Target price : Bt67
Recommendation : BUY
Closing Price (20 April 09) : Bt49
1Q09 profit beat forecasts by 6.4%
- KBANK reported a better-than-expected profit of Bt3.80b in 1Q09. The result was 14.6% below the year-ago level of Bt4.44b but 36.2% above the prior quarter's level of Bt2.79b.
- The profit came in 6.4% higher than our forecast of Bt3.57b as the average cost to income ratio of 52.4% was below our forecast of 55.8% due chiefly to better-than-expected FX gains and lower-than-expected expenses.
- The bank's asset quality remains healthy, in our view. The NPL levels, albeit with a slight increase, are not a big worry. We reiterate a BUY stance on KBANK as our price target of Bt67/share still offers some upside from current trading levels.
1Q09 profit down 14.6% YoY but up 36.2% QoQ
KBANK, Thailand's fourth-largest lender by assets posted a better-than-expected profit of Bt3.80b in 1Q09. The result was 36.2% better than the Bt2.79b profit it achieved in the prior quarter. Net interest income fell slightly as loans and deposits contracted 3% and 5.6% respectively from the prior quarter. Net interest margin (NIM) dropped 17 basis points to 3.66%. Loan-loss provisions and restructuring charges amounted to Bt2.36b, up 13.2% QoQ and 25.8% YoY. Non-interest income shrank on lower investment gains and falling loan-related fees along with softening loan demand. Expenses eased back, especially for marketing expenses and others, compared to the prior quarter. The average cost to income ratio accordingly slipped to 52.4% from last year's fourth quarter level of 62.8%.
On a YoY basis, the profit was 14.6% below the year-ago level of Bt4.44b despite better loan growth as loan-loss provisions jumped 25.8% and the cost to income ratio inched higher on the back of investment projects.
Bank asset quality still healthy
The bank's gross non-performing loans (NPL) at end-Mar 2009 rose by Bt1.24b or 3.7% from the prior quarter, and represented 3.7% of its loan portfolio, up from 3.1% at end-2008, but the figure was still below the year-ago level of 4.5%. In our opinion, the NPL levels are not a big worry as the bank's NPL coverage ratio remained high at 87.6% against 88.4% in the prior quarter and 68.1% in the same year-ago quarter. Special mention loans did not show signs of deterioration, but substandard loans increased by Bt2.82b, which was a key issue to watch, going forward. The bank's capital adequacy ratio (CAR) also remained healthy at 15.6% against 15.1% in the prior quarter and 14.1% in the same year-ago quarter.
1Q09 profit beat forecasts by 6.4%; BUY rating maintained
The quarterly profit came in 6.4% higher than our forecast of Bt3.57b, as the average cost to income ratio of 52.4% was below our forecast of 55.8% due chiefly to better-than-expected FX gains and lower-than-expected expenses. First-quarter profit accounted for 26.8% of our 2009 full-year profit forecast of Bt14.16b. For the time being, we leave our estimates unchanged, as we believe expenses would likely remain at a high level in the following quarters. We reiterate a BUY stance on KBANK as our price target of Bt67/share still offers some upside from current trading levels.
By Phillip Securities (Thailand) Plc. on Apr 21, 2009
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