Kasikornbank: The Fundamental Trend Is Not Your Friend.The Technical Trend Is Your Friend.

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Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/kasikornbank-pcl" target="_blank" data-smartkarma-citation="entities:293:1" rel="noopener">Kasikornbank PCL (KBANK TB)</a> recently released mediocre numbers at Q220 which intimate that yet more downside may lie in store for the Thai lender.While the corporate/SME loan portfolio increased forcefully (including tourism and hotel sector) versus Q120, a not uncommon occurrence given the demands of the pandemic, NPLs jumped by 24% YoY and Loan Provisions  climbed by 60.2% YoY. NPL ratio rose to 4.44% vs 3.95% at Q219.Management struck a rather glum note of caution that "As it may take at least three years for the economy to return close to its pre-COVID-19 potential, Credit Costs may remain high for at least three years to be prudent amid high uncertainties".The latter exerted a downward pull on the bottom-line (LTM) which fell by 27.6% YoY.Loan Loss Reserves were though little changed versus Loans and NPLs.Liquidity did, however, improve as Deposits advanced by 15% YoY. One of the bright spots in a tough quarter.Though under pressure, NIM was broadly neutral as a lower FIDF cost and a savings rate cut offset the impact from a lower yield on loans due to monetary easing and asset quality.Profitability (ROA &amp; ROE) worsened significantly despite no deterioration in either the CIR and cost to average Assets ratio plus a non-negligible contribution from trading.Capitalisation ratios eroded further. CET1 and TCR eased to 15.38% and 18.09% vs 16.19% and 18.55%.COVID-19 accentuated structural weaknesses at KBank - especially the grinding ongoing decline in Profitability which marks the system.While valuations are not optically rich and RSI is low, we are cautious on this name. We would rather wait for concrete signals in terms of better trends going forward.The PH Score™ is no better than mediocre, supported by the valuation variable in part.<div class="content-highlight">The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. </div>

Kasikornbank PCL (KBANK TB) recently released mediocre numbers at Q220 which intimate that yet more downside may lie in store for the Thai lender.While the corporate/SME loan portfolio increased forcefully (including tourism and hotel sector) versus Q120, a not uncommon occurrence given the demands of the pandemic, NPLs jumped by 24% YoY and Loan Provisions  climbed by 60.2% YoY. NPL ratio rose to 4.44% vs 3.95% at Q219.Management struck a rather glum note of caution that "As it may take at least three years for the economy to return close to its pre-COVID-19 potential, Credit Costs may remain high for at least three years to be prudent amid high uncertainties".The latter exerted a downward pull on the bottom-line (LTM) which fell by 27.6% YoY.Loan Loss Reserves were though little changed versus Loans and NPLs.Liquidity did, however, improve as Deposits advanced by 15% YoY. One of the bright spots in a tough quarter.Though under pressure, NIM was broadly neutral as a lower FIDF cost and a savings rate cut offset the impact from a lower yield on loans due to monetary easing and asset quality.Profitability (ROA &amp; ROE) worsened significantly despite no deterioration in either the CIR and cost to average Assets ratio plus a non-negligible contribution from trading.Capitalisation ratios eroded further. CET1 and TCR eased to 15.38% and 18.09% vs 16.19% and 18.55%.COVID-19 accentuated structural weaknesses at KBank - especially the grinding ongoing decline in Profitability which marks the system.While valuations are not optically rich and RSI is low, we are cautious on this name. We would rather wait for concrete signals in terms of better trends going forward.The PH Score™ is no better than mediocre, supported by the valuation variable in part.The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 

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