Date of Report: October 21, 2024
Broker Name: CGS International Securities (Thailand) Co. Ltd.
3Q24 Financial Performance Overview
Kasikornbank (KBANK) reported a 3Q24 net profit of THB12 billion, reflecting a 6.1% year-on-year increase but a 5.4% decline quarter-on-quarter. The results were in line with Bloomberg consensus but fell 10% below the broker’s estimates due to lower-than-expected non-interest income growth. The bank’s 9M24 net profit totaled THB38 billion, marking a 15.4% year-on-year increase and accounting for 78.8% of the FY24 forecast.
Income Analysis
- Net Interest Income: Fell 2.6% year-on-year and 1.2% quarter-on-quarter, with a net interest margin declining to 3.68% from 3.73% in 2Q24. This decrease was primarily due to lower yields from earning assets.
- Non-Interest Income: Increased by 28% year-on-year but decreased by 10.2% quarter-on-quarter due to lower net insurance premium earnings. Net fee income showed growth, up 8.1% year-on-year and 4.4% quarter-on-quarter, driven by international trade services and brokerage fees.
Operating Performance and Loan Growth
The bank’s pre-provision operating profit growth was subdued, showing a 0.4% decline year-on-year and a 4.8% drop quarter-on-quarter. Loan growth was flat year-on-year and down by 2.2% quarter-on-quarter, attributed to cautious lending practices and a slow economic recovery. Kasikornbank’s non-performing loan (NPL) ratio increased slightly to 3.82% in 3Q24 from 3.72% in 2Q24, with an NPL coverage ratio of 139%, down from 141% in the previous quarter.
Key Takeaways from 3Q24 Results Briefing
- Loan Growth: KBANK maintained its FY24 financial targets but acknowledged that it is unlikely to meet its loan growth goal of 3-5% due to lower-than-expected growth in the first nine months of 2024. However, the bank anticipates improvement in 4Q24, driven by large corporate loans.
- Fee Income Growth: The bank expects fee income growth to remain in the mid-to-high single digits for FY24, bolstered by commercial loan-related fees, trade finance fees, and wealth management services.
- Cost Management: Operating expenses were relatively flat quarter-on-quarter, but the cost-to-income ratio rose to 44.2% from 43.4% in 2Q24. Management expects non-interest expenses to increase in 4Q24 due to seasonal factors but aims to keep the cost-to-income ratio in the low-to-mid 40% range for FY24.
- Capital Adequacy: KBANK’s Core Equity Tier-1 (CET-1) ratio was robust at 17.6% in 3Q24. The bank continues to focus on financial stability, shareholder returns, and investment for growth, with plans to gradually increase the dividend payout ratio.
ESG Initiatives
Kasikornbank has been proactive in its sustainability efforts, receiving a B+ ESG Combined Score from LSEG in 2023 and an “AAA” SET ESG rating from the Stock Exchange of Thailand. It is a member of the Dow Jones Sustainability Indices (DJSI) and the SETESG Index. The bank has committed to achieving net zero in its operations by 2030 and aims for net zero in its financed portfolio by 2065. KBANK plans to expand its sustainable financing and investment to THB130 billion by the end of 2024.
Re-Rating Catalysts
Several factors could potentially enhance KBANK’s valuation:
- Completion of Balance Sheet Clean-Up: The bank expects its balance sheet clean-up to conclude by the end of 2024, which should aid in normalizing credit costs.
- Expansion in Overseas Lending: Management views overseas markets, particularly ASEAN countries like Vietnam and Indonesia, as key growth areas.
- Improved NPL Management: A new joint venture with Bangkok Commercial Asset Management, pending approval from the Bank of Thailand, is expected to improve NPL management.
Downside Risks
Potential risks to Kasikornbank’s performance include:
- Rising NPLs: Higher-than-expected NPLs, especially from consumer and SME loans, could impact earnings forecasts.
- Interest Rate Fluctuations: A sharp decline in the Bank of Thailand’s policy rate could affect loan yields and net interest margins, particularly given KBANK’s reliance on large corporate and SME floating-rate loans.
Price and Market Information
- Current Price: THB151.5
- Target Price: THB188 (Up 24.1%)
- Market Cap: USD 10.8 billion (THB 358,953 million)
- Average Daily Turnover: USD 53.49 million (THB 1,813 million)
- Free Float: 85%
Kasikornbank’s share price has seen an absolute return of -3.5% over the past month, but a strong relative performance of 18.8% over the past three months, reflecting market confidence in its long-term strategy. The broker has reiterated an “Add” rating with a target price of THB188, driven by expectations of steady EPS growth, attractive dividend yields, and better NPL management.
