Kasikornbank Looking beyond the near-term noises
■ 1Q21 net profit of THB10.6bn (+44% yoy) was 40% ahead of our estimate from lower-than-expected provisioning and strong recovery in fee income.
■ In our view, concern is likely to turn towards asset quality in the near term, as credit cost is likely to rise in 2Q21F, as borrowers exit its relief programme.
■ We foresee turning fundamentals in 2H21F as a re-rating catalyst, while we raise our FY21-23F EPS to reflect a less conservative credit cost expectation. 1Q21: Beat on lower-than-expected credit cost Kasikornbank (KBANK) reported a 1Q21 net profit of THB10.6bn (-20% qoq, but +44% yoy).
The result beat our estimate by 40% and Bloomberg consensus by 32%, mainly due to the lower-than-expected provisioning set in 1Q21. KBANK set aside credit cost of 150bp (vs. our estimate of 193bp). NII slightly ahead, while fee income and cost controls led 1Q growth Net interest income (NII) was slightly ahead of our expectation as loan growth was registered at +2.5% qoq, driven by commercial and housing loans.
NIM improved by 5bp, in line with our thesis that Kasikornbank will be one of the first banks to report a turnaround in NIM, following interest rate cuts seen in FY20. Non-NII was driven by a strong net fee income growth of 14% qoq, from fund management and brokerage fees, but was partly hindered by lower mark-to-market gains from investment portfolios qoq. Opex decline was largely a result of lower seasonal spending and effective cost-control measures.
Higher provision likely in 2Q21F as clients exit relief programme KBANK’s loans under relief measures account for 14% of its total loan portfolio (or THB319bn) as of Mar 21, of which THB62bn are currently 30 days past due.
Majority of these customers are tourism-related borrowers; with the economy remaining closed to tourists, we believe that this customer segment will likely continue to struggle with its debt servicing over the next three months.
As KBANK has only classified c.THB30bn of these loans as NPL, we foresee a potential increase in provisioning needs of c.THB5bn-6bn in 2Q21F, as majority of the relief measures end in 2Q21F. Our credit cost assumption of 180bp reflects the potential deterioration of KBANK’s portfolio under relief and should remain intact despite future waves of outbreak, as long as Thailand’s GDP growth does not go lower than 0% and KBANK’s NPL ratio peaks at 4.8% in FY21F.
Fundamentals turnaround on track for 2H21F KBANK’s net profit is likely to weaken in 2Q21F from higher credit cost, but we maintain our view that KBANK will lead Thai banks in the turnaround of its fundamentals in 2H21F. While we maintain a conservative cushion over management guidance on credit cost, we expect KBANK to see the strongest net profit recovery over the next three years.
We raise our FY21-23F EPS by 11.9%-15.4%, mainly from lowering our credit cost estimates. We reiterate Add, with a higher TP of THB170, based on a higher FY21F P/BV of 0.87x to reflect our higher ROE expectation. Downside risks include weaker-thanexpected topline as NIM potentially comes under pressure due to unfavourable loan mix.
Valuation and reccomendation Fundamental turnaround on track for 2H21F KBANK’s net profit is likely to weaken in 2Q21 from higher credit cost, but we maintain our view that KBANK will lead Thai banks in the turnaround of its fundamentals in 2H21F. While we maintain a conservative cushion over management guidance on credit cost, we expect KBANK to see the strongest net profit recovery among Thai banks over the next three years. We raise our FY21-23F EPS by 11.9%-15.4%, predominantly from lowering our credit cost estimate.
We reiterate Add on KBANK with a higher TP of THB170, based on higher FY21F P/BV of 0.87x (COE of 9.5%, LT ROE of 8.5%) to reflect our higher ROE expectation. In our view, the turnaround in its fundamentals in 2H21F remains a key re-rating catalyst for KBANK in the medium term. Downside risks include weaker-thanexpect topline as NIM potentially comes under pressure due to unfavourable loan mix.
– By CIMB Bank Research