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Kasikornbank

2014 business goal slides following GDP HOLD

Kasikornbank Plc (KBANK)

- Cut 2014 business goal following lower GDP

KBANK projected Thailand's GDP growth in 2014 to fall to 1.8% because the

political situation remained in stalemate and unpredictable. As a result, the

bank lowered its 2014 business goal. Net loan growth forecast was slashed

from 9-11%yoy to below 8%yoy. Despite prevailing demands for corporate

loans for the export sector and continuous projects, they are mostly working

capital loans, so repayments can occur anytime. Meanwhile, SME loans have

decelerated since 4Q13 due to the bank's conservative strategy; new NPLs

have remained low and manageable. Retail loans were projected to show

similar growth to total loan growth target as the bank would turn to focus on

specific target group. For example, housing loans will target clients of top

projects and also expand client base to provincial areas. Although NPLs from

retail debtors have increased, they are still controllable. For non-interest

income, the bank revised down its growth target to 10-12%yoy from 15%yoy.

In terms of asset quality, the bank admitted that NPLs had increased since

1Q14, so it could not keep NPL to loan ratio in 2014 under 2.2% as expected.

As a result, it had to increase credit cost (debt provision to total laon) to 100bp

from 85bp, while maintaining NIM and cost to income ratio at 3.4-3.6% and

45%, respectively.

- Slash forecast. 1Q14 profit still has driving factor

We slash our 2014-2015 earnings forecast slightly, mainly by decreasing net

loan growth and increasing credit cost forecasts to meet with the new targets

of KBANK. After the forecast revision, 2014-2015 net profit would grow only

1.1%yoy and 3.5%yoy, respectively. 1Q14 net profit is estimated at B10.4bn,

rising 9.3%qoq and 3.0%yoy, driven by a Fx gain that is B500m higher than

usual. Operating expense would return to normal in the low season. On the

other hand, credit cost would increase, while fee income will stay flat. NIM is

projected close to that of the previous quarter at 3.55%.

- Downgrade to HOLD. Flat profit growth, limited upside

We downgrade our recommendation from buy to hold for dividend. The share

price has risen until standing near average PBV in the past ten years of 1.9x.

The current share price has only 3% upside from 2014 fair value, at 1.77x PBV,

of B184 (GGM; under long-term ROE forecast of 18%).


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