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Kasikornbank

Profit to soften to normal level in 2Q14 HOLD

Kasikornbank Plc (KBANK)

- 1Q14 profit substantially surpasses projection

KBANK announced 1Q14 net profit at B11.9bn, 14.7% above our projection and

making up 29% of FY2014 forecast. The net profit advanced 25.3%qoq and

18.1%yoy, thanks to every business. Net interest income grew 1.8%qoq - as

projected. NIM stabilized at 3.55percent from the net loan growth of 0.8%qoq,

mostly commercial, working capital, and international trade loans. Yield

dropped following the policy interest rate, but funding cost also decreased. Fee

income increased 5.8%qoq, mainly from loan-related and credit card

transactions. Other operating income, likewise, surged 37.1%qoq as a result of

growing income from Fx transaction, investment profit, and life insurance

businesses. Operating expense, at the same time, decreased 11.3%qoq

because of deceasing seasonal expense. Cost to income ratio dropped to only

39.95%, making a record low in several years. In terms of asset quality, NPL

increased slightly, but remained 2.05% of the total loan. In addition, KBANK

made 20.6%qoq additional allowance for bad debt in this quarter, with the

credit cost of 101bp, in line with the policy level.

- Profit to soften to normal level in 2Q14

We maintain our earnings forecast for 2014, projecting slight net profit growth

of only 1.1%yoy because of down revision of core business growth to be

consistent with the bank's GDP growth target of only 1.8%. Furthermore, credit

cost might be increased to meet with rising NPL. For 2Q14, the earnings are

projected to soften from the prior quarter; net loan would not show solid

recovery, while NIM would be able to stabilize as a result of decreasing funding

cost. Operating expense is also projected to increase gradually because the

current level is still lower than the policy level of 45%.

- Hold for dividend

We reiterate to hold KBANK 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 no upside left from 2014 fair value, at 1.77x PBV, of B184 (GGM;

under long-term ROE forecast of 18%).


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