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Kasikorn Bank

Small S-T disruption, good L-T value Buy

Kasikorn Bank Plc (KBANK)

Bank cuts 2014 top line targets to line up with cut in Thailand's 2014 GDP growth to 1.8percent from 3%. It now expects 2014 loan growth of below 8%, from 9-11%, made up of: 5-7percent for corporate loans from 6-8%, 6-8percent for SME loans from 9-11% and 6-9percent for retail loans from 10-13%. It also cut non-interest income (non-NII) growth to the lowteens from the mid teens.

But stands by stable NIM, credit cost and cost to income. KBANK does stand by its

2014 guidance of stable net interest margin (NIM) at 3.4-3.6% on easing deposit

competition, slight rise in credit cost to 85 bps, as deterioration in asset quality

remains under control plus stable cost to income ratio at mid-40% on resilient opex.

Factoring in new guidance and worsening economy lowers our 2014 just 2%:

We cut our 2014 loan growth forecast to 5percent from 7% (vs. 8percent for 2013), non-NII growth

to 11percent from 15% (vs. 18percent for 2013) and raise credit cost to 90 bps from 85 bps (vs. 82

bps for 2013). Even after factoring in a 50 bps cut in policy rate in 2014, we can keep

our NIM forecast at 3.54% (-1 bps YoY) because of lower competition over deposits. We

lower 2014 opex to maintain cost to income ratio at 44%, the same as last year. All in,

this lowers our 2014 forecast by only 2%. We are reviewing our forecast for other banks

and expect to move in the same direction.

1Q14F preview - still good with 15% growth YoY, 22% QoQ to Bt11.6bn

(Bt4.85/share), based on the following 1Q14F guidance.

1. Loan growth: +1-2% QoQ (vs. the sector's 2M14 of 0% YTD), driven by corporate

loans (5-6%), mostly trade finance. SME and retail loans slimmed slightly QoQ.

2. Net interest margin: Stable QoQ, despite a negative implication from interest rate

cuts. Its high-cost deposits under its "stepping up" campaign and its high-cost

debenture matured in 1Q14, lowering cost of funds.

3. Non-interest income: Up almost to mid-teens YoY from a one-off forex gain.

4. Cost to income ratio: Down seasonally QoQ to 40% in 1Q14 (on par with 1Q13) from

49% in 4Q13.

5. Asset quality: It raised provision expense to 1% of total loans from 0.84% in 4Q13

but maintains full-year credit cost at 0.85%. In 1Q14, KBANK saw a slight increase in

NPLs and special-mention loans but this remains manageable and it stands firm

on its target of stable NPL ratio at 2.2% at YE2014.

Maintain as top Buy with unchanged TP of Bt214 (2x 2014F BVPS); its outstanding

non-NII growth plus easing in cost to income ratio after the completion of the IT

upgrade next year undergirds its L-T value.


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