• Initiate coverage with BUY and THB177 TP, 14% upside with c.5% FY24F- 25F dividend yield. Kasikornbank is among our preferred picks in the Thai banking sector. We see four catalysts driving share price: i) Improved capital management and ROE via higher dividend payouts, ii) resilient earnings growth outlook and revival of non-II growth momentum via KBANK 3+1 Strategy, iii) better asset quality control, and iv) inexpensive valuation – its PE and P/BV remain below -1SD from the historical mean.

• Given KBANK’s strong capital position – 16.5% CET-1, 17.5% Tier-1, and 19.4% total capital ratio in 1H24 – management has a clear intention to improve shareholders’ returns, capital management, and ROE with a doubledigit ROE by 2026 target. As per KBANK’s indication, one quick mechanism to achieve these aims is to raise its dividend payout, which we project at 39.9%, 39.7%, and 39.5% in 2024-2026, up from 36.97% in 2023.

• We believe KBANK’s vision and K-Strategy (3+1 Strategy) will strengthen its earnings growth outlook and competitiveness in the long term. The bank’s K-Strategy prioritises quality and secured lending with emphasis on existing client base and mid- to higher-income segments, as well as improving fee income businesses (wealth and payment channels). We expect KBANK to deliver resilient earnings growth of 9%, 7%, and 7% in 2024-2026, backed by: i) Lower credit cost to the bank’s normalised guidance (140-160bps) in 2025-2026 (on better asset quality controls) and ii) revival of growth momentum of its non-II and fee income (wealth and fund management).

• Better asset quality control. We expect KBANK to be able to manage its asset quality well. This is thanks largely to its continuing proactive asset quality clean-up, especially its major balance sheet big bath in 2022-2023 – it expects the major “big bath” to end this year. Moreover, we think KBANK’s ongoing move to lower its exposure to fragile SME loans (1H24: 27% vs its highest level of nearly 40% pre-2018) and improve its SME loan risk profile should result in better asset quality and lower credit costs in the long term.

• Top ESG score; valuations still inexpensive. Despite a recent share price rally, we still see KBANK’s current valuations remaining inexpensive and appealing for long-term investment. It is trading at 2025F P/BV and P/E of just 0.62x and 7.5x, ie still below -1SD from its historical mean. Our GGMbased THB177 TP (implied target P/BV: 0.70x) also incorporates a 2% ESG premium to its intrinsic value, given that KBANK has the best ESG score among Thai banks at 3.3 vs the 3.2 country median. Key risks are asset quality pressures and slower-than-expected economic growth. We expect the quite smooth transition to the new government will help ease asset quality pressures and boost economic growth.

Source: RHB Securities Research - 11 Sept 2024