What happened?
Many investors have been actively looking for dividend stocks.
After our recent write-ups on PTTEP and AIS, some investors asked if there are other Thai blue chip companies trading on the Singapore stock market which offer a decent dividend yield.
Since the listing of five more Singapore Depository Receipts (SDRs) on the SGX in April, we have seen active trading in Kasikorn Bank (Kbank), the second largest bank in Thailand based on its total loans as of December 2023.
The Kbank SDR also booked the highest net buying by retail investors amongst the SDRs in the second quarter of 2024.
We were pleasantly surprised to see that KBank raised its dividend per share to 2023 to Bt 6.5 in 2023 from Bt 4.0 in 2022, as its profit grew and it raised its dividend payout ratio.
Let us find out more about KBank and its prospects in the coming year.
What you need to know about KBank
Founded in 1945 by the Lamsam family, KBank conducts commercial banking, securities and other related business primarily providing financial services via an extensive branch network.
The bank ranks 1st in SME products; especially commercial loans with the highest share of 22% of the system SME credit outstanding in 2023.
In mobile banking, KBank’s K Plus mobile application has 21.7 users, putting it at #1 among Thai banks.
For FY2023, KBank’s revenue increased by 13% to 306,529 million baht, while its net profit rose 18.6% to 42,405 million baht compared to the previous year. KBank has been increasing its dividend distributions over the past three years and has an attractive current dividend yield of 5%.
The bank aims to achieve loan growth of 3-5% in 2024 and double-digit ROE target by 2026 (from 8.29% in 2023) by pursuing the 3+1 Strategic Priorities including
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Reinvigorate credit performance,
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Increase fee income businesses
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Strengthen and pioneer sales and service models
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New revenue creation
Banks’ profitability is driven by four key factors: 1) loan growth, 2) net interest margins, 3) asset quality (i.e. level of Non-Performing Loan (NPL) and provision), 4) fee-income growth.
We evaluate KBank based on these aspects as follow.
#1 – Loan Growth – Target 3-5% in 2024 by pursuing selective growth strategy:
KBank has set a target loan growth of 3-5% for 2024, roughly in line with the economic growth.
The bank will focus on: (1) quality loans (mainly secured loans) in selective sectors expected to recover well such as tourism and exports; and (2) regional expansion.
In 1Q24, KBank’s loan portfolio fell 1.1% QoQ, due mainly to the contraction in SME and credit card loans as the bank continued to focus on growing quality loans and improve risk-adjusted returns.
KBANK expects loan growth to recover in 2H24 driven by stronger economic momentum (i.e., boosted by the resumption of government investment budget disbursement and tourism rebounding towards the pre-pandemic level), allowing it to meet the full year target.
#2 – Net Interest Margins (NIM) – Expanded slightly in 1Q24
The net interest margin (NIM) reflects the difference between the cost of funds (deposits/borrowings) and asset yields (loans/securities investment).
In 2023, KBank’s NIM rose 3.66% from 3.33% in 2022, driven by rising interest rate environment.
KBank targets to maintain NIM in 2024 at the same level as 2023. 1Q24 NIM was 3.76%, slightly better than the full year target.
Despite rising interest rates in 2023, the higher portion of current/savings deposits helped keep its average funding cost at competitive level.
#3 – Asset quality and Expected Credit loss (i.e. provision) – Prudent policy
KBank has proactively cleaned up its balance sheet, and has done more than its peers.
Management closely monitors and constantly applies prudent loan loss reserves. The focus is on managing asset quality by revamping its credit strategy and prioritizing growth opportunities with precaution and prudent risk management.
KBank’s credit cost already peaked in 2022 and gradually decreased in 2023.
In 2024, management expects lower credit costs YoY on the back of lower provisions given the downtrend of NPL sale and write-off. Credit cost will reach a normalized level in 2025.
#4 – Increase in fee-based income
Banks earn fees for the services provided to their customers.
Most fee-based services require no (or little) regulatory capital. The fee incomes include wealth management, foreign current exchanges, credit card, advisory services, bancassurance and loans related fees, etc.
One of KBank’s core strategies is to scale up capital-lite Fee Income Businesses. KBank’s two key strengths are in two areas including Wealth and Payment.
For Wealth Business, the focus in on advisory and competitive bancassurance products. For Payment, KBank continues to dominate digital payment with K PLUS App being number one in mobile banking platform.
In 1Q24, KBank’s fee income rose 10% from 4Q23 driven by electronics-channel fee, asset management fee, and aval & guarantee fees
What are the risks of KBank?
Thailand’s economic momentum in the near term is expected to be driven by recovering in tourism-related sectors and more aggressive government’s budget disbursement ending September.
However, there remain challenges on KBank’s growth and profitability which may be caused by sluggish export recovery, manufacturing slowdown, and a decline in agricultural production. In addition, uncertain global economy and tighten credit policy may put pressure on loan growth.
To manage risks, KBank plans to grow their assets selectively based upon the prevailing economic conditions while maintain appropriate liquidity.
What would Beansprout do?
Based on its share price of Bt128.5/share, KBank is trading at deep discount to its Book Value with an price-to-book valuation of 0.57x.
This also represents a discount to most of its peers such as SCB and KTB.
KBank has also increased its dividend payout ratio from the low of 20% in 2020 to 37% in 2023, significantly above its minimum payout policy of 25%.
Based on its dividend dividend per share (DPS) of Bt6.5 in 2023, KBank offers a dividend yield of close to 5%.
While the bank did not commit to further raise or to maintain its dividend payout ratio, its dividend per share may still grow with higher profit.
Hence, we would consider KBank if we are looking for a leading bank in Thailand with attractive dividend yield.
KBank presents investors with an opportunity to diversify in Thailand’s financial sector, leveraging the growth potential of the country’s second-largest bank.
The KBank SDR trades under the stock code TKKD after being launched on the Singapore Exchange in early April.
Apart from KBank, the other recently-launched SDRs which offer more options for investors looking to invest in Thai blue-chip companies include AIS, Delta Electronics, Gulf Energy, as well as Siam Cement.
Here’s a quick summary of why these companies might be worth a closer look:
- AIS: Thailand’s largest telecommunications conglomerate partially owned by Singtel. Read more about AIS here.
- Delta Electronics: Largest electronics manufacturer in Thailand
- Gulf Energy: Thailand’s top energy producer
- Siam Cement: ASEAN’s largest industrial material conglomerate
SDRs trade on the Singapore Exchange in Singapore Dollars (SGD). The same trading hours for the Singapore Exchange apply to the trading of SDRs, which is 9 am to 5.16 pm SGT currently.
SDRs are tradable by all investor types, as they are classified as Excluded Investment Products (EIP). While this product is available to anyone with a basic understanding of financial instruments, do make sure that you are aware of the product characteristics and risks before you invest in it.
You will be able to buy Singapore Depository Receipts directly through a stock trading platform which offers trading on the Singapore Exchange.
Click here to read our earlier article explaining what are Singapore Depository Receipts.
You can also find more resources at the SGX product page.
