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Published on March 28, 2008

JPMorgan puts the stock at overweight with a price target of Bt100, while UOBKayHian suggests loading up on the bank's shares when the price goes down - with this year's price target of Bt101.

KBank stock closed unchanged at Bt90 yesterday.

JPMorgan expects the bank will post solid earnings this quarter with 20-per-cent year-on-year growth of pre-provision operating profit, thanks to higher-than-expected loan growth of 3 per cent. Loan growth was 4.4 per cent in last year's fourth quarter.

Net profit, however, will rise only 2 per cent year-on-year because of higher normalised loan-loss provisions.

The house also believes loan growth at KBank will accelerate in following quarters when the government's stimulus packages and investment projects kick in. It maintains a fiscal-year loan growth target of 14 per cent for the bank, higher than the industry's expected growth of 12 per cent.

"There is an increase in working-capital loan demand from the corporate segment. Loan growth in SME and retail is expected to follow in the second quarter and surge in the second half of the year," JPMorgan said in its research note.

KBank's earnings will be boosted by a stable net-interest margin (NIM) of 4.2 per cent, and growth in fee income of 29 per cent - from bancassurance, money transfers, trade financing and loan growth.

The bank's cost/income ratio will improve by one percentage point from the corresponding period, due to strong revenue growth, which could cover rising costs from business expansion and K-Transformation. The actual price could miss the target if the economy grew slower than expected, which would lead to lower-than-expected credit demand and asset quality, it added.

UOBKayHian also favours KBank, as it expects the bank will mark a net first-quarter profit of 1.1 per cent year on year and 8 per cent quarter on quarter due to an increase in NIM and a decline in non-interest expenses.

It forecast the bank's non-interest expenses would drop 9.4 per cent from last quarter. NIM will be 4.42 per cent this quarter, higher than 4.3 per cent in the previous quarter, thanks to loan growth, it said.

"The bank's executives disclosed that the first quarter's gross non-performing loans would increase from the end of last year, in line with loan expansion. The bank has no plan to unload NPLs this quarter," UOBKayHian said in its research report. It sees KBank's NPLs at 4.63 per cent of its total credit, slightly higher than 4.45 per cent in the fourth quarter of last year.

Net interest income will possibly expand 18.7 per cent year on year on expected loan growth of 3.09 per cent and fee-income growth of 30 per cent this quarter.

The brokerage projects loan growth for KBank reaching 14.9 per cent for the whole year, compared with 12.5 per cent for all of last year. The bank set this year's loan-growth target at 10-15 per cent, with a conservative outlook for the economy.

Anoma Srisukkasem

The Nation