Mr Predee Daochai, KBANK’s president, has cut its FY14 loan growth target range to 7-8% from 9-11% formerly. The cut was promoted by a diminished in-house 2014 GDP growth forecast to 3% (from 4%). However, he still guides for an NPLs/loans ratio ceiling of 2.2% (the ratio was 2.0% at YE13).
No surprises—new loan growth guidance in line with our number
Pegged to a 2014 GDP growth forecast of 2.9%, we had already modeled for FY14 loan growth of 8% for KBANK. So the bank’s new guidance is in line with our number. Note that we expect FY14 Bank sector loan growth of 7.5% this year, down from 11% in FY13. Exported-oriented SME and corporate loans will drive lending expansion this year.
Relatively good 1H14 earnings expected
Given ongoing political dysfunctionality, we don’t believe there is much scope for earnings upside during 1H14. We expect KBANK to deliver moderate 1Q14 earnings growth of 14% YoY to Bt11.5bn. The drivers are SME and corporate lending, a sustained NIM and good OPEX management. We expect retail lending to weaken in YoY terms, especially HP for vehicles.
Our BUY rating on KBANK stands for the following reasons: 1) enhanced operating efficiency (its FY14 cost/income ratio is likely to be lower than its guidance), 2) strong fee income growth, 3) the possibility of greater lending expansion in FY14 and FY15 than currently modeled and 4) a cheap valuation—a YE14 PBV of 1.4x, significantly below the stock’s long-term mean of 1.6x.