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Kasikornbank
KGI Securities (Thailand) has maintained its "outperform" rating on Kasikornbank's stock, with a 2007 target price of Bt84 per share.
The bank revealed that its operating expenses in the fourth quarter of last year could increase by up to 20 per cent, implying that its cost-to-income ratio would rise by 5 percentage points to 61 per cent. However, this should be mitigated by the sizeable tax benefit received from the liquidation of Ploy Asset Management (one of its distressed asset-management subsidiaries) in the final quarter. The bank's net interest margin is expected to decline slightly to below 4 per cent due to rising funding costs, which is in line with the broker's expectation at 3.9 per cent. Meanwhile, the bank projects its loan growth for 2006 to be about 7-8 per cent. Since loan growth in the first 11 months of the year already surpassed 6 per cent, the brokerage has revised upward the full-year loan growth projection for the bank to 7.1 per cent from 6.4 per cent. The broker estimates Kasikornbank's fourth-quarter earnings will drop 6.5 per cent year on year, and 19.2 per cent quarter on quarter to Bt2.48 billion. In regards to International Accounting Standard IAS 39, Kasikornbank confirmed there would be no impact in its income statement as the bank has enough excess provision to cover the additional requirement. The side effect is that its loan-loss reserve to required-reserve ratio will decline to slightly above 100 per cent, from the current level of 145 per cent. Moreover, the excess provision that was transferred to cover the additional requirement under IAS 39 will not receive the tax benefit that most other banks receive, as the excess provision was already used as expenses in the past.
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