The Nation




Heavier LLP assumptions prompt earnings forecast cuts

Kasikornbank Plc (KBANK)

Investment thesis

We have cut our KBANK profit forecasts by 2.5percent for FY14 to Bt43.9bn and by 2.2percent for FY15 to Bt50.9bn, due to heavier LLP assumptions prompted by the weak economy and prevailing political uncertainty. Thus, our YE14 target price falls by 6.6% to Bt207, pegged to a justified PBV of 1.68x. Despite our forecast cuts, we maintain our BUY rating, premised on: 1) earnings resilience to economic uncertainty, 2) good asset quality management (a low NPLs/loans ratio of 2.1% and big loan loss coverage ratio of 133%) and 3) a declining cost/income ratio trend, as core banking upgrading costs (the K-Transformation program) will end this year.

FY14 loan growth target range of 9-11%

Although management expressed concerns over the Thai economy, KBANK believes that its FY14 loan growth target range of 9-11% is comfortably achievable, based on 2014 GDP growth of 3.7%. The loan portfolio should grow on business tied to the electronics, food, commodity and retail industries. FY13 loan growth will be reported at around 9% (in line with guidance), said management. We model for loan growth of 9percent for FY13 and 8% in FY14 (our FY14 number is more conservative than KBANK's guidance).

Bank maintains FY14 financial guidance unchanged

So long as the ongoing political chaos is resolved by mid-year, KBANK believes that its FY14 financial guidance is achievable. It targets non-interest income growth of 15% (close to our model), NIM of 3.4-3.6% (we expect an FY14 NIM of 3.35%) and a cost/income ratio of 45% (close to our number). The NPLs/loans ratio should not exceed 2.2% at YE14. The bank will set loan loss provisions at a credit cost of 85 bps.

Our FY14-15 LLP assumptions rise, due to political risk

We have revised up our FY14-15 loan loss provisioning assumptions by 13percent for each of the two years to Bt12.7bn (in both years). The higher LLP assumptions dampen our earnings forecasts by 2.5% to Bt43.9bn for FY14 and by 2.2% to Bt50.9bn for FY15. We believe that our new profit projections are relatively conservative.

QoQ slippage in 4Q13 earnings, due to heavier OPEX

We estimate a 4Q13 profit of 9.4bn, up 22% YoY but down 12% QoQ. The assumed QoQ decline in earnings is due to heavier OPEX, both QoQ and YoY. We expect a cost/income ratio of 51.5%, up sharply from 44% in 3Q13 because of seasonally heavy cost booking and NIM squeeze. We expect a 4Q13 pre-provision operating profit (PPOP) of Bt14.5bn, up 9% YoY but down 15% QoQ.

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