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4Q13 profit to weaken qoq. Cut 2013-2015 forecast due to sluggish economy BUY

Kasikornbank Plc (KBANK)

- 4Q13 profit to contract qoq….expense and provision increase

We estimate KBANK's 4Q13 net profit at B9.17bn or a decrease of 14.4%qoq

(still growing 19.1%yoy though) due to the following factors. 1) Debt

provision is projected to increase 17.3%qoq and 32.2%yoy in this

quarter or credit cost of 85bp according to the new policy in 2013 (60-70bp

previously). FY2013 credit cost is anticipated at 81bp on average, not because

of a worry about NPL but a usual debt provision increase to prepare for future

economic fluctuation. 2) Operating expense is projected to rise

13.7%qoq and 11.9%yoy. Cost to income ratio would increase to 48.97%

from 43.63% in 3Q13 as previously revealed by the bank that the expense

would increase at an accelerated in 2H13, mainly personnel expense and

advertising and marketing expenses as well as the expense on Ktransformation

project. On the other hand, there have still been positive factors

as follows. 1) Net interest income in 4Q13 is projected to grow 1.4%qoq

and 10.5%yoy, in line with the net loan growth that is projected at 2.8%qoq

and 9.5%yoy. FY2013 net loan growth is better than our projection of 8%yoy,

but still consistent with the bank's target of 9-11%yoy, thanks to all types of

loans. In addition, NIM in 4Q13 is anticipated to shrink 6bp to 3.43%, mostly

because of a decrease in loan yield as a result of the recent RP 1-day policy

rate cut. 2) Fee income growth is projected at 2.1%qoq and 13.6%yoy,

thanks mainly to non-loan-related transactions during high season such as

bancassurance and fund selling. At the same time, other operating income

would be quite decelerating qoq because of decreasing share of profit from

associated companies, especially those related to capital market. Overall,

FY2013 net profit is estimated at B41.2bn, escalating 17.1%yoy, worse than

2.5%yoy we have previously projected.s for NPL to total loan ratio at lower

than 2.2%, below FY2013 target of 2.4%.

- Cut 2013-2015 forecast. Most assumptions previously overestimated

We revise down the earnings forecast for FY2013-2015, mostly by cutting NIM

assumption and increasing debt provision assumption we had previously

projected too good. Net loan growth assumption is kept at 8% p.a., slightly

lower than KBANK's target of 9%yoy, in order to reflect a possibility that the

GDP growth in 2014 might not be as good as we have estimated at 3.8% (as

shown in the table). After the down revision, FY2013-2015 net profit growth

drops to 17.1%yoy, 6.5%yoy, and 4.3%yoy, respectively.

- Reiterate to buy. Share price substantially absorbs negative factors

We reiterate to buy KBANK. The share price has undergone substantial

correction, even much more than the net profit forecast cut in 2013-2015.

Moreover, FY2014 fair value after the forecast revision is B185, at PBV of 1.81x

(GGM), under long-term ROE forecast of 18% (versus B207 at 2.31x PBV and

long-term ROE forecast of 21% previously), which implies 19% upside from the

current share price.

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