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Kasikornbank

4Q13 profit weakens as expected. Business to decelerate along with peers in 2014 BUY

Kasikornbank Plc (KBANK)

- 4Q13 profit shrinks 11.1%qoq. Expense increases, insurance business slows down

KTB posted 4Q13 net profit at B9.53bn, contracting 11.1%qoq as projected but

still growing 23.8%yoy. Major pressures in this quarter are as follows. 1)

Operating expense increased 10.5%qoq and 8.7%yoy - as expected.

Cost to income ratio rose to 48.40percent from 43.63% in the previous quarter, in

line with the bank's previous disclosure that the expense would grow at an

accelerated rate in 2H13 mainly because of disposals of premises and

equipment, repair and maintenance expenses, and promotion, advertising, and

marketing expenses. 2) Other operating income decreased 13.2%qoq,

though still increasing 24.4%yoy - worse than expected, mostly because

of lower earnings of MTL, profit from investment portfolio, dividend income,

and shared profits from associated companies. 3) Fee income shrank

1.4%qoq (but still increasing 9.7%yoy), worse than expected due to

decreasing fee income from loans. Moreover, the following positive factors

could not negate the above-mentioned negative factors. 1) Net interest

income grew 3.4%qoq and 12.7%yoy - better than expected, consistent

with the net loan growth of 1.8%qoq and 8.5%yoy in 4Q13. FY2013 net loan

growth was still close to our target of 8%yoy, but slightly lower than the bank's

target of 9-11%yoy, thanks to every type of loans. NIM shifted 5bp to 3.54% -

beating our projection for the shrinkage of 6bp. Loan yield still managed to

increase despite the RP 1-day rate cut. Funding cost increased at a slower rate

than the loan yield since the bank had not accelerated deposit raising in this

quarter, thus benefiting NIM. 2) Debt provision increased 1.7%qoq and

14.6%yoy - close to our projection. Credit cost stood at 84bp, in line

with the bank's debt provision policy in 2013 which had set the credit cost

target at 85bp. FY2013 credit cost was 82bp, not because of NPL problem but

additional debt provisioning to prepare for future economic fluctuation,

reflecting from the strong asset quality with end-2013 NPL of only 2.02% of

total loans, in line with the bank's target. NPL coverage ratio rose slightly to

138.9%.

- Maintain forecast. 2014-2016 assumptions already reflect current situation

We maintain our earnings forecast for FY2014-2016, as all main assumptions

have already reflected the current economic situation, under our 2014 GDP

growth forecast of 3.3%, net loan growth of 8% p.a. on average, NIM of 3.40-

3.50%, and credit cost of 85bp p.a. Net profit growth in 2014-2016 is

estimated at 5.8%yoy, 4.6%yoy, and 6.1%yoy, respectively..

- BUY. Share price falls below average PBV in past ten years

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

correction until standing below 10-year average PBV of 1.9x. The current share

price also has 10% upside from 2014 fair value of B185 (GGM, PBV of 1.77x,

long-term ROE forecast of 18%).




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