Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...

Regional Equity Strategy Q4 2007
Stock Profiles: KASIKORNBANK
BUY Bt73.50 SET:802.65
Price Target : 1-year Bt94.00
Potential Catalyst: (i) Continued loan growth led
by strong demand from SMEs, and (ii) one of the
highest ROE among Thai commercial banks.
ANALYST
Sugittra Kongkhajornkidsuk · 66 (0) 2657 7825
sugittrak@th.dbsvickers.com
FORECASTS AND VALUATION
FY Dec (Btm) 2005A 2006A 2007F 2008F
Pre-prov. Profit 21,267 22,818 23,963 28,677
Net profit 13,930 13,664 14,675 17,385
Net Pft (Pre Ex.) 13,930 13,664 14,675 17,385
EPS (Bt) 5.87 5.74 6.15 7.28
EPS Pre Ex. (Bt) 5.87 5.74 6.15 7.28
EPS Gth Pre Ex (%) (9.6) (2.3) 7.2 18.5
Diluted EPS (Bt) 5.87 5.74 6.15 7.28
PE Pre Ex. (X) 12.5 12.8 12.0 10.1
Net DPS (Bt) 1.25 1.75 2.00 2.25
Div Yield (%) 1.7 2.4 2.7 3.1
ROAE Pre Ex. (%) 19.2 16.4 15.5 16.2
ROAE (%) 19.2 16.4 15.5 16.2
ROA (%) 1.7 1.5 1.5 1.7
BV Per Share (Bt) 32.91 37.04 42.21 47.49
P/Book Value (x) 2.2 2.0 1.7 1.5
SHARE PRICE CHART
Bt
90
80
70
60
100-Day MA
KASIKORNBANK
50
Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07
AT A GLANCE
Issued Capital (m shrs) 2,388
Mkt Cap (Btm/US$m) 175,489 / 5,121
Major Shareholders (%)
SET 15.7
State Street Bank and Trust 7.2
Thai NVDR 5.0
Free Float (%) 92.1
Avg Daily Vol ('000 shrs) 6,839
Earnings Rev (%) : 2007: - 2008: -
Consensus EPS (Bt): 2007: 5.94 2008: 6.78
Variance vs Cons(%): 2007: 3.4 2008: 7.3
Sector: Banking
Bloomberg/Reuters Code: KBANK TB / KBAN.BK
Principal Business : Banking and financial services
KASIKORNBANK
Continued loan growth with good asset quality
Story: KASIKORNBANK (KBANK) is our top pick among
Thai banks for its prudent management and high degree
of transparency. Prospects remain strong led by stable
loan growth momentum with focus on high yield lending
segments, especially SME. KBANK also has the lowest
NPL ratio in the industry of only 6.7% in 2Q07, and one
of the highest ROE among Thai commercial banks.
Point: We estimate KBANK's loan growth at 8.5% for
FY07F and FY08F, close to its internal target of 8-13%.
Its NPL ratio should improve from 6.7% in 2Q07 to 6.1%
by YE07 and to 5.2% by YE08. We forecast net interest
margin at 4.04% for 2007, and improving to 4.30% in
2008 led by well-managed funding cost.
Relevance: Maintain Buy. We value KBANK at 2.0x
2008 P/BV or Bt94.0. The stock offers 28% upside to our
target price.
Continued loan growth in FY07. KBANK is targeting loan
growth of 8-13% for FY07. The bank remains focused on
high yield lending, especially SME loans that made up
38% of total loans in 1H07. It will also increase lending
to the retail sector in FY07. We estimate its loan growth
at 8.5% for FY07F and FY08F.
Strong SME base. KBANK is among the market leaders
with more than 250,000 SME customers nationwide. It is
ranked 2nd in the SME loan market with 21% market
share (as at 2006), and is expected to grow to 30% by
2008. The bank continues to increase lending to the SME
sector, with 15-20% SME loan growth target for FY07F.
Lowering NPL ratio to 5%+ for YE07. KBANK aims to
lower its NPL ratio from 6.7% (consolidated) currently
to 5%+ by YE07F. It continues to set NPL and NPA strategic
programs and search for opportunities to reduce large
NPLs. We conservatively expect its NPL ratio to improve
from 6.7% in 2Q07 to 6.1 % by YE07 and 5.2% by YE08.
Narrower net interest margin for FY07. KBANK's NIM is
the highest among large and mid-sized banks, due to its
focus on high yield segments (i.e. SME). However, the
bank foresees NIM falling from 4.1% in FY06 to c. 3.9%
this year, following the falling interest rate trend. We
estimate NIM at 4.04% for FY07, and 4.3% for FY08.
Fee income growth target of >20% for FY07. This is close
to our 22.5% p.a. assumption, following its K-Transformation
and channel expansion projects. The bank is focusing on
trade finance, loan related and retail business fees or
transaction fees.
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Refer to important disclosures at the end of this report