Kasikornbank

Q4 2012's profit to soften qoq. Nothing to worry as 2012's profit still makes new high BUY

Kasikornbank Plc (KBANK)

4Q12's profit to weaken qoq. Expense&provision shift. NPL not worrying

We estimate 4Q12's net profit of KBANK at B8.07bn, contracting 12.4%qoq but

still growing 166.1%yoy. Main factors to suppress earnings in this quarter are as

follows. 1) Operating expense in 4Q12 is projected to increase 33.3%qoq and

24.4%yoy. Cost to income ratio hit the year's peak at 52.7%, which is not

worrying as it resulted from a seasonal effect. At the same time, there was also

an increase in an expense on K-transformation project the bank had previously

revealed. 2) Debt provision in 4Q12 is projected to hike by 28.9%qoq and

20.4%yoy, making credit cost in this quarter increase to 78bp, from 60bp on

average in the past 3 quarters, following NPL that shifted slightly in this quarter

(but overall in 2012 NPL still decreased continuously to a controllable level of no

over 2.2% of total loans). This is also in line with the bank's policy of setting

higher debt provision, so there is nothing to worry. On the other hand, positive

factors to boost earnings in this quarter are as follows. 1) Net interest income is

anticipated to grow by 5.6%qoq and 14.6%yoy, in line with net loan growth in

4Q12 which is estimated at 3.5%qoq and 10%yoy on a high season for corporate

and SME loans. NIM in this quarter is projected to stabilize from the prior quarter

at 3.49%. 2) Other operating income is projected to thrive by 43.7%qoq and

107.6%yoy, mainly from the growth of profits from the life insurance business

(MTL) that usually peaks in the end of the year. However, the negative factors

still have relatively larger weight than the positive ones, so there will still be

pressure on the net profit of the bank in this quarter. Moreover, considering

earnings in FY2012, the net profit is anticipated at B35.6bn or the growth of

47.1%yoy, making a new high by year but still 1.4% lower than our current

forecast.

Focus on superior services to increase market share in 2013

We still have positive outlook toward the bank's business in 2013 according to

the vision of the bank's CEO given at the recent analyst meeting, with supports

from its success in mega projects for improving human resources and IT system

(K-transformation) to comply with the bank's policy of customer-centric. As a

result, KBANK now has a data center that allows it to offer satisfying financial

products for customers rapidly through various selling channels. For the business

plan in 2013, the bank has targeted for the net loan growth at the same level of

2012 at 9-11%yoy, emphasizing on high yield loans (SMEs and retails) instead of

corporate loans which would show less growth from 2012. Accordingly, NIM is

projected to shift slightly by 3.4-3.6%. Moreover, cost to income ratio is

anticipated to decrease to 45-46% due to lower burdens from K-transformation

investment which is in the end of the phase. All these positive factors will help

offset adverse effects from a projected decrease fee income growth (from

corporate loans) and an increase in debt provision from stricter policy.

Accordingly, net profit growth of 20.4%yoy is still anticipated in 2013, under

long-term ROE's forecast of 22.3%.

Top pick of big banks. To outperform continuously in 2013

We recommend buying KBANK. 2013's fair value, based on 2.70x PBV (GGM) is

B237.33. Although the share price has risen by 58.6% in 2012 and possessed a

position of top outperformer of the sector with 2013's PBV of 2.3x, compared

with other banks in Indonesia, Malaysia, and the Philippines of which the PBVs

are substantially higher than 2x, KBANK is still a target of foreign investors

during the period of massive fund inflow.