KBANK posted a 1Q14 profit of Bt11.9bn, up by 18% YoY and 25% QoQ. The result was in line with our estimate, but was 7% above the Bloomberg consensus. 1Q43 pre-provision operating profit was Bt19.6bn, up 16% YoY and 23% QoQ. KBANK’s 1Q14 earnings represent 27% of our FY14 earnings forecast.
The loan portfolio expanded by 0.8% QoQ and 7.0% YoY, led by corporate business (commerce and trade finance). 1Q14 NIM was 3.48%, up by 1 bp QoQ and 11 bps YoY. KBANK‘s loan loss provisions rose by 4% YoY and 21% QoQ to Bt3.7bn, as expected. Its NPLs/loans ratio was 2.14% at end-March close to the 2.11% posted for YE13, while its loan loss coverage ratio was 137.8% at end-March, up from 134.5% at YE13.
Fee income rose by 11% YoY and 8% QoQ to Bt11.9bn, as modeled, driven up by banking fees, FX gains and bancassurance sales commissions. 1Q14 OPEX was Bt13.2bn, up 15% YoY but down 11% QoQ. KBANK’s cost/income ratio was 40.3% in 1Q14, close to the number for 1Q13, but down from 48.3% for 4Q13.
We expect the bank to deliver YoY and QoQ earnings growth for 2Q14, driven by SME and corporate lending growth, a sustained NIM and well-managed OPEX. Management guides for an FY14 cost/income ratio of 45%, close to our assumption. We forecast FY14 lending growth of 8%, in line with the bank’s guidance range of 7-8%.
Although 1Q14 earnings represent 27% of our FY14 earnings projection, we conservatively maintain our FY14 and FY15 profit forecasts unchanged for the moment.
Our BUY rating stands for the following reasons: 1) enhanced operating efficiency (KBANK’s FY14 cost/income ratio is likely to be lower than its guidance), 2) stronger fee income growth in 2H14 and 3) the possibility of greater lending expansion in FY14 and FY15 than currently modeled if economic conditions improve in 2H14.