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Kasikorn Bank

1Q14: Most solid as expected; 2014 NIM inched up BUY

Kasikorn Bank Plc (KBANK)

QoQ to Bt11.94bn, slightly above SCBS estimate of Bt11.6bn and consensus of Bt11.2bn. It outperformed peers in terms of loan growth, net interest margin (above expectation) and non-interest income (above expectation). Key points:

1. Loan growth: Minimal but slightly better than the sector, as expected, +0.8% QoQ, mainly from corporate loans for working capital and trade finance. We expect loan growth to remain sluggish in 2Q14 and recover in 2H14, partly driven by seasonality of SME loans. We maintain our 2014F loan growth at 5%.

2. Net interest margin (NIM): Better than expected, +2 bps QoQ. A 12 bps QoQ fall in cost of funds exceeded the 10 bps QoQ fall in yield on earnings assets as a result of early redemption of subordinated debentures in 4Q13. We expect NIM to be sustainable for the remaining three quarters on phased deposit re-pricing, translating to a 6 bps improvement in 2014F NIM.

3. Non-interest income (non-NII): Stronger than expected, +19% YoY and +17% QoQ, mainly from fee income (+10% YoY, +6% QoQ - and largely from loan-related and card fees), gain on trading and FX (+35% YoY, +19% QoQ, mainly revenue from the money and capital markets) and insurance income (+35% YoY, +52% QoQ). We expect lower growth in non-NII for the remaining three quarters as part of 1Q14 gain on trading and FX was one-off. We maintain our 2014F non-NII growth at 12%.

4. Cost to income ratio: In line with guidance, stable YoY but seasonally down QoQ to 40.4%. Its cost to income ratio is expected to climb for the rest of the year, bringing full-year cost to income ratio to ~44%.

5. Asset quality: As expected, NPLs inched up 1% QoQ, leaving NPL ratio unchanged QoQ at 2.33%. In line with guidance, provision expense rose 4% YoY and 21% QoQ, equivalent to 100 bps credit cost. We expect provision expense to ease for the remaining three quarters to achieve full-year credit cost of 90 bps (slightly more conservative than the bank's guidance of 85 bps). Loan loss reserve (LLR) coverage inched up to 138percent from 135% at 4Q13.

BUY

QoQ to Bt11.94bn, slightly above SCBS estimate of Bt11.6bn and consensus of Bt11.2bn. It outperformed peers in terms of loan growth, net interest margin (above expectation) and non-interest income (above expectation). Key points:

1. Loan growth: Minimal but slightly better than the sector, as expected, +0.8% QoQ, mainly from corporate loans for working capital and trade finance. We expect loan growth to remain sluggish in 2Q14 and recover in 2H14, partly driven by seasonality of SME loans. We maintain our 2014F loan growth at 5%.

2. Net interest margin (NIM): Better than expected, +2 bps QoQ. A 12 bps QoQ fall in cost of funds exceeded the 10 bps QoQ fall in yield on earnings assets as a result of early redemption of subordinated debentures in 4Q13. We expect NIM to be sustainable for the remaining three quarters on phased deposit re-pricing, translating to a 6 bps improvement in 2014F NIM.

3. Non-interest income (non-NII): Stronger than expected, +19% YoY and +17% QoQ, mainly from fee income (+10% YoY, +6% QoQ - and largely from loan-related and card fees), gain on trading and FX (+35% YoY, +19% QoQ, mainly revenue from the money and capital markets) and insurance income (+35% YoY, +52% QoQ). We expect lower growth in non-NII for the remaining three quarters as part of 1Q14 gain on trading and FX was one-off. We maintain our 2014F non-NII growth at 12%.

4. Cost to income ratio: In line with guidance, stable YoY but seasonally down QoQ to 40.4%. Its cost to income ratio is expected to climb for the rest of the year, bringing full-year cost to income ratio to ~44%.

5. Asset quality: As expected, NPLs inched up 1% QoQ, leaving NPL ratio unchanged QoQ at 2.33%. In line with guidance, provision expense rose 4% YoY and 21% QoQ, equivalent to 100 bps credit cost. We expect provision expense to ease for the remaining three quarters to achieve full-year credit cost of 90 bps (slightly more conservative than the bank's guidance of 85 bps). Loan loss reserve (LLR) coverage inched up to 138percent from 135% at 4Q13.




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