Credit costs only dipped 2% in 3Q17.
Although 3Q17 EPS was in line, at 76% of analysts' FY17E forecast, Kasikornbank's high credit costs during the quarter suggest that full-year costs may exceed the bank’s 2.00-2.25% target. FY18E credit costs also may not fall as much as expected. Maybank Kim Eng analysts raise FY18E credit costs by 20bps to 2% while trimming loan-growth projection by 1%.
"This lowers our FY18E EPS by 6% and our GGM-based TP to THB191 from THB197 (1.18x 2018E P/BV, 12.8% ROE). Maintain HOLD given a lack of catalysts. Prefer TISCO (TISCO TB, THB84.5, BUY, TP THB88) in the sector."
Here's more from Maybank Kim Eng:
3Q17’s highlight was elevated credit costs, which dipped only 2% QoQ vs our -5% QoQ expectation. During its analysts’ briefing, management said it would like to accumulate allowances for future regulatory risks, including IFRS9 in 2019.
It hinted that credit costs this year could approach the upper bound of its 2-2.25% target or even exceed. We have been repeating that regulations will increasingly impinge on banks’ earnings and project 2.3% of credit costs for KBANK this year. Elsewhere, loans remained sluggish (flat QoQ), still driven by corporate lending while the bank continued to refrain from SME loans. The bank also mentioned that it has already fully provisioned for loans (reportedly to be THB3.8b) from EARTH.
Management is unsure how much credit costs will fall next year. It will unveil its FY18 financial targets later this week or next. Amid stubbornly high NPLs and stringent regulations, we see no respite. We raise FY18E credit costs by 20bps to 2.00%. As this environment could also discourage lending, we cut our loan-growth target by 1ppt to 6%.
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