KBANK - 4Q24: Slight beat; ECL to normalize in 2025

Beating both consensus and INVX on opex and net insurance income, 4Q24 reflected: 1) a QoQ rise in credit cost with easing NPL inflow but rising stage 2 loans, 2) a pickup in loans, 3) a squeeze in NIM, 4) better non-NII and 5) rising cost to income ratio. We raise our 2025 earnings forecast by 3%. We keep our Neutral rating with a hike in TP to Bt163 from Bt160.

4Q24: Slight beat on opex and net insurance income. KBANK reported 4Q24 net profit of Bt11.49bn (-12% QoQ, +12% YoY), 12% above INVX and 9% above consensus forecasts on lower-than-expected opex and better-than-expected net insurance income.

Highlights:

Asset quality: NPLs were stable QoQ. If write-offs are added back, NPLs would rise 11% QoQ in 4Q24, slower than the 14% in 3Q24. Stage 2 loans rose 13% QoQ on a rise in restructured loans, with the proportion of restructured loans rising to 7.6% from 7.5% at 3Q24. Credit cost rose 9 bps QoQ (-22 bps YoY) to 1.98%. LLR coverage rose to 142% from 139% at 3Q24. We expect credit cost to fall to 1.6% (-29 bps) in 2025 from 1.89% (-19 bps) in 2024, in line with its guidance of a return to normalized credit cost of 1.4-1.6% in 2025.
Loan growth: +2.9% QoQ, +0.6% YoY, better than anticipated. We expect loan growth to pick up to 2% in 2025.
NIM: -10 bps QoQ (-31 bps YoY). Yield on earning assets fell 11 bps QoQ as a result of a cut in lending interest rates. Cost of funds slipped 1 bps QoQ. We forecast NIM to fall 16 bps in 2025 (vs. -2 bps in 2024) as we expect a 75 bps cut in the policy rate in 2025.
Non-NII: +6% QoQ (+1% YoY), mainly due to better net insurance income. Net fee income was flattish QoQ (+12% YoY). We forecast non-NII to inch up 3% in 2025.
Cost to income ratio: +341 bps QoQ (+14 bps YoY) to 47.91%. Lower than expected, opex rose 8% QoQ on seasonality but decreased 5% YoY. We expect cost to income ratio to rise in 2025 due to lower NII.

2025 outlook. We raise our 2025 earnings forecast by 3% to fine tune with the 4Q24 results, adjusting opex and non-NII. We expect 2025 earnings to rise 6%, with 2% loan growth, a 16 bps slimming in NIM, a 29 bps cut in credit cost, a 3% rise in non-NII and a rise in cost to income ratio from lower non-NII.

Maintain Neutral with a hike in TP. We keep our Neutral rating. However, we raise TP to Bt163 (based on 0.65x 2025F PBV) from Bt160.

Key risks: 1) Asset quality risk from the global economic slowdown,
2) slower-than-expected loan growth from sluggish loan demand and high competition, and 3) ESG risk from cyber security and market conduct.