Majority of brokers upbeat on kbank prospects

A worker changes the logo of Kasikornbank in this file photograph.

According to the Securities Analysts Association's consensus on the stock, 15 brokers updated their research papers last month with a "buy" rating and target prices ranging from Bt90 to Bt108.

While 24 brokers in Bloomberg's one-month consensus for KBank endorsed the "buy" recommendation, two others - JPMorgan and Citi Investment Research - recommended a "hold".

KBank is the country's fourth-largest bank by size of assets. Its assets in March were worth about Bt1.1 trillion. As of last year, it had 604 branches and 3,797 ATMs. It recorded a net profit of Bt15 billion last year and Bt4.44 billion in the first quarter of this year.

Its risk is a possible increase in distressed loans, dampened by soaring inflation and the rising cost of living.

Tisco Securities, which is not included in the Security Analysts Association's consensus on KBank's stock, has maintained its "buy" recommendation on the shares, with a 12-month target price of Bt90 apiece.

KBank's loan growth in the first five months of the year remains healthy at 7.4 per cent. A large portion of the new loans are for working capital, especially corporate loans, while the mix between working capital and term loans is more balanced for small and medium-sized enterprise customers, the broker said.

The upward trend in commodity prices and the incentive to stock up on inventory before prices rise again are key drivers of the bank's strong loan growth. KBank is aware of this trend and is closely monitoring speculative activity among borrowers.

While loan demand continued in June, Tisco Securities said robust demand was also expected during the second half due to seasonal factors. This should allow the bank to comfortably achieve its loan growth target of 10 to 15 per cent this year.

The bank's management admits that non-performing loans have risen in line with KBank's growing loan portfolio, but close monitoring and more active debt-restructuring should help keep bad loans in check.

Tisco Securities expects KBank's second-quarter net profit would drop 3.6 per cent quarter on quarter to Bt3.96 billion due to a rise in loan-loss provisions and a higher average tax rate, and 6.5 per cent year on year, due mainly to smaller investment gains and higher operating expenses.

"We expect the bank's pre-provision operating profit in the second quarter to climb by 20.4 per cent year on year on the back of strong loan growth (+17.4 per cent), a wider net interest margin (+6 basis points) and a surge in fee income (+25 per cent). However, the pre-provision operating profit should rise by just 2.7 per cent quarter on quarter, given our assumption of more expenses from the K-Transformation programme," the broker said.

The K-Transformation programme is expected to continue to erode the bank's second-half earnings to below those of the first half of the year, the broker said.

Given KBank's liquidity position, there is still more room for it to expand its loan base this year, the broker said. However, it may need to step up its campaign to acquire more deposits ahead of double-digit loan growth in 2009, and this could raise its funding costs over the following quarters and lower the positive impact to its net interest margin from last month's hike in interest rates.

KBank's current provisioning status could be considered moderate compared with that of its industry peers. Its general provision to loans of 32 basis points is at the low end of the range, while its loan-loss reserve to non-performing loans ratio is in the middle of the range.

"The fall in its general provision since last year could pose downside risk to our earnings estimates in the case of higher non-performing loans. A rise of 10 basis points in provisioning would trim our profit estimate this year by 4 per cent," the broker said.

Tisco expected KBank to report a net profit of Bt15.61 billion this year.

CIMB-GK Securities (Thailand), which is also not included in the Security Analysts Association's consensus, has maintained its "outperform" rating for KBank shares, with a target price of Bt95 apiece.

The broker expects KBank to report net income of Bt4.3 billion in the second quarter, up 5.8 per cent year on year but down 2.6 per cent quarter on quarter.

The expected strong results are helped by the continued health of KBank's net interest margin and growth in its fee income. The net interest margin in the second quarter is expected to be stable at 4.4 per cent, thanks to continued high margins from lending to small- and medium-sized enterprises and a slight timing mismatch in the recent rate hike.

Fee income in the second quarter should continue to grow at a rate of 25 per cent per year.