Kasikornbank to be the most profitable bank in Thailand

Thanks to its strong fee base and falling cost structure.

According to Nomura, KBANK is benefitting from the capex and corporate/SME loan cycle given that corporate and SME loans account for 68% of its total loan book. However, Nomura looks for KBANK to become the most profitable bank in Thailand based on its strong fee base and falling cost structure.

Here's more from Nomura:

A falling cost structure (from a high base) has been a key profitability driver for the bank and we expect this to continue; its cost-income ratio has declined from 53% in 2010 to 48% in 2012, and we expect a further decline to 47% in 2013F and 45% in 2015F.

We forecast loan growth will accelerate to 12% in 2013F (from 10% in 2012) and run at 1.6x nominal GDP through 2015F. Fees to assets, which are up from 1.5% in 2009 to 2.0% in 2012, should rise to 2.1% in 2013F, underpinned by loan growth and increased retail penetration.

We estimate provisions to loans will stand at 60bps in 2013-14F, against 66bps in 2012. With KBANK’s assetequity gearing to fall from 11.2x in 2012 to 9.4x in 2015F, on our estimates, we look for the dividend payout to increase from 25% in 2012 to 35% in 2014F.

Our target price of THB241 is based on 13.3x 2013F earnings and P/B of 2.7x. In 1994, KBANK traded on 13.3x earnings and a P/B of 3.0x; its return on assets in 1994 was 2.2%; our forecasts see its ROA rising from 1.9% in 2012 to 2.2% by 2014F.