Equity | Thailand | Banks

19 May 2011

Produced by: Asia Plus Securities PCL and distributed on its behalf by RBS

Kasikornbank
Buy
Target price

Retail customers' favourite

Our customer survey suggests customers could make KBANK their main bank in the future. We believe the K-Transformation project and the bank's focus on SME/retail businesses will pdrive profit growth beyond peers. We see the FY11F P/BV of around 2.0x as an attractive entry point. Buy.
Key forecasts
FY09A Reported PTP (Bm) 20,827 14,732 6.16 6.16 2.50 20.60 2.53 1.97 12.60 FY10A 30,440 20,047 8.38 8.38 2.50 15.20 2.25 1.97 15.70 FY11F 36,787 24,197 10.10 10.10 3.00 & 12.60 1.98 2.36 16.80 FY12F 43,618 29,181 12.20 12.20 4.00 & 10.40 1.72 3.15 17.70 FY13F 47,700 31,796 13.30 13.30 4.50 9.56 1.52 3.54 16.90

B155.00
Price

B127.00(L)
Short term (0-60 days)

n/a
Market view

Overweight

Price performance
(1M) Price (B) Absolute (%) Rel market (%) Rel sector (%)
May 08 140 120 100 80 60 40 20 KBAN.BK SET May 09

Reported net profit (Bm)

(3M) 104.0 22.1 6.9 16.9
May 10

(12M) 90.00 41.1 -0.3 30.6

Reported EPS (B) Normalised EPS (B) Dividend per share (B) Normalised PE (x) Price/book value (x) Dividend yield (%) Return on avg equity (%)
Use of %& indicates that the line item has changed by at least 5%. Accounting standard: Local GAAP Source: Company data, RBS forecasts

131.0 -3.1 -3.1 0.7

year to Dec, fully diluted

Our survey suggests 20% fee growth in FY11-12F vs 15% for the sector According to our survey (see pages 2-5), a majority of the customers sampled use SCB as their main bank but consider KBANKs product and services to be the best. We believe this explains why KBANKs market share of fee income continued to grow 16% yoy in 1Q11 (vs 13% for sector). Our survey results raise our confidence that KBANK will continue to gain fee market share in FY11-13. Its product holding per customer ratio is 3x, which we believe can improve to be on par with or above SCBs 4x. The new CRM (customer relationship management) system, to be launched by YE11, will further strengthen its fee cross-selling capabilities from 2H11, while the completion of the K-Transformation project could turn KBANK into the top bank for products and services by FY13. SME to drive 15% yoy NII growth in FY11F, in line with the sector We believe KBANK will focus on SME growth to use capital more efficiently and to avoid very competitive large corporate business. We project KBANKs loan growth at 11% in FY11F (vs 13% for the sector). We believe the bank will continue to expand its market share in retail loans in FY11 but the momentum may be lower than in FY09-10 as it aims to focus on existing customers first. On our FY11 forecasts, rate tightening will improve KBANKs NIM by 13bp (vs flat NIM for the sector) and the bank will achieve NII growth of 15% yoy. We expect medium-term profit growth above peers under our coverage; Buy reiterated

Market capitalisation

B303.94bn (US$10.05bn)
Average (12M) daily turnover

B809.90m (US$26.47m)
Sector: BBG AP Banks RIC: KBAN.BK, KBANK TB Priced B127.00(L) at close 13 May 2011. Source: Bloomberg

Analyst
Peach Patharavanakul
Thailand (an employee of Asia Plus Securities PCL) +66 2 680 1851 peach.patharavanakul@asp-intl.com

We believe KBANKs focus on growing non-asset based income and high-margin SME business will enhance its profitability. The banks 2.0x FY11F PBV is below its historical high and we think KBANK deserves further re-rating as we forecast it will reach a new high ROE of 17% and stronger-than-peers profit CAGR of 17% (vs 15% for the sector) in FY11-13F. We see its ytd share price underperformance as an opportunity to Buy as we expect this to reverse when fees and SME loans pick up in 2H11.

3/F Sathorn City Tower, 175 South Sathorn Road, Yannawa, Bangkok 10120, Thailand

Pursuant to an agreement with Asia Plus Securities PCL (APS), this report is prepared by APS but distributed outside of Thailand by The Royal Bank of Scotland N.V. and affiliated companies (RBS). Please refer to the Disclosures Appendix.

KBANK gets high ratings from customers

Our customer satisfaction results hint KBANK will continue to gain fee market share Our questionnaire on customer satisfaction in terms of bank products and services was presented to 100 retail customers. We gained the following conclusions: 1) A majority of customers currently prefer to use SCB products/services as a main bank, followed by KBANK and BBL. A convenient distribution network (local branches) is the main criteria for customers. A second reason is a one-stop service, so that customers can use all products and services. Other reasons include personal relationship/connection (customers have a compulsory payroll account with the bank or personal relationships with the bank), and good services and good products see Chart 2. Chart 1 : What is the main bank you currently prefer for most products and services?
Other UOB StandChart HSBC CITI LHBANK CIMBT KK TISCOB TCAP TMB BAY SCB KBANK KTB BBL
Products i.e overall products of this bank are reliable, attractive pricing/marketing, right to my neccessities, and etc. Services i.e like pr and post services of this bank Because it is one-stop service that I can get all products/services at this bank. Access to staffs/branches is easy. Other

Chart 2 : What are your key reasons for using products and services of the bank you chose in question no.1?

Relationship/connection i.e. Because I have compulsary payroll account with this bank. I have relevant relationship with this bank through my family, friends, and etc.

Brand i.e. because this bank is mostly reliable and strong

Distribution network i.e. I like convenient branches and ATM that I can access products/services anywhere

0%

5%

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15%

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25%

30%

35%

40% Source: RBS survey

0%

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10%

15%

20%

25%

30%

Source: RBS survey

2) A majority of customers felt KBANKs overall products were currently the best and better than its past offerings. BBLs products were felt to have worsened over the past few years. Chart 3 : Which bank is the best currently in terms of overall products?
Other UOB StandChart HSBC CITI LHBANK CIMBT KK TISCOB TCAP TMB BAY SCB KBANK KTB BBL

Chart 4 : Which banks overall products are better/improving over the past few years?
Other UOB StandChart HSBC CITI LHBANK CIMBT KK TISCOB TCAP TMB BAY SCB KBANK KTB BBL

Chart 5 : Which banks overall products have got worse over the past few years?
Other UOB StandChart HSBC CITI LHBANK CIMBT KK TISCOB TCAP TMB BAY SCB KBANK KTB BBL

0%

10%

20%

30%

40%

50%

60%

0%

10%

20%

30%

40%

0%

10%

20%

30%

40%

Source: RBS survey

Source: RBS survey

Source: RBS survey

3) A majority of customers also felt that KBANKs overall services were currently the best and had improved over the past few years. They also felt that BBLs services had worsened.

Kasikornbank | Investment View | 19 May 2011

Chart 6 : Which banks overall services are currently the best?

Chart 7 : Which banks services are better/improving over the past few years?
Other UOB StandChart HSBC CITI LHBANK CIMBT KK TISCOB TCAP TMB BAY SCB KBANK KTB BBL

Chart 8 : Which banks services have been worse over the past few years?
Other UOB StandChart HSBC CITI LHBANK CIMBT KK TISCOB TCAP TMB BAY SCB KBANK KTB BBL

Other UOB StandChart HSBC CITI LHBANK CIMBT KK TISCOB TCAP TMB BAY SCB KBANK KTB BBL

0%

10%

20%

30%

40%

50%

60%

0%

10%

20%

30%

40%

50%

0%

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40%

Source: RBS survey

Source: RBS survey

Source: RBS survey

4) A majority of customers acknowledged that KBANKs overall products, services and distribution network were improving and said they may consider using more products/services of KBANK or making it their main bank in the future. Chart 9 : Which banks overall products, services and distributions are improving, even though it is not currently the best nor your main bank? You may consider using its products/services or making it your main bank in the future due to the improvements you noticed.
Other UOB StandChart HSBC CITI LHBANK CIMBT KK TISCOB TCAP TMB BAY SCB KBANK KTB BBL

0% Source: RBS survey

5%

10%

15%

20%

25%

30%

35%

5) A majority of customers felt that BBL needed to improve its overall products, services and distribution network. Otherwise, they may consider using fewer products/services or switching to other banks in the future.

Kasikornbank | Investment View | 19 May 2011

Chart 10 : Which bank needs to improve overall products, services, distribution network, otherwise you will consider using products/services fewer or switching to other banks in the future?
Other UOB StandChart HSBC CITI LHBANK CIMBT KK TISCOB TCAP TMB BAY SCB KBANK KTB BBL

0% Source: RBS survey

5%

10%

15%

20%

25%

30%

35%

Increasing customer satisfaction explains KBANKs fee market share gains in FY09-10. Chart 11 : Non-NII growth of KBANK vs sector average
40% 35% 30% 25% 20% 15% 10% 5% 0% 2007 2008 7% 4% 1% 2009 KBANK Source: Company data, RBS forecasts Industry 2010 1Q11F 13% 20% 22% 20% 19% 26% 34%

We believe these survey responses are partly due to the K-Transformation projects progress in FY08-10. KBANK invested in distribution network expansion, new basic customer data analytics and a marketing campaign. It rolled out a new sales and services pilot scheme and branch campaign integration in 2H10. KBANK will launch a new CRM system in all branches in FY11, together with distribution network expansion, to strengthen its ability to service customers. We believe KBANK will continue to gain market share in retail and SME businesses in the medium term, based on this projects success. We project 20% fee growth for KBANK in FY11-13F vs 15% for the sector.

Kasikornbank | Investment View | 19 May 2011

Figure 1 : K-Transformation project

Phase 1 Completed foundation and launched basic FIS and KOC Phase 2 Set Foundation around sales & services for channels and new payments Phase 3 Complete KT across channels, with new core banking fully rolled out
Call center campaign integration

Phase 4 Fully support KGroup aspirations

Consolidate MSS across channels/launch new core banking on loans

Completed In progress

Work Progress : Nearly 65% of project time completed as of February 2011

Complete KT across channels New core banking solution on deposits

New core banking solution on loans Branch campaign integration KOC Marketing Plan New basic customer data analytics and marketing campaign capabilities New basic financial management, reporting, and budgeting capabilities New branch platform rollout New sales & service pilot rollout

Branch solution rollout

Consolidate sales & services across channels and integrate with advanced campaign capabilities As of Feb 11, Branch Solution New basic Rollout completed 193 payment system branches and target to complete 800+ branches by end of 2011 2 3 4 5 6 7 8 9 10 11 12 2 3 4 5 6 7 8 9 10 11 12 2 3 4 5 6 7 8 9 10 11 12 2 3 4 5 6 7 8 9 10 11 12 2 3 4 5 6 7 8 9 10 11 12 2 3 4 5 6 7 8 9 10 11 12 2 3 4 5 6

67

2007

2008

2009

2010

2011

2012

2013

Source: Company data

Focus on growth in the high-margin SME business SME business is key to our overall loan growth target of 11% in FY11 (vs 13% we forecast for the sector). Our meeting with management on 25 April indicates that KBANK aims to focus on growing SME loans this year and want to avoid competition in low-margin corporate business. We expect SME loan growth to pick up from 2Q11 on seasonality and higher demand from the growing economy/higher inflation. According to a report in Kaohoon newspaper on 12 May, KBANK believes SME loan growth will be above 12% in FY11 (vs its 8-10% target). We believe it will continue to expand its retail loan market share in FY11 but the momentum will be lower than in FY09-10 as KBANK aims to focus on maximising income from existing customers first. We believe the banks focus on expanding market share in high-margin SME/retail loans and fees is the right business strategy to improve profitability and to use tier-1 capital more efficiently. Although we forecast KBANKs loan growth will lag the sector, we think high-margin SME business and NIM expansion in a rate-tightening cycle will drive 15% yoy growth in FY11F NII, in line with the sector average. We expect NIMs of SCB and BBL to be pressured by competition in the corporate loan business.
Correlation between KBANK's loans and CPI was 97% in 200110

Chart 12 : KBANKs loans vs CPI

20%

15%

10%

5%

0%

-5%

-10% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

CPI (yoy growth) Source: Company data

KBANK loans (yoy growth)

KBANK is one of our top picks We see KBANK as a very attractive over a three-year investment period. Completion of the KTransformation project in FY13 should improve customer satisfaction in products/services and KBANK may become the main bank for retail/SME customers in the future, based on our survey. We believe the bank balances customer and shareholder interests well. Kasikornbank | Investment View | 19 May 2011 5

However, SCB remains our top pick for offering the best shareholder returns and has the largest potential upside to target price. SCB seems to lose customer satisfaction in the retail segment slightly but we believe it can maintain an optimised ROA/ROE given its cost-revenue balancing strategy in all business segments (Corporate/SME/Retail). We believe SCB and KBANK could continue to gain overall customer market share, assuming the big banks like BBL cant increase customer satisfaction significantly and quickly. Ytd share price underperformance but we see profitability uptrend According to Chart 1, KBANK shares outperformed large bank peers in FY10, given the banks strong market share gain in loans and fees (particularly from SME and retail businesses) resulting in a robust 36% profit growth in FY10 vs the sector average of 19%. According to Chart 2, the share price performance of its peers was better than that of KBANK ytd in FY11. We believe this was because all banks should enjoy strong loan growth this year from increasing investments in large corporate/public sector projects. KBANK grew loans more than peers last year given loan growth was mainly driven by consumer and SMEs. Chart 13 : Absolute share price performance in FY10 Chart 14 : Absolute share price performance ytd FY11

KTB TB

76%

KTB TB

13%

KBANK TB

50%

SCB TB

12%

BBL TB

27%

BBL TB

11%

SCB TB

19%

BAY TB

5%

BAY TB

14%

KBANK TB

-3%

0% Source: Bloomberg

10%

20%

30%

40%

50%

60%

70%

80%

-4%

-2%

0%

2%

4%

6%

8%

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12%

14%

Source: Bloomberg (13 May)y

Going forward, we believe loan growth will no longer be a good indicator of profitability and share price performance for Thai banks. This is because we believe the business model of Thai banks has shifted from loans to total product strategy. The 1Q11 net profit results of KTB and SCB (which both beat Bloomberg consensus forecasts), KBANK (in line) and BBL (below consensus forecast) back up our views that: 1) BBLs above-sector loan growth did not result in above-sector profit; and 2) fee-based income is now a profit-making area. BBL shares have outperformed SETBANK by 15% since the beginning of this year but they have underperformed SETBANK by 6% since the 1Q11 result announcement on 20 April. Chart 15 : Relative performance to SETBANK, 2010
50 40 30 20 10 0 (10) (20) (30) (40) May-10 Nov-10 Aug-10 Jan-10 Jun-10 Oct-10 Feb-10 Mar-10 Apr-10 Sep-10 Dec-10 Jul-10

Chart 16 : Relative performance to SETBANK, 2011 ytd

20 15 10 5 0 (5) (10) (15) May-11 Jan-11 Feb-11 Mar-11 Apr-11 BBL rel to SETBANK KTB rel to SETBANK

BAY rel to SETBANK KBANK rel to SETBANK SCB rel to SETBANK Source: Bloomberg

BBL rel to SETBANK KTB rel to SETBANK

BAY rel to SETBANK KBANK rel to SETBANK SCB rel to SETBANK Source: Bloomberg

Kasikornbank | Investment View | 19 May 2011

We project KBANK will deliver strong earnings growth of 21% in FY11F and 17% CAGR for FY1113F vs the peer average (BBL, SCB, KTB) of 22% and 13%. We expect better income momentum from higher SME loan demand and stronger fees in 2H11 to improve KBANKs share price performance in the near term. Chart 17 : Net profit and ROE trend
35,000 30,000 25,000 20,000 10% 15,000 10,000 5,000 13,664 0 2006 2007 2008 2009 Net profit Source: RBS forecasts, company data 2010 ROE 2011F 2012F 2013F 15,005 15,333 14,732 20,047 24,837 29,885 32,571 0% 16.4% 15.9% 14.4% 12.6% 15.7% 15% 17.2% 18.1% 17.3% 20%

5%

According to Table 1, Bloomberg consensus projects KBANK and SCB to deliver a new high ROE of 17.5% and 18.6%, respectively, in FY11-13F, which support/justify a higher PBV re-rating to their historical average. Table 1 : KBANK earnings revisions
Net profit (Bm) Previous 2011F 2012F 24,719 30,066 New 24,197 29,181 % change Previous -2.1 -2.9 10.33 12.56 EPS (B) New 10.11 12.19 % change Previous -2.1 -2.9 4.00 5.00 DPS (B) New 3.00 4.00 % change -25.0 -20.0

Source: RBS forecasts

We believe PBV valuations and potential upside to our target prices for KBANK and SCB are attractive vs peers. KBANKs 2.0x FY11F PBV and SCBs 2.2x are at a significant discount to their historical highs of 2.3x and 2.8x, respectively. In contrast, BAY, KTB and BBL are trading around their historical high and +1SD. According to Bloomberg consensus and our forecasts. We see limited upside to these stocks and we expect that the recent PBV rerating is unlikely to be sustainable. Table 2 : ROE vs PBV of large banks
5-year high ROE BBL BAY KBANK KTB SCB 12.4% 11.7% 16.4% 16.0% 18.0% Consensus FY11-13F ROE estimate 12.3% 12.7% 17.5% 15.4% 18.6% 5-yr high PBV (1-yr forward) 1.5x 1.6x 2.0x 1.6x 2.7x FY11F PBV 1.3x 1.5x 1.9x 1.5x 2.2x

Source: Bloomberg consensus estimates, company data

Kasikornbank | Investment View | 19 May 2011

Income statement
Bm Net interest income Non-interest income Total income Operating costs Goodwill (amort/impaired) Other costs Pre-prov operating profit Provisions charges Post-prov op prof Associates (pre-tax) Exceptionals (pre-tax) Other pre-tax items Reported PTP Taxation Minority interests Preference dividends Other post-tax items Reported net profit
Source: Company data, RBS forecasts

FY09A 39808 22776 62583 -32362 n/a 0.00 30221 -9403 20819 7.96 n/a 0.00 20827 -6033 -61.5 n/a 0.00 14732

FY10A 47212 27241 74453 -37322 n/a 0.00 37131 -6696 30434 5.94 n/a 0.00 30440 -9094 -1299 n/a 0.00 20047

FY11F 54155 34451 88607 -44726 n/a 0.00 43880 -7100 36780 6.84 n/a 0.00 36787 -11226 -1364 n/a 0.00 24197

FY12F 59243 40842 100084 -48775 n/a 0.01 51310 -7700 43610 7.86 n/a 0.00 43618 -13073 -1364 n/a 0.00 29181

FY13F 64098 45874 109971 -53280 n/a 0.00 56691 -9000 47691 9.04 n/a 0.00 47700 -14540 -1364 n/a 0.00 31796
year to Dec

Balance sheet
Bm Net loans to customers Other int earn assets Goodwill Oth non-int earn assets Total assets Total customer deposits Oth int-bearing liabs Non int-bearing liab Total liabilities Share capital Reserves Total equity (excl min) Minority interests Total liab & sh equity Risk weighted assets Est non-perf loans Specific provisions General provisions
Source: Company data, RBS forecasts

FY09A 909333 318368 4860 107758 1366993 975492 138712 124643 1238847 23933 96065 119997 8149 1366993 1007716 37152 -21861 -12184

FY10A 1040150 348778 4860 125283 1551528 1100037 143618 162386 1406040 23933 111010 134943 10545 1551528 1129921 33175 -21528 -15304

FY11F 1156903 348777 4860 132925 1682031 1188399 148618 178572 1515589 23933 129765 153698 12745 1682031 1263521 31678 -20404 -19195

FY12F 1232958 347778 4860 141143 1774869 1248726 140618 196377 1585721 23933 152470 176403 12745 1774869 1341460 30094 -19627 -23338

FY13F 1313272 342778 4860 149988 1871891 1312165 131618 215963 1659746 23933 175468 199400 12745 1871891 1423151 30094 -19627 -28005
year ended Dec

Capital
Bm Risk weighted assets Reported net profit Opening risk assets Closing risk assets Change in risk assets Capital required Free capital flow Ordinary dividend paid Share buy back/spec div Equity / preference issue Cash flow from financing Net capital flow Tier 1 capital Tier 1 capital ratio (%)
Lines in bold can be derived from the immediately preceding lines. Source: Company data, RBS forecasts

FY09A 1007716 14732 1012915 1007716 -5200 -442.0 15174 -5983 n/a 0.00 -5983 9191 111538 11.1

FY10A 1129921 20047 1007716 1129921 122206 10387 9659 -5983 n/a 0.00 -5983 3676 125744 11.1

FY11F 1263521 24197 1129921 1263521 133600 11356 12841 -7180 n/a 0.00 -7180 5661 143999 11.4

FY12F 1341460 29181 1263521 1423151 159630 13569 15612 -9573 n/a 0.00 -9573 6039 166704 12.4

FY13F 1423151 31796 1341460 0.00 -1341460 -114024 145820 -10770 n/a 0.00 -10770 135051 189702 13.3
year to Dec

Kasikornbank | Key Financial Data | 19 May 2011

Standard ratios
Performance Non-int inc/gr op inc (%) Cost/income (%) Costs/average assets (%) Net income growth (%) Net cust loan growth (%) Cust deposit growth (%) Net interest margin (%) Return on avg assets (%) Return on avg equity (%) RORWA (%) Valuation Normalised EPS growth (%) Reported PE (x) Normalised PE (x) Price/book value (x) Price/adjusted BVPS (x) Dividend yield (%) Per share data Tot adj dil sh, ave (m) Pre-prov prof/share (THB) Reported EPS (THB) Normalised EPS (THB) Book value per sh (THB) Dividend per share (THB) Dividend cover (x) -4.02 20.6 20.6 2.53 n/a 1.97

Kasikornbank FY09A FY10A FY11F FY12F FY13F 36.4 51.7 2.42 -3.52 4.01 0.78 3.47 1.11 12.6 1.46 36.6 50.1 2.56 44.3 14.4 12.8 3.56 1.46 15.7 1.88 38.9 50.5 2.77 19.7 11.2 8.03 3.73 1.58 16.8 2.02 40.8 48.7 2.82 19.5 6.57 5.08 3.81 1.77 17.7 2.24 41.7 48.4 2.92 8.56 6.51 5.08 3.90 1.82 16.9 2.30

Bangkok Bank FY11F 37.1 42.5 1.69 12.7 12.5 9.56 2.80 1.38 11.8 1.95 FY12F 36.3 42.6 1.72 9.22 8.95 6.37 2.85 1.41 12.4 1.96 FY13F 36.4 42.4 1.74 5.54 5.73 4.07 2.89 1.43 12.2 1.95

Siam Commercial Bank FY11F 48.3 40.4 2.25 50.7 18.9 11.0 3.25 2.29 22.0 3.09 FY12F 45.7 40.9 2.19 -0.54 9.41 6.18 3.22 2.05 19.1 2.65 FY13F 46.4 41.2 2.24 5.20 6.77 4.51 3.21 2.04 18.1 2.60

year to Dec

year to Dec

year to Dec

36.1 15.2 15.2 2.25 n/a 1.97

20.7 12.6 12.6 1.98 n/a 2.36

20.6 10.4 10.4 1.72 n/a 3.15

8.96 9.56 9.56 1.52 n/a 3.54 Solvency

12.8 11.2 11.2 1.31 n/a 3.56

9.26 10.3 10.3 1.24 n/a 3.91

5.55 9.76 9.76 1.15 n/a 4.15

51.3 10.7 10.7 2.19 n/a 3.70

-0.54 10.8 10.8 1.95 n/a 4.35

5.20 10.2 10.2 1.77 n/a 4.76

year to Dec

year to Dec

year to Dec

FY09A FY10A FY11F FY12F FY13F 2393 12.6 6.16 6.16 50.1 2.50 2.46 2393 15.5 8.38 8.38 56.4 2.50 3.35 2393 18.3 10.1 10.1 64.2 3.00 3.37 2393 21.4 12.2 12.2 73.7 4.00 3.05 2393 23.7 13.3 13.3 83.3 4.50 2.95

FY09A FY10A FY11F FY12F FY13F 11.1 16.0 8.78 93.2 3.94 91.6 1.00 11.1 15.7 8.70 94.6 3.08 111.0 0.62 11.4 16.0 9.14 97.3 2.65 125.0 0.59 12.4 16.5 9.94 98.7 2.36 142.8 0.60 13.3 16.9 10.7 100.1 2.21 158.3 0.66

Tier 1 capital ratio (%) Total CAR (%) Equity/assets (%) Net cust loans/dep (%) Rep NPL/gr cus adv (%) Tot prov/rep NPLs (%) Bad debts/advances (%)

year to Dec Priced as follows: KBAN.BK - B127.00; BBL.BK - B163.50; SCB.BK - B115.50 Source: Company data, RBS forecasts

year to Dec

Fair-value calculation based on Gordon Growth DDM

Fair value calculation Sustainable ROE COE Long-term growth (g) Derived P/BV multiple * (x) 2011F Book value (B/sh) Derived fair value
Source: Company data, RBS forecasts

Cost of Equity (COE) calculation 17.0% 13.1% 10.4% 2.4 64.2 155.0 Risk free rate Equity premium Equity Beta (x) COE 3.8% 7.0% 1.3 13.1%

Kasikornbank | Performance and Valuation | 19 May 2011

Company description

Buy

Price relative to country

140 130 120 110 100 90 80 70 May Sep Dec 08 08 08

Kasikornbank (previously known as Thai Farmers Bank) is Thailand's third largest bank with 11% of system-wide deposits and over 700 branches nationwide. The largest shareholder is the Lamsam family, although their stake has dropped to 4-5% since the Asian economic crisis. CEO Banthoon Lamsam is seen as one of Thailand's most prominent local bank chiefs. The bank has a strong SME lending franchise, which accounts for its above-average margins and asset yields. KBANK has launched two strategic initiatives since 2006, called Channel Expansion and K-Transformation, which respectively refer to expanding its branch-ATM network and to IT initiatives such as replacing its core banking system. The five-year estimated capex totals B13bn; the negative P&L impact will be during 2009-10 and the positive impact should be felt from 2011.

Apr 09

Jul 09

Nov Feb 09 10

Jun 10

Oct 10

Jan May 11 11

Price relative to country

Strategic analysis Strengths

Average SWOT company score:

4 4

Revenue breakdown, FY10A

Other non -NII 15%

First mover, historically, in most areas, including recapitalisation and bad debt management. This has often translated into a share-price premium to peers.

Weaknesses

Operating costs have historically been well above those of peers, and this should peak in 2010 when a major part of K-Transformation is complete.

F ee income 26%

NII 59%

Opportunities

Source: Company data

The bank has moved into new lending areas such as hire purchase. K-Transformation, once completed, should improve KBANK's cross-selling efficiency.

Threats

Market data
Headquarters 1 Soi Ratburana 27/1 Ratburana Road, Bangkok 10140 Website www.kasikornbankgroup.com Shares in issue 2393.3m Freefloat 73% Majority shareholders State street bank (14%), Chase Nominees (9%), Lamsam family (4%)

Price competition in SME lending, as other local players discover this lucrative segment, which has been KBANK's bread and butter.
Scoring range is 1-5 (high score is good)

Country view: Thailand

Thailand has been the best-performing market in the region on a 12-month basis, and we expect the outperformance to continue, driven by a mixture of strong domestic consumption and new investment cycle. The BOT has been one of the most hawkish central banks in the region thus far, and we believe this reduces the likelihood of future policy shocks. Meanwhile, the valuation for Thailand remains undemanding despite the recent rally. In view of the current tailwinds, we have upgraded Thailand from Neutral to Overweight.
The country view is set in consultation with the relevant company analyst but is the ultimate responsibility of the Strategy Team.

Country rel to Asia Pacific

150 140 130 120 110 100 90 80 70 May Sep Dec 08 08 08

Apr 09

Jul 09

Nov Mar 09 10 MarketIndex

Jun 10

Oct 10

Jan May 11 11

Competitive position Supplier power

Average competitive score:

44+

Broker recommendations
30 25 20 15 10 5 0 Buy Hold Sell

The bank's ability to source low-cost deposits is a key competitive advantage. This became evident again postcrisis when banks needed to fight for deposits.

Barriers to entry

3-

Barriers to entry are becoming lower through more liberalisation under the Financial Institution Act and Financial Sector Masterplan phase II.

Customer power

3-

Large borrowers have less bargaining power during the global financial crisis, given fewer opportunities in the foreign corporate bond market.

Substitute products

4+

Source: Bloomberg

There are few substitute products, and new lending areas are now opening up for banks (eg, hire purchase and leasing) under the BOT's Financial Sector Masterplan.

Rivalry

4-

Competition in SME and retail segments is fiercer. This has to be monitored closely, as it could impact loan pricing and/or market share.
Scoring range 1-5 (high score is good) Plus = getting better Minus = getting worse

Kasikornbank | Strategic and Competitive Overview | 19 May 2011

Recommendation structure
Absolute performance, short term (trading) recommendation: A Trading Buy recommendation implies upside of 5% or more and a Trading Sell indicates downside of 5% or more. The trading recommendation time horizon is 0-60 days. For Australian coverage, a Trading Buy recommendation implies upside of 5% or more from the suggested entry price range, and a Trading Sell recommendation implies downside of 5% or more from the suggested entry price range. The trading recommendation time horizon is 0-60 days. Absolute performance, long term (fundamental) recommendation: The recommendation is based on implied upside/downside for the stock from the target price and, except as follows, only reflects capital appreciation. A Buy/Sell implies upside/downside of 10% or more and a Hold less than 10%. For UK-based Investment Funds research, the recommendation structure is not based on upside/downside to the target price. Rather it is the subjective view of the analyst based on an assessment of the resources and track record of the fund management company. For research on Australian listed property trusts (LPT) or real estate investment trusts (REIT), the recommendation is based upon total return, ie, the estimated total return of capital gain, dividends and distributions received for any particular stock over the investment horizon. Performance parameters and horizon: Given the volatility of share prices and our pre-disposition not to change recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 12 months. Market or sector view: This view is the responsibility of the strategy team and a relative call on the performance of the market/sector relative to the region. Overweight/Underweight implies upside/downside of 10% or more and Neutral implies less than 10% upside/downside. Target price: The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the stock and if the necessary catalysts were in place to effect this change in perception within the performance horizon. In this way, therefore, the target price abstracts from the need to take a view on the market or sector. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value, the target price will differ from 'fair' value.

Distribution of recommendations
The tables below show the distribution of recommendations (both long term and trading). The first column displays the distribution of recommendations globally and the second column shows the distribution for the region. Numbers in brackets show the percentage for each category where there is an investment banking relationship. These numbers include recommendations produced by third parties with which RBS has joint ventures or strategic alliances.

Long term recommendations (as at 18 May 2011)

Global total (IB%) Buy Hold Sell Total (IB%)
Source: RBS

Trading recommendations (as at 18 May 2011)

Global total (IB%) Trading Buy Trading Sell Total (IB%)
Source: RBS

Asia Pacific total (IB%) 514 (3) 221 (1) 57 (0) 792 (2)

Asia Pacific total (IB%) 2 (0) 2 (0) 4 (0)

786 (13) 409 (7) 90 (1) 1285 (10)

2 (0) 2 (0) 4 (0)

Valuation and risks to target price

Kasikornbank (RIC: KBAN.BK, Rec: Buy, CP: B124.00(L), TP: B155.00): Downside risks to our DDM-based target price are: 1) unsustainable economic recovery and political instability; and 2) failure in business platform restructuring. Upside risks are: 1) on-track K-Transformation; 2) greater-than-expected crowding out effect from the government's stimulus plan. Bangkok Bank (RIC: BBL.BK, Rec: Hold, CP: B162.00(L), TP: B175.00): Our target price is derived using the Gordon growth version of the dividend discount model. The key downside risks to our target price are: 1) protracted political turmoil having an impact on the economy; and 2) an oil price spike, which could pressure demand and asset quality. The key upside risks are: 1) faster progress on retail/fee banking, which could improve operating margin and 2) more efficient liquidity management, which could keep funding costs lower. Siam Commercial Bank (RIC: SCB.BK, Rec: Buy, CP: B115.50(L), TP: B155.00): Key downside risks to our DDM-based target price are: 1) a worsening of the political and economic environment or continued macro uncertainty; and 2) rising NPLs in consumer loans. The key upside risk would be a better-than-expected property market.

Kasikornbank coverage data Stock performance, recommendations and coverage (as at 18 May 2011) Trading recommendation history (as at 18 May 2011)
Date Rec n/a
Source: RBS

Analyst

Peach Patharavanakul started covering this stock on 1 Feb 08. Moved to new recommendation structure between 1 November 2005 and 31 January 2006. Source: RBS

Kasikornbank | Disclosures Appendix | 19 May 2011

Bangkok Bank coverage data Stock performance, recommendations and coverage (as at 18 May 2011) Trading recommendation history (as at 18 May 2011)
Date Rec n/a
Source: RBS

Analyst

Peach Patharavanakul started covering this stock on 1 Feb 08. Moved to new recommendation structure between 1 November 2005 and 31 January 2006. Source: RBS

Siam Commercial Bank coverage data Stock performance, recommendations and coverage (as at 18 May 2011) Trading recommendation history (as at 18 May 2011)
Date Rec n/a
Source: RBS

Analyst

Peach Patharavanakul started covering this stock on 1 Feb 08. Moved to new recommendation structure between 1 November 2005 and 31 January 2006. Source: RBS

Regulatory disclosures
RBS trades or may trade as principal in the debt securities that are the subject of the research report.: BBL.BK, BBLf.BK, KBAN.BK, KBANf.BK, SCB.BK, SCBf.BK

Kasikornbank | Disclosures Appendix | 19 May 2011

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Kasikornbank | Disclosures Appendix | 19 May 2011