Kasikorn

Kasikorn Plc (KBANK)

What’s new?
Last Friday, KBANK announced lower lending and deposit rates following the BOT’s 25 bps cut to its policy interest rate to 2.25% on Wednesday. The bank reduced its minimum lending rate (MLR) by 0.25 bps to 6.75% and its minimum overdraft rate (MOR) by 0.10% to 7.38%. Likewise, its fixed deposit rates were trimmed by 0.05-0.20 bps to 1.50-2.05% and its saving rate by 0.12 bps to 0.63%.
FY14 NIM will be squeezed by the rate cuts
As a result of the interest rate cuts, we expect KBANK’s FY14 NIM to be impacted, due to the fact that 35% of its loans are to SME clients. We have cut our FY14 and FY15 NIM assumptions by 7 bps and 6 bps, respectively, to 3.35% and 3.45%. Note that management believes FY14 NIM is sustainable in the 3.4-3.6% range, despite intensifying competition for business and the interest rate cuts. Morgan Stanley expects the BOT’s one-day Repurchase Rate to rise from 2.25% at the moment to 2.75% by YE14 and 3.00% at YE15.
FY14 and FY15 profit forecasts trimmed
Given our diminished expectations for net interest margin in FY14 and FY13 NIM, we have trimmed our FY14 and FY15 earnings projections by 3% for both years to Bt45bn and Bt52bn, respectively. Note that we maintain our FY13 bottom-line forecast at Bt41.6bn because the rate cut came so close to the end of the year that it will have only a negligible effect. Current and saving accounts (CASA) comprised 64% of KBANK’s total deposits at end-Sept.
YE14 target price cut
Because of our revised down FY14 and FY15 earnings forecasts, we have cut our YE14 target price by 9% to Bt222, pegged to a justified PBV of 1.79x. However, our BUY rating stands, premised on 1) earnings resilience to economic uncertainty, 2) good asset quality management (an NPLs/loans ratio of 2.1% and loan loss coverage of 134%) and 3) a declining cost/income ratio trend—core banking upgrading costs will decline significantly in FY14, as the last of the expenses tied to the K-Transformation program will be booked this year.