet and ATM, bill payment and debit card merchant fees. Effective at the end of October, the BoT is kicking this plan off with a new money transfer system called “PromptPay” which will allow money transfer or payment by using the registered ID or phone number that is tied to a selected deposit account instead of deposit account number. The transaction fees for the “PromptPay” system of no more than Bt10 are well below fees on normal transactions of up to Bt120. 

 

Maintain Buy with a TP roll over. We keep KBANK as a Buy 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 1.16x PBV for 2017F relative to 14% ROE already discounts concern on asset quality. We raise TP from Bt180 to Bt198 (1.4x average BVPS for 2016 and 2017) as we rolled over valuation base to mid-2017.